2026 INSC 447

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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8973 OF 2010

DR. BAIS SURGICAL AND MEDICAL

INSTITUTE PVT. LTD. & ORS. ...APPELLANT(S)

VERSUS

DHANANJAY PANDE …RESPONDENT(S)

WITH

CIVIL APPEAL NO. 9456 OF 2010

J U D G M E N T

1. The present appeals arise from the judgments of the High Court

1

,

whereby the appeals preferred by the appellants against the orders of the

Company Law Board

2

came to be dismissed. The principal question which

arises for consideration in these appeals is whether, in the absence of a

formal entry of the respondent no. 1’s name in the register of members, he

could nonetheless be regarded as a “member” of the company so as to

1

Vide judgement dated 08.06.2009 in Company Appeal N o. 7 of 2004 and judgement dated 21.04.2010 in

Company Appeal No. 9 of 2008.

2

Vide order dated 02.12.2004 in Company Petition No. 9 of 2001 and order dated 14.03.2008 in Company

Petition No. 1 of 2005.

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invoke the jurisdiction of the Company Law Board under Sections 397 and

398 of the Companies Act, 1956. The facts necessary for the adjudication of

the present controversy are set out hereunder.

2. Appellant no. 1 is a company incorporated on 14.11.1994. Appellants

no. 3 and 4 are its shareholders and directors. Appellant no. 2, along with his

wife, established and constructed a hospital intended to be operated by

appellant no. 1. The hospital commenced its operations but, within a short

span, encountered financial constraints. At that juncture, respondent no.1

approached the appellants with a proposal to infuse funds into the company,

subject to the condition that he be appointed as Managing Director and that

the hospital be converted into a specialized cardiac facility. Acting upon the

said proposal, respondent no.1 was appointed as Managing Director with

effect from 01.01.1998 for a period of five years, and the hospital was

thereafter converted into a heart institute.

3. It is the case of respondent no. 1, though disputed by the appellants,

that at a meeting of the Board of Directors held on 15.07.1999, 14,75,998

shares were allotted to him against the share application money paid by him

to the company. Subsequently, disputes arose between the parties,

culminating in a decision of the Board of Directors to suspend respondent

no. 1, inter alia, on account of mounting liabilities of the company. In an

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attempt to resolve the disputes, the parties participated in conciliation

proceedings held between 27.05.2000 and 29.05.2000. Upon conclusion of

the conciliation proceedings, the order of suspension was withdrawn, and

respondent no. 1, in turn, withdrew from the day-to-day affairs of the

company.

4. In January 2001, respondent no.1 instituted the first company petition

under Sections 397 and 398 of the Companies Act, 1956, alleging acts of

oppression and mismanagement on part of the appellants. The principal

grievance urged therein pertained to the failure of the appellants to issue

share certificates despite the receipt of share application money by the

company. At the threshold, the appellants raised an objection to the locus

standi of respondent no. 1 under Section 399 of the Act, contending that he

did not qualify as a “member” so as to maintain a petition under Sections 397

and 398.

5. During the pendency of the above petition, respondent no. 1 withdrew

his offer to acquire shares of the appellant company owing to inordinate

delay in allotment. Furthermore, he instituted civil suits seeking recovery of

the share application money along with interest thereon and recovery of

money spent on supplying consumables to the appellant company.

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6. By order dated 02.12.2004, the Company Law Board allowed the

company petition, proceeding on the footing that respondent no. 1 was a

member of the company, and directed the appellant company either to allot

shares corresponding to respondent no.1’s investment or, in the alternative,

to refund the invested amount together with interest. Aggrieved by the

treatment of respondent no. 1 as a member, the appellants preferred an

appeal on 13.12.2004. At this stage, it may be noted, without disturbing the

chronological narration, that the said appeal came to be dismissed by the

High Court vide the impugned judgment dated 08.06.2009, wherein the

preliminary objection raised by the appellants regarding maintainability was

rejected. The reasoning adopted by the High Court will be adverted to at a

later stage, after setting out the relevant facts pertaining to the connected

proceedings.

