Submitted by Pallav Tarnekar
I. Relevant Sections:
S.241 to s.247 of the Companies Act, 2013 lay down the specific provisions whereby both the National Company Law Tribunal and the Central Government are empowered to interfere in the affairs of the Company for preventing oppression and mismanagement in the Company.
The affairs of the Company are being conducted in such a manner that is-
i. oppressive to a member/some members, or
ii. prejudicial to public interest.
i. The affairs of the Company are being conducted in such a manner that it is prejudicial to the interest of the Company, or public interest, or
ii. There is any material change in the management/control of the Company by-
- alteration in the Board of Directors/Manager,
- ownership of the Company's shares,
- chenge in the membership, if it has no share capital; influencing on the conduct of the affairs of the Company in such a manner that it is prejudicial to public interest or to the interest of the Company.
IV. Acts Held as Oppressive:
Looking at various judicial pronouncements, the acts ammounting to oppression may be summarised as-
i. Not calling a general meeting and keeping shareholders in the dark is oppressive conduct. [Hindustan Co-operative Insurance Society Ltd. Case]
ii. Non-maintenance of statutory records is not conducting the affairs of the Company in accordance with the Companies Act amounts to oppression. [Bajirao Ghatke v. Bombay Docking Co.]
iii. Depriving a member's right to dividend. [Mohan Lal Chandu Mal v. Punjab Co. Ltd.]
iv. Refusal to register transmission under will. [Gajarabai Patny v. Patny Transport Ltd.]
v. Voting by interested Director on a resolution. [Ashish Deora v. Pan India Motors]
V. Acts Held Not to be Oppressive:
i. An unwise, inefficient or careless conduct of a Director. [Needle Industries India Ltd. v. Needle Industries Newey Holding Ltd.]
ii. Non-holding of the meeting of the Directors would not amount to an oppression of the minority shareholder. [Chander Krishnan Gupta v. Pannalal Giridhari Lal]
iii. Not declaring dividends when Company is making losses. [Chander Krishnan Gupta v. Pannalal Giridhari Lal]
iv. Non-filing of records. [Chander Krishnan Gupta v. Pannalal Giridhari Lal]
VI. Acts Held as Mismanagement:
i. Where there is a serious fight between the Directors resulting in serious prejudice being caused to the Company. [Suresh Sanghi v. Supreme Motors Ltd.]
ii. Diversion of the funds of the Company for the benefit of the majority group. [Bhaskar Stoneware Pipes Ltd. v. Rajindernath Bhaskar]
iii. Where the bank account is operated by unauthorised persons. [Colonel Kuldeep Singh Dhillon v. Paragon Utility Financials]
iv. Comapny doomed to trade unprofitably. [A Company, Re ex p.]
v. Collusive sale of assets by lending institutions. [Mittal Das Mills Ltd. Case]
VII. Application to National Company Law Tribunal:
Oppressed minorities can move an application to the Tribunal whenever the affairs of a Company are conducted in a manner being unjust to the member/s or injuring the public interest.
VIII. Who Can Apply?
i. Companies with a share capital:
application can be made by:
- not less than 100 members or not less than 1/10 of the total number of members, whichever is less, or
- a member/s holding not less than 1/10 of the issued share capital of the Company.
The joint members are counted as one member.
ii. Companies not having a share capital: application can be made by not less than 1/5 of the total number of members.
iii. The Government itself.
iv. The Government can authorise a member/s to make an application.
IX. Who cannot apply?
The following cannot apply for relief u/s.241:
i. Member/s whose calls are in arrears.
ii. A holder of a letter of allotment of a partly paid share.
iii. A holder of a share warrant.
iv. A holder of a share certificate to bearer.
v. A transferee of shares who has not lodged the shares for transfer to the Company.
X. Power of Tribunal:
The Tribunal may dispose off an application by passing the following orders:
i. To regulate the conduct of the Company's affairs in the future.
ii. To purchase the shares or interest of any member/s by the other members thereof by the Company.
iii. Reduction of its share capital, where it has been ordered to purchase the shares.
iv. To terminate, set aside or modify any agreement made between the Company and the Managing Director, any other Director, or the Manager upon such terms and conditions as may, in the opinion of the Tribunal be just and equitable.
v. To terminate, set aside or modify any arrangement between the Company and any person not referred to above, after giving due notice to and obtaining the consent of the concerned person/s.
vi. To set aside any fraudulent preference made within 3 months before the date of the application.
vii. To deal with any other matter which is in the opinion of the Tribunal, just and equitable.
XI. Power of the Central Government:
The Central Government is also vested with the powers to prevent oppression or mismanagement. It can exercise these powers on an order given by the Tribunal.
i. The Government may appoint certain persons as Directors to hold office as Additional Directors to safeguard the interest of the Company/shareholders/public interest.
ii. Directors so appointed by the Central Government are not required to hold any qualification shares nor is there retirement from their office by rotation. These Directors may however, be replaced by some others by the Government.
iii. No change in the Board of Directors shall be effective unless confirmed by the Tribunal after the appointment of a person as a Director or Additional Director by him.
iv. On appointing Directors or Additional Directors, the Central Governemnt may issue such directions to the Company as it may consider necessary or appropriate in regard to its affairs.
v. The Central Government may require these Directors/Additional Directors to report to it from time to time with regard to the affairs of the Company.
XII. Class Action: S.245
It is an alternative remedy for member and depositors.
It is a law suit to brought before a Tribunal by the prescribed number of member wherein one or several persons join together to sue on behalf of large groups.
It is suitable when the issues in question commonly affect all.
The application is to be filed if prejudicial to the interest of the Company or its members or depositors.
This remedy is not available in case of banking Companies.
Submitted by Pallav Tarnekar