Explain Oppression and mismanagement in Company Management under Indian Companies Act and who can approach can approach the Court in this regard.

Question: Explain Oppression and mismanagement in Company Management under Indian Companies Act and who can approach can approach the Court in this regard. [BJS 1978]

Find the question and answer of Company Law only on Legal Bites. [Explain Oppression and mismanagement in Company Management under Indian Companies Act and who can approach can approach the Court in this regard.]

Answer

Oppression and mismanagement in company management refer to situations where the actions or decisions of a company's management or controlling shareholders are detrimental to the interests of the minority shareholders or the company as a whole. This can include things like abuse of power, discriminatory treatment, or financial mismanagement.

Chapter XVI of the Companies Act comprising of Sections 241-246 contains the statutory provisions for preventing oppression and mismanagement in a company. The Act does not specifically define “oppression” or “mismanagement”.

Any aggrieved shareholder may approach the NCLT under Section 241 if he/she believes that the company’s affairs have been/are conducted in a manner prejudicial to the interest of the company/public or are prejudicial/oppressive or any other member(s). Similarly, such an action may be initiated if the shareholder believes that there is a material change in the company’s management/control, which is not in the interests of any creditors/class of shareholders and may lead to the company’s affairs being conducted in a manner prejudicial to the interests of the company/its members. This includes changes in the Board, managers or changes in the ownership of the company’s shares.

In the case of Elder v. Watson Limited, [1952 SC 29 (Scotland)], the term oppression was defined. Oppression refers to a misdemeanour committed by majority shareholders upon the minority shareholders of the company.

In the case of Shanti Prasad Jain v. Kalinga Tubes Ltd., AIR 1965 SC 1535, the Hon’ble Supreme Court held that the same needs to be left to the courts to decide as per the facts and circumstances of each case, but what needs to be understood is that the affairs of the company must be oppressive or against the interests of minority shareholders, and the mere tussle between majority as well as minority shareholders is not enough to justify the case of oppression.

In the landmark case of Needle Industries Ltd. v. Needle Industries (India) Ltd., 1981 AIR 1298, the foreign majority shareholders claimed ‘oppression’ by Indian minority shareholders by appointing certain additional directors and doing other acts, and it was ultimately decided in favour of minority shareholders but then the Supreme Court ensured that substantial justice is given to majority shareholders of foreign that incurred huge losses because of such acts. This was the first case where the judges tried to define what oppression can be and its ingredients thereon.

Right to apply under section 241

The members who have a right to apply under section 241 are:

When a company has a share capital the following members can apply under section 241:

• Not Less Than One Hundred Members Or Not Less Than One-Tenth Of The Total Number Of Its Members, Whichever Is Less
• Any Member Or Members Holding Not Less Than One-Tenth Of The Issued Share Capital

The applicant or applicants must have paid all call money and other sums due on them before applying. When a company does not have a share capital at least one-fifth of the total number of its members shall apply under section 241.

If the Central Government believes that the company affairs are being conducted in a manner prejudicial to public interest it may apply to the Tribunal. An application under this section should be made to the Principal bench of the Tribunal. If the Central Government believes that:

• Any Person concerned in the management of the company is guilty of fraud, misfeasance, persistent negligence, default in carrying his obligations, breach of Trust
  
• Sound Business Practices have not been used.
• The Company has been managed by a person who is likely to cause damage to the interest of trade and business to which the company pertains.
• The Company has been managed by a person who intends to defraud the creditors, members, or another person for a fraudulent or unlawful purpose or in a manner prejudicial to the public interest.

Company Law – Notes, Case Laws, And Study Material

Test Series for Competitions