7. The second tranche of proceedings arose from a meeting of the Board

of Directors held on 25.12.2004, wherein the Board of the appellant company

allotted 14,75,998 shares to respondent no. 1 and also allotted shares to

appellants nos. 2, 5, 6 and 7 against their earlier investments. On the same

day, appellant n o. 2 was further allotted 60,00,000 shares as consideration

for the transfer of the land and building in which the hospital was functioning,

such transfer being a pre-condition for execution of a Management

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Agreement with Wockhardt Hospitals Ltd. The said allotment of 60,00,000

shares to appellant no. 2 was challenged by respondent no. 1 by instituting

a second company petition under Sections 397 and 398 of the Companies

Act, 1956, dated 07.01.2005, inter alia, on the ground that the allotment was

intended to dilute his shareholding from 49% to 15%. It was further alleged

that the appellant company was in the process of handing over complete

control to Wockhardt Hospitals Ltd., contrary to the interests of respondent

no. 1 as well as the company. By order dated 10.01.2005, the Company Law

Board directed the parties to maintain status quo with respect to the property

and shareholding of the company. During the pendency of the proceedings,

the appellants and Wockhardt Hospitals Ltd. executed a Management

Agreement on 02.03.2005, whereby the management of the hospital was

handed over to Wockhardt.

8. Subsequently, by order dated 14.03.2008, the Company Law Board

held that the allotment of shares to appellant no. 2 against the transfer of

property was oppressive in nature and that such allotment had been affected

with a view to deprive respondent no. 1 of the benefit of the earlier order

directing allotment of shares in his favour. The Board further found that the

manner in which the appellant company entered into the Management

Agreement with Wockhardt Hospitals Ltd. was not proper. In view thereof,

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the second company petition was disposed of with a direction to the

appellants or Wockhardt Hospitals Ltd. to purchase the shares allotted to

respondent no. 1, together with interest at the rate of 6% per annum from the

date of investment until the date of payment, on or before 31.07.2008, so as

to bring an end to the disputes between the parties. The said order was

assailed by the appellants in appeal, which came to be dismissed by the High

Court vide the impugned judgment dated 21.04.2010, upon holding that no

substantial question of law arose for consideration. The High Court observed

that although shares had been allotted to respondent no. 1, the failure to

issue share certificates indicated an intention on the part of the appellants to

keep respondent no. 1 out of effective participation in the company until the

situation was altered through third-party intervention.

9. When the Special Leave Petition against said judgment came up for

hearing before this Court on 16.07.2010, it was directed to be listed along

with the main appeal. Subsequently, by order dated 02.08.2010, this Court

directed the appellants to deposit Rs. 2,59,18,525/- which included interest

at the rate of 6% up to 01.08.2009.

10. By order dated 18.10.2010, this Court admitted both the petitions and

they have now surfaced before us for final hearing.

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11. We have heard Mr. Shyam Mehta, learned senior counsel appearing

on behalf of the appellants, and Mr. Shailesh Mandiyal and Mrs. Haripriya

Gopal Shankar, learned senior counsels appearing on behalf of the

respondent no. 1.

A. Submissions on behalf of the appellants:

12. Mr. Shyam Mehta, learned senior counsel, argued with sobriety and

persuasion. He has confined his submission to a neat question of law relating

to the scope and ambit of the expression ‘member’ appearing in Sections

397 and 398 of the Act, 1956, and even we have confined our enquiry to that

extent. Hence, the principal controversy in the present case revolves around

whether respondent no. 1 could claim the status and entitlements of a

member without fulfilling the statutory requirements prescribed under the

Act, 1956, particularly Section 41 thereof.

12.1 Respondent no. 1 was never a member of the company within the

meaning of Section 41 of the Act, 1956. Learned senior counsel submitted

that it is the consistent position of law that unless a person’s name is entered

in the register of members, such person can neither be treated as a member

of the company, nor can he exercise statutory rights available exclusively to

members.

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12.2 Existence of membership constitutes a jurisdictional fact for invoking

the provisions relating to oppression and mismanagement under Sections

397 and 398 of the Act, 1956. Unless such jurisdictional fact is established,

the Company Law Board could not have assumed jurisdiction to entertain

the petition. According to the appellants, respondent no. 1 approached the

Company Law Board on the assertion that shares had been allotted to him;

however, he failed to produce any documentary material evidencing such

allotment or entry of his name in the register of members.

