Company Law | Absence Of Name In Register Of Members No Bar To Filing Oppression & Mismanagement Petition If Conduct Recognises Proprietary Interest: Supreme Court

"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... has been recognised or treated as shareholder/member by the conduct of the company." Supreme Court, in a significant ruling dated May 4, 2026, held that a person can be regarded as a ‘member’ for the purpose of maintaining a petition for oppression and mismanagement even in the absence of a formal entry of their name in the Register of Members.

A bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe observed that the jurisdiction under Sections 397 and 398 of the Companies Act, 1956, is equitable in character and cannot be frustrated by procedural technicalities when a person’s proprietary interest is otherwise recognized by the company's conduct.

The dispute involved a private limited company that sought investment to overcome financial constraints. The respondent, Dhananjay Pande, infused substantial funds into the company, was appointed Managing Director, and the hospital was rebranded to reflect his trading concern. Although the respondent’s investment was utilized and the company admitted to the allotment of shares in related civil proceedings, it failed to formally enter his name in the Register of Members or issue share certificates, leading the appellants to challenge his locus standi when he alleged oppression and mismanagement.

The primary question before the court was whether, in the absence of a formal entry in the register of members, a person can be regarded as a "member" entitled to maintain petitions under Sections 397 and 398 of the Companies Act, 1956. The court was also called upon to determine the interplay between the broad definition of ‘member’ under Section 2(27) and the recognized modes of membership under Section 41.

Distinction Between Definition And Procedural Acquisition Of Membership

The Supreme Court began by analyzing the statutory framework of the Companies Act, 1956, drawing a sharp distinction between Section 2(27) and Section 41. The bench noted that Section 2(27) employs language of wide amplitude to define a "member," whereas Section 41 prescribes the recognized modes by which membership may arise. The court clarified that the requirement of an agreement "in writing" under Section 41(2) was introduced to prevent fraudulent inclusions and protect companies from busybodies, rather than to make the register the exclusive proof of membership.

Broader Construction Of 'Member' In Oppression Cases

The Court emphasized that the expression "member" as appearing in Sections 397 and 398 must be understood in a broader sense than the technical formulation of Section 41(2). It held that 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 bench observed that the wider definitional framework provided in Section 2(27) must assume significance when determining whether a person is entitled to invoke remedial measures against mismanagement.

Sections 397 And 398 Are Equitable In Nature

A central pillar of the judgment was the recognition of the Company Law Board’s jurisdiction as being essentially equitable. The bench noted that these provisions are designed to afford remedies to minority shareholders against acts of oppression. Consequently, the eligibility criteria under Section 399 must be interpreted in a manner that advances the remedial purpose of the Act. The court held that the equitable foundation of these sections prevents a restrictive or technical construction that would otherwise frustrate the substantive rights of genuine investors.

"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."

Company Cannot Take Advantage Of Its Own Default

The bench addressed the appellants’ argument regarding the missing entry in the Register of Members by noting that the duty to maintain such records lies with the company itself. The court observed that the entry of a person’s name in the register is a statutory obligation cast upon the company. Therefore, a company that has accepted and utilized an investment cannot later rely on its own failure to perform a statutory duty to deny the investor's legal standing to sue for oppression.

Recognition Of Membership Through Conduct

The Court highlighted that membership can be established through a cumulative chain of factual circumstances. In this case, the bench pointed to a letter by the appellant describing the respondent as a “co-owner,” the rebranding of the hospital, and the respondent's appointment as Managing Director. These factors, combined with the fact that the company admitted the allotment of shares before a civil court, demonstrated that the respondent was in substance a member whose interest was recognized over a considerable period.

"Where 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... considerations of equity and justice should be allowed to prevail."

Application Of Precedents On Deemed Membership

The Supreme Court relied on several precedents, including World Wide Agencies Pvt. Ltd. v. Margarat T. Desor, to reiterate that the purpose of the statute is to avoid defeating substantive rights through technicalities. It approved the view that even if share certificates are not issued, the utilization of share application money and the reflection of such funds in financial records as a proprietary stake constitute strong evidence of membership for the purposes of the Act.

Final Orders And Directions

Concluding that the respondent was a "deemed member" entitled to maintain the petition, the Supreme Court dismissed the appeals filed by the company. The bench upheld the findings of the Company Law Board and the High Court, directing that the amount of ₹2,59,18,525/- deposited before the Court, along with accrued interest, be released in favor of the respondent, Dhananjay Pande. The court found the appeals to be devoid of merit.

The ruling reinforces the principle that substance must prevail over form in corporate equity jurisdictions. By holding that the definition of a "member" for oppression and mismanagement is not strictly tethered to the Register of Members, the Supreme Court has protected genuine stakeholders from being locked out of legal remedies due to a company's administrative omissions or deliberate defaults.

Date of Decision: 04 May 2026