Author: Ashwarya Sharma, Advocate, Co-Founder & Legal Head, RB LawCorp
Published on: 12/05/2026
Introduction: When Corporate Reality Extends Beyond Statutory Records
The doctrine of separate legal personality and the statutory framework governing company membership have traditionally placed significant emphasis on formal corporate records, particularly the register of members. However, modern commercial realities frequently demonstrate situations where investments, managerial participation, beneficial interests, and proprietary rights evolve in forms that may not immediately find reflection in statutory registers.
The recent decision of the Hon’ble Supreme Court in Dr. Bais Surgical And Medical Institute Pvt. Ltd. v. Dhananjay Pande [2026] 186 taxmann.com 175 (SC) revisits this important intersection between procedural corporate formalities and substantive equitable rights.
The judgment assumes considerable significance in the evolving jurisprudence surrounding oppression and mismanagement under Indian company law. The Supreme Court was called upon to determine whether a person whose name does not appear in the register of members can nevertheless invoke remedies under Sections 397 and 398 of the Companies Act, 1956 on the basis of beneficial ownership, equitable interest, and consistent corporate recognition.
In addressing this issue, the Court undertook a detailed examination of the relationship between the statutory conception of “membership” and the equitable foundations upon which oppression and mismanagement remedies are built.
Factual Background
The dispute arose out of the functioning and management of a hospital operated through appellant company No. 1.
Appellant No. 2, along with his wife, established the hospital and subsequently encountered financial difficulties during its operations. At this stage, Respondent No. 1 entered the arrangement by investing substantial funds into the company. Pursuant to this arrangement:
- Respondent No. 1 was appointed as Managing Director for a period of five years;
- The hospital was converted into a heart institute; and
- The respondent’s investment was utilised in the company’s operations.
Disputes later emerged between the parties, leading the respondent to file proceedings under Sections 397 and 398 of the Companies Act, 1956 alleging oppression and mismanagement.
The primary allegation concerned the company’s failure to issue share certificates despite having received substantial share application money from the respondent.
At the threshold itself, the maintainability of the petition was challenged by the appellants under Section 399 on the ground that Respondent No. 1 was not a “member” of the company since his name was never entered in the register of members.
Proceedings before the Company Law Board and High Court
The Company Law Board rejected the objection regarding maintainability and proceeded on the basis that the respondent was entitled to be treated as a member of the company.
The Board directed the company either:
- to allot shares corresponding to the investments made by the respondent; or
- alternatively refund the invested amount together with interest.
Subsequently, another controversy arose when appellant No. 2 was allotted 60,00,000 shares in consideration of transfer of land and building in which the hospital was functioning.
The respondent challenged this allotment through a second petition under Sections 397 and 398 alleging that the allotment was oppressive and intended to dilute his proprietary interest arising from the earlier arrangement.
The Company Law Board held the allotment to be oppressive in nature and issued consequential directions regarding purchase of shares and payment of compensation.
Both orders of the Company Law Board were challenged before the High Court but were ultimately affirmed.
Question before the Supreme Court
The principal issue before the Supreme Court was:
Whether a person whose name does not appear in the register of members can nevertheless be regarded as a “member” for the purpose of maintaining proceedings under Sections 397 and 398 of the Companies Act, 1956.
Submissions of the Appellants
The appellants argued that:
- Membership under Section 41 of the Companies Act, 1956 arises only upon entry of the person’s name in the register of members;
- Existence of membership is a jurisdictional requirement for maintaining proceedings under Sections 397 and 398;
- Since the respondent’s name was never entered in the register, the Company Law Board lacked jurisdiction to entertain the petition.
It was further contended that:
- The respondent had earlier filed civil proceedings seeking recovery of the invested amount;
- Such conduct demonstrated that the respondent himself treated the amount as a recoverable debt and not as share capital;
- Any informal recognition by the company could not override the statutory framework governing membership.