12.3 Respondent no. 1 had, at an earlier stage, instituted a civil suit seeking

recovery of the amount allegedly invested by him in the appellant company.

Such conduct demonstrated that respondent no. 1 himself did not consider

his investment as share capital, but treated the same as a recoverable debt.

It was contended that having once sought recovery of the amount,

respondent no. 1 could not have subsequently asserted rights flowing from

alleged membership.

12.4 Learned senior counsel emphasised that any conduct on the part of

the company or any form of recognition extended to respondent no. 1 could

not override the express statutory requirements governing membership. In

the absence of entry of the respondent’s name in the register of members, it

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was submitted that he unequivocally lacked the locus standi to maintain a

petition under Sections 397 and 398 of the Act 1956.

12.5 In support of his submissions, Mr. Mehta relied on the decisions of this

Court, particularly Balkrishan Gupta and Ors. v. Swadeshi Polytex Ltd. and

Anr.

3

, Nanalal Zaver and Anr. v. Bombay Life Assurance Co. Ltd. and Ors.

4

,

Severn Trent Water Purification Inc. v. Chloro Controls (India) Private Ltd.

and Anr.

5

to the effect that respondent no. 1 shall not be held to be a member

due to non-mentioning of his name in register of members.

B. Submissions on behalf of the respondent(s):

13. Per contra, learned senior counsels appearing on behalf of respondent

no. 1 supported the reasoning adopted by the Company Law Board as

affirmed by the High Court.

13.1 Entry of a person’s name in the register of members is a statutory

obligation cast upon the company, which the appellant company had failed

to discharge despite receiving substantial investment from respondent no. 1

and repeated requests made by him for allotment of shares.

3

(1985) 2 SCC 167.

4

1950 SCR 391.

5

(2008) 4 SCC 380.

Page 10 of 22

13.2 Appellants could not be permitted to take advantage of their own failure

to comply with statutory requirements by relying upon a hyper-technical

interpretation of the expression “member”.

13.3 Respondent no. 1 had invested substantial amounts in the company

and such investment had been accepted and utilised by the company in its

business operations. In these circumstances, it was urged that the company

could not deny respondent no.1’s entitlement to membership merely on

account of its own omission to complete the formal entry in the register of

members.

13.4 Accordingly, it was submitted that the findings recorded by the

Company Law Board and affirmed by the High Court were justified both on

facts and on law, and that no interference was warranted.

13.5 In support of his submissions, reliance has been placed on Shr i Balaji

Textile Mills Pvt. Ltd. and Anr. v. Ashok Kavle and Ors.

6

, M/s World Wide

Agencies Pvt. Ltd. and Anr. v. Margarat T. Desor and Ors.

7

, Umesh Kumar

Baveja and Ors. v. IL and FS Transportation Network Ltd. and Ors.

8

and

other precedents.

6

1988 SCC OnLine Kar 80.

7

(1990) 1 SCC 536.

8

2013 SCC OnLine Del 6436.

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Analysis:

14. By the impugned judgement dated 08.06.2009, the High Court

dismissed the appeal by observing that the cumulative facts and

circumstances of the case regarding treatment of respondent no. 1 and his

investment by the appellant company, strongly favours the conclusion that

respondent no. 1 is entitled to be treated as a member. The state of affairs

that prevailed on the High Court and the Company Law Board alike to uphold

respondent no. 1 as a deemed member of the company, entitled to maintain

a petition under sections 397 and 398, are as follows -

14.1 Letter dated 13.02.1998 by appellant no.2 addressed to Dr. Naresh

Trehan, describing respondent no. 1 as the “co-owner”.

14.2 Minutes of conciliation proceedings dated 29.05.2000, which indicate

admittance of respondent’s entitlement to allotment of shares. Additionally,

letter by the Conciliator, dated 23.07.2000, shows that respondent no. 1 was

the owner of 30% of the hospital.

14.3 The respondent no. 1 was made the Managing Director and upon

receiving investment from him, the name of the hospital was changed to

Ekvira Heart Institute, “Ekvira” representing respondent’s trading concern.

