What are the powers of the Government of India to prevent oppression and mismanagement in a Company?

Question: What are the powers of the Government of India to prevent oppression and mismanagement in a Company? [BJS 1987]

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Answer

The Government of India has the power to take action to prevent oppression and mismanagement in a company under the Companies Act and other laws. Some of the key powers include:

Inspections: The Government has the power to appoint inspectors to investigate the affairs of a company and to report on any matters of oppression or mismanagement.

Prohibiting certain actions: The Government has the power to prohibit the company or its directors from taking certain actions if it is deemed to be oppressive or prejudicial to the interests of the company or its shareholders.

Removing or replacing directors: The Government has the power to remove or replace directors if they are found to be guilty of oppression or mismanagement.

Winding up: The Government has the power to seek the winding up of a company if it is found to be guilty of oppression or mismanagement.

Takeover: The Government has the power to investigate any takeover of a company if it is deemed to be prejudicial to the public interest or the interests of the company's shareholders.

Some case laws that illustrate the powers of the Government of India to prevent oppression and mismanagement in a company are:

In the case of "Securities and Exchange Board of India v. Sahara India Real Estate Corporation Limited", (2012) 42 SCL 577 (SEBI), the Supreme Court of India held that the Government has the power to take action to prevent oppression and mismanagement under the Companies Act and other laws.

In the case of "Minority Shareholders of Tata Sons Ltd. v Tata Sons Ltd" (2021) SCC Online Del 1249, the Delhi High Court held that the Government has the power to take action to protect the interest of minority shareholders in case of oppression and mismanagement by the majority shareholders.

Power of Government to make Complaints

Review of opinion formed by the Central Government under Section 241(2):

Another remarkable judgement relating to oppression and mismanagement was the 2021 judgment of Union of India v. Delhi Gymkhana Club, [2021] SCC OnLine 76 (NCLAT). In this case, the petition for oppression and mismanagement was filed by the Government of India under Section 241(2). The NCLAT discussed the scope of Section 241(2) and made the following observations:

When the Central Government files a complaint under Section 241(2), it is required to record its opinion as regards affairs of the company being conducted in a manner prejudicial to the public interest, and recording of such opinion is a sine qua non for applying to the Tribunal under Section 241(2).

The Tribunal cannot review the sufficiency or otherwise of material based on which the government has formed its opinion, more so when no mala fide is attributed to the Central Government.

The phrase 'public interest' cannot be stretched so far as to include all Indian citizens. It would suffice if the rights, security, economic welfare, health and safety of even a section of the society -like the candidates seeking membership from the category of common citizen- are affected notwithstanding that they are only a few individuals.

The Government of India has wide-ranging powers to prevent oppression and mismanagement in a company under the Companies Act and other laws. These powers include inspections, prohibiting certain actions, removing or replacing directors, winding up, and taking over. The Government can take these actions to protect the interest of the shareholders, creditors, and the courts to exercise