Lack of formal entry in register of members does not bar petitions for oppression and mismanagement.

Appellant No. 1 is a company managed by Appellants 3 and 4. Facing financial constraints, they accepted an investment proposal from Respondent No. 1 (Dhananjay Pande), who was appointed Managing Director in 1998.

Respondent No. 1 alleged that 14,75,998 shares were allotted to him in 1999 against his investment, though no formal share certificates were issued and his name was not entered in the Register of Members.

Following disputes and his suspension, Respondent No. 1 filed a petition under Sections 397 and 398 of the Companies Act, 1956, alleging oppression and mismanagement. The Appellants raised a preliminary objection regarding his locus standi, arguing he was not a "member" under Section 41 of the Act.

During the pendency of the first petition, the Appellants allotted shares to Respondent No. 1 but simultaneously diluted his stake from 49% to 15% by allotting 60,00,000 shares to Appellant No. 2, leading to a second petition.

The High Court upheld the Company Law Board’s (CLB) finding that the Respondent was a "deemed member" entitled to maintain the petitions.

1. Whether, in the absence of a formal entry in the register of members under Section 41, a person can be regarded as a "member" under Sections 397 and 398 of the Companies Act, 1956.

2. Whether the existence of membership is a jurisdictional fact that must be strictly proven via the Register of Members to invoke the equitable jurisdiction of the CLB.

The Court interpreted the definition of "member" under Section 2(27) of the Companies Act, 1956, which is an inclusive definition, alongside Section 41, which outlines the modes of acquiring membership (subscription, written agreement, and entry in the register).

The Court relied on the principle that the jurisdiction under Sections 397 and 398 is equitable in nature, as established in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd.

The Court adopted the broader interpretation found in World Wide Agencies Pvt. Ltd. v. Margaret T. Desor, holding that technicalities should not defeat substantive rights.

The Court also applied the reasoning from Shri Balaji Textile Mills Pvt. Ltd. v. Ashok Kavle, which suggests that Section 41(2) should not be used by companies to exclude genuine stakeholders through their own omissions.

The Court rejected a mechanical application of Section 41(2), reasoning that the requirement of a "written agreement" and "entry in the register" was intended to prevent fraud, not to allow companies to deny rights to bona fide investors through their own statutory defaults.

Applying this to the facts, the Court noted that the Appellants had consistently treated Respondent No. 1 as a "co-owner" and stakeholder, as evidenced by correspondence, conciliation proceedings where his 30% ownership was admitted, and the rebranding of the hospital using his trade name.

The Court found that the company had accepted and utilized the Respondent's investment for business expansion, reflecting it as share application money.

Consequently, the Court held that since the Respondent’s proprietary interest was indisputably recognized by the company’s conduct, the lack of a formal entry in the register did not bar the CLB’s jurisdiction.

The Court affirmed that where a person’s title to membership is established by the company’s own conduct and the infusion of funds, the absence of a formal entry in the Register of Members is not a bar to seeking relief against oppression and mismanagement.

The Court directed the release of the deposited amount of ₹2,59,18,525/- plus accrued interest in favor of Respondent No. 1.