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14.4 Respondent’s investment led to increased profits and authorised share

capital. There was, therefore, utilisation of share application money brought

in by the respondent.

14.5 The inconsistency between the Chartered Accountant’s Certificate

dated 30.08.1998 and the Balance Sheet dated 31.03.2000 suggested that

it was possible to concluded that respondent no. 1 was allotted shares on

15.07.1999, as asserted by him.

14.6 Proceedings before the civil court, in the suit filed by the respondent,

indicate that the appellants had taken allotment of shares to the respondent

no. 1 as an admitted fact.

14.7 Conduct of business over the years points towards appellant no. 2 and

respondent no. 1 as being the real stakeholders and the brains dominating

the affairs of the company.

15. On the basis of the above factual background, the High Court placed

reliance on the judgement in Shr i Balaji Textile (supra) to state that the

meaning of the word “member” under Sections 397 and 398 is to be

understood in light of definition in Section 2(27) and not with reference to

Section 41. Explaining the scope of Section 41, it was held that this provision

needs to be restricted to fact situations that necessitated its introduction, that

is, to protect interest of a company from a busy body claiming to be a

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subsequent purchaser of shares as well as to protect shareholders/persons

from false claims of unscrupulous companies. In all other cases, the broader

definition in Section 2(27) would apply. In view of the above position of law,

it was held that a person becomes a shareholder of the company either by

his name being entered in the register of members or by him being treated

as a member, as evidenced by subsequent conduct.

16. To support its conclusion that respondent no. 1 is to be treated as a

member of the appellant company, the High Court placed reliance on

Buckley on Companies Acts, 2000 edition, wherein it is stated that allotment

results if applicant’s offer is accepted by the company or even if a mere

application is made in cases where a pre-existing right exists in favour of the

applicant. Thus, the High Court concluded that even though there is

deficiency of documentary evidence pointing towards respondent no. 1

applying to be a member or being treated as a member by the company, but

preponderance of probabilities supports allotment of shares in his favour. It

is in this light that the High Court affirmed the judgement of the Company

Law Board.

17. Having examined the reasoning adopted by the High Court in affirming

the orders of the Company Law Board, the issue that now falls for

determination before this Court is whether the respondent no. 1 could be

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regarded as a “member” of the appellant company so as to maintain a

petition under Sections 397 and 398 of the Companies Act, 1956, despite

the absence of formal entry of his name in the register of members at the

relevant point of time. The resolution of this issue necessarily requires an

examination of the statutory scheme governing membership under the Act,

particularly the interplay between the inclusive definition of “member” under

Section 2(27) and the provisions contained in Section 41 dealing with

acquisition of membership.

18. “Member” has been defined under Section 2(27) as:

“(27) "member", in relation to a company, does not include a bearer

of a share-warrant of the company issued in pursuance of section

114.”

19. On the other hand, Section 41, appearing in Part II of the Act, 1956

dealing with “Incorporation of Company and Matters Incidental Thereto”

provides as under:

“41. DEFINITION OF "MEMBER"

(1) The subscribers of the memorandum of a company shall be

deemed to have agreed to become members of the company, and

on its registration, shall be entered as members in its register of

members.

(2) Every other person who agrees in writing to become a member

of a company and whose name is entered in its register of

members, shall be a member of the company.

(3) Every person holding equity share capital of company and

whose name is entered as beneficial owner in the records of the

depository shall be deemed to be a member of the concerned

company.”

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20. The question, hence, is whether the expression “member” as

appearing under Sections 397 and 398 is to be construed strictly in

accordance with Section 41 of the Act, 1956, or whether it must be

understood in the broader sense contemplated under Section 2(27) . It would

also be necessary to consider whether Parliament intended that membership

of a company could arise only upon entry in the register of members, or

whether the Act contemplates other legally recognised modes by which

membership may be established, including deemed membership, proof of

agreement to become a member, and recognition of proprietary interest

evidenced through conduct. It is in this backdrop that the legal position

governing the meaning and scope of the expression “member”, as occurring

in Sections 397, 398 and 399 of the Act, must now be analysed before

applying the same to the facts of the present case.

