The basic objective of Section 409

voting power therein, the Company Law Board may, if satisfied after making any inquiry it deems fit that it is necessary to prevent oppression and mismanagement and that the affairs of the company are being carried in a manner which is prejudicial to the interest of the members or the company or the public, direct appointment of as many persons (whether members of the company or not) as Directors as it thinks fit to hold office for such period not exceeding three years on anyone occasion.
The Company Law Board may, however, instead of passing the above order direct the company to alter its Articles so as to arrange for the election of its Directors on the principle of proportional representation under Section 265.
It may be noted that a person/s appointed by the Central Government in pur
suance of the above provisions shall not be :
(i) considered for the purpose of reckoning 2/3rds or any other proportion of the
total number of Directors for the company [Sec. 408(3)];
(ii) required to hold qualification shares [Sec. 408(4)];
(iii) required to retire by rotation [Sec. 408(4)];
(iv) required to file written consent with the company under Section 264(1).
The Central Government may remove any such Director from his office at any
time and appoint another person to hold office in his place [Sec. 408(4)].
The aforesaid provisions are applicable to both public as well as private companies.
(b) Powers of CLB to prevent changes in Board of Directors
Under Section 409, the Company Law Board is empowered to prevent a change in the Board of Directors. An order disallowing a change in the Board of Directors can be made only where the CLB is satisfied that as a result of a change which has taken place or is likely to take place in the ownership of shares held in the company, a change in ownership of Directors is likely to take place which, if allowed, will prejudicially affect the affairs of the company.
The complaints under Section 409 can be made only by the Managing Director, any other Director or Manager of the company. No shareholder or shareholders can complain.
The basic objective of Section 409 is to prevent hostile takeovers of well-known companies by unscrupulous raiders.
The Company Law Board, if satisfied after making an enquiry that it is just and proper to do so, may by order direct that no resolution passed or that may be passed or no action taken or that may be taken to effect a change in the Board of Directors shall have effect unless confirmed by the Company Law Board. An order of the Company Law Board, as aforesaid, shall have effect notwithstanding anything to the contrary contained in the Companies Act, 1956 or in the Memorandum or Articles of the company or in any agreement with, or any resolution passed in general meeting by or by the Board of Directors, of the company.
The Company Law Board is. also empowered to make an interim order before
making or completing the inquiry.
~ 7. State the procedure for applying to the Company Law Board regarding prevention of oppression and mismanagement.