Submissions of the Respondent
The respondent contended that:
- The obligation to maintain and update the register of members lies upon the company itself;
- The company cannot take advantage of its own failure to complete statutory formalities;
- Substantial investments made by the respondent were accepted and utilised by the company;
- The respondent had consistently been treated as part of the corporate structure and management.
It was argued that denying the respondent protection merely because of the company’s own omission would defeat the equitable purpose underlying oppression and mismanagement remedies.
Findings of the Supreme Court
1. Interpretation of “Member” under the Companies Act
The Supreme Court examined the interplay between:
- Section 2(27), which defines “member” in broad and inclusive terms; and
- Section 41, which prescribes recognised modes of acquiring membership.
The Court observed that Section 41 cannot be interpreted in a rigid or mechanical manner so as to make formal entry in the register the sole determinant of membership in every factual situation.
According to the Court, the requirement of written agreement and statutory record maintenance was introduced primarily to ensure certainty and prevent fraudulent claims — not to defeat legitimate proprietary interests consistently acknowledged by the company itself.
2. Equitable Nature of Sections 397 and 398
A significant aspect of the judgment lies in the Court’s emphasis on the equitable character of oppression and mismanagement proceedings.
The Supreme Court reiterated that:
- Sections 397 and 398 are fundamentally remedial and equitable provisions;
- Their purpose is to protect stakeholders from oppressive conduct and corporate unfairness;
- Maintainability requirements under Section 399 must therefore be interpreted in light of the broader equitable objectives underlying the legislation.
The Court clarified that an excessively technical interpretation of “member” may defeat the very purpose of these remedies.
3. Recognition of Membership Beyond Formal Entry
The Court held that:
- Membership may, in exceptional factual situations, be inferred from consistent conduct and recognition by the company itself;
- Proprietary participation and acknowledged shareholding interests cannot always be ignored merely because statutory records are incomplete.
The Supreme Court therefore upheld the concurrent findings of the Company Law Board and High Court, observing that the cumulative factual circumstances overwhelmingly demonstrated recognition of the respondent’s membership-like status within the company.
Significance of the Judgment
The decision is particularly important because it carefully balances two competing principles of company law:
Protection of Statutory Certainty
The Court did not dilute the importance of statutory records or the register of members. Corporate discipline and procedural certainty continue to remain central features of company law.
Protection of Substantive Equity
At the same time, the judgment recognises that companies cannot rely upon their own procedural omissions to defeat genuine proprietary claims where the factual matrix clearly demonstrates participation, investment, and recognition.
The ruling is especially relevant in closely held companies and family-run corporate structures where investments and management arrangements often evolve informally before all statutory compliances are fully completed.
Conclusion
The decision in Dr. Bais Surgical And Medical Institute Pvt. Ltd. v. Dhananjay Pande represents an important reaffirmation of the equitable foundations underlying oppression and mismanagement jurisprudence in India.
The Supreme Court has clarified that while statutory discipline remains indispensable in corporate governance, procedural technicalities cannot be permitted to defeat substantive proprietary rights where the factual record overwhelmingly demonstrates recognition of membership-like status by the company itself.
By harmoniously interpreting Sections 2(27), 41, 397, 398 and 399 of the Companies Act, 1956, the Court has ensured that corporate remedies remain meaningful, equitable, and capable of addressing genuine cases of oppression even where statutory records may not perfectly reflect commercial realities.
The judgment therefore reinforces a broader principle increasingly visible in modern corporate jurisprudence — that courts, while respecting corporate formalities, will continue to prioritise substance over technicality where justice and equity so require.
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📎 Full Published Version: https://www.taxmann.com/research/company-and-sebi/top-story/105010000000028326/beyond-the-register-of-members-re-defining-%E2%80%9Cmembership%E2%80%9D-in-oppression-and-mismanagement-proceedings-under-company-law-experts-opinion
(The author is a practicing advocate, Co-Founder and Legal Head of RB LawCorp.
He specializes in GST law. Suggestions or queries can be directed to
ashsharma@rblawcorp.in. The views expressed in this article are strictly
personal.)