21. The statutory framework under the Act, 1956 draws a clear distinction

between the inclusive definition of the term “member” contained in Section

2(27) and the provisions governing acquisition of membership set out in

Section 41. Section 2(27) employs language of wide amplitude and, in

relation to a company, embraces every category of member, subject only to

the limited exclusion of a bearer of a share-warrant issued under Section 114

of the Act. Section 41, on the other hand, operates in a different sphere and

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prescribes the recognised modes by which membership may arise. It

contemplates, first, deemed membership in the case of subscribers to the

memorandum; secondly, persons who agree in writing to become members;

thirdly, entry of a person’s name in the register of members, which ordinarily

constitutes conclusive evidence of membership; and lastly, persons reflected

as beneficial owners in the records of a depository. The requirement that an

agreement to become a member be “in writing”, introduced by the

Amendment Act of 1960, was intended to ensure reliable proof of consent

and to prevent fraudulent inclusion of names in the register, and not to

impose entry in the register as the sole or exclusive mode of acquiring

membership.

22. A more fundamental consideration arises from the nature of jurisdiction

conferred under Sections 397 and 398 of the Act, which has consistently

been recognised as equitable in character by this Court.

9

These provisions,

situated in Chapter VI, are designed to afford remedies to minority

shareholders against acts of oppression and mismanagement. The

entitlement to invoke such jurisdiction is regulated by Section 399, which

prescribes the eligibility criteria for maintaining an application under Sections

397 and 398. Accordingly, the relevant enquiry, while determining

9

Needle Industries (India) Ltd. & Ors vs Needle Industries Newey (India) Holdings Ltd. and Ors., (1981) 3

SCC 333.

Page 17 of 22

maintainability, must center on whether the applicant satisfies the conditions

prescribed under Section 399, rather than on a mechanical application of the

procedural requirements found in Section 41(2). The equitable foundation of

Sections 397 and 398 must be a guiding factor to not construe the expression

“member” in an unduly restrictive or technical manner confined solely to

formal entry in the register, thereby frustrating the remedial purpose

underlying the legislative scheme.

23. A conjoint reading of Sections 397, 398 and 399 indicates that the

expression “member” cannot be construed in isolation or confined to the

technical formulation contained in Section 41(2). Rather, the broader

definition embodied in Section 2(27) assumes significance in determining

whether a person is entitled to invoke the remedies contemplated under the

Act. It would be contrary to settled principles of interpretation to attribute to

the Legislature an intention to create conflicting meanings of the same

expression within the statute. The expression “member”, when employed in

the context of remedies under Sections 397 and 398, must therefore be

construed with reference to the wider definitional framework provided in

Section 2(27) and allied provisions governing the rights of members.

24. The Karnataka High Court in Shri Balaji Textile (supra) adopting a

similar construct by analysing Sections 2(27) and 41 observed that while

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Section 2(27) defines the expression “member” in comprehensive terms,

Section 41 merely lays down the procedural requirements governing

acquisition of membership. It was further held that the meaning of the word

“member” occurring in Sections 397 and 398 must be understood in the

context of those provisions and cannot be rigidly controlled by the procedural

requirements contained in Section 41(2). The Court emphasised that the

legislative amendment introducing the words “in writing” in Section 41(2) was

intended to remedy a specific mischief, namely, the insertion of names in the

register of members without consent, particularly in circumstances wherein

the company is approaching liquidation . It was therefore concluded that

Section 41(2) was not designed to curtail substantive rights of genuine

shareholders.

25. In Shri Gulabrai Kalidas Naik and Ors. v. Shri Laxmidas Lallubhai Patel

of Baroda and Ors.

10

, the Gujarat High Court observed that although entry

of a person’s name in the register of members ordinarily confers the status

of membership, it would be incorrect to treat such entry as an inflexible or

absolute requirement. The Court recognised an important exception to the

general rule, holding that where a person demonstrates an indisputable and

unchallengeable title to membership, the absence of formal entry in the

10

1977 SCC OnLine Guj 47.

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register would not preclude the Court from entertaining a petition under

Sections 397 and 398.

26. The principle that equitable considerations must inform the

interpretation of Sections 397 and 398 has also received approval in judicial

precedent concerning analogous situations. In World Wide Agencies Pvt.

Ltd. (supra), this Court held that the legal representatives of a deceased

shareholder, whose names had not yet been entered in the register of

members, could nonetheless maintain a petition under Sections 397 and

398. The Court reasoned that such an interpretation was necessary to

advance the purpose of the statute and to avoid defeating substantive rights

through technicalities.

27. The Madras High Court in S.V.T. Spinning Mills P. Ltd. and Ors. v. M.

Palanisami and Ors.

11

after referring to the aforesaid decisions, reiterated

that the jurisdiction under Sections 397 and 398 is equitable in nature and

that the meaning of the expression “member” must be construed in a manner

consistent with the object of protecting minority shareholders.

28. Further guidance on this aspect may be drawn from the decision of the

Delhi High Court in Umesh Kumar Baveja (supra), wherein the Court held

that the absence of formal allotment of shares or entry in the register of

11

2009 SCC OnLine Mad 3260.

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members is not, by itself, determinative of the status of membership for the

purposes of proceedings under Sections 397 and 398 of the Act, 1956. The

Court observed that where substantial funds invested specifically towards

acquisition of equity, are accepted and reflected in the financial records of

the company as share application money pending allotment, and are utilised

for the company’s business purposes, such conduct constitutes strong

evidence of recognition of the investor’s proprietary stake. It has been

relevantly held as follows –

“22. It seems to me in light of the authorities cited above that the

interpretation to be placed on section 41(2) vis-a-vis petitions filed

seeking relief from oppression and mismanagement should be governed

not strictly by the requirements of the sub- section, so long as in

substance and effect the person complaining of acts of oppression and

mismanagement has been recognised or treated as

shareholder/member by the conduct of the company, and that in giving

effect to the remedies against the grievance, considerations of equity and

justice should be allowed to prevail.”

29. Having carefully examined the record, relevant statutory provisions,

competing submissions, judicial pronouncements and the reasoning adopted

by the High Court, this Court finds that the conclusion treating respondent

no. 1 as a member was founded upon a consistent and cumulative chain of

factual circumstances demonstrating recognition of his proprietary interest in

the appellant company. The High Court placed reliance on

contemporaneous correspondence, including the letter dated 13.02.1998

issued by appellant No. 2 describing respondent no. 1 as a “co -owner”, as

Page 21 of 22

well as the conciliation proceedings dated 29.05.2000 and the subsequent

communication of the Conciliator dated 23.07.2000 acknowledging the

respondent’s entitlement to a substantial shareholding. These materials,

when read alongside the admitted fact that respondent no. 1 was inducted

as Managing Director and that the hospital was rebranded as Ekvira Heart

Institute, reflecting the identity of the respondent’s trading concern,

demonstrate that respondent no. 1 was consistently treated as a stakeholder

having interest in the appellant company rather than as a mere investor or

creditor.

30. The High Court further relied upon the financial and operational

conduct of the company, which showed that respondent no.1’s investment

was accepted and utilised for the expansion of the company’s business,

resulting in increased authorised share capital and profitability. The

cumulative effect of these circumstances persuaded the High Court to

conclude that respondent no. 1 had, in substance, acquired the status of a

shareholder whose interest stood recognised by the company over a

considerable period.

31. We find no reason to take a view different from that adopted by the

High Court and the Company Law Board in their appreciation of the factual

material on record. In view of the foregoing discussion and cumulative factual

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circumstances, this Court is satisfied that the High Court was justified in

affirming the finding that respondent no. 1 was entitled to be treated as a

member for the purposes of maintaining proceedings under Sections 397

and 398 of the Companies Act, 1956.

32. Consequently, the appeals are devoid of merit and are accordingly

dismissed. The amount deposited before this Court along with accrued

interest shall be released in favour of respondent no. 1 – Dhananjay Pande.

Pending applications, if any, stand disposed of. There shall be no order as

to costs.

………………………………....J.

[PAMIDIGHANTAM SRI NARASIMHA ]

………………………………....J.

[ALOK ARADHE ]

NEW DELHI;

MAY 04, 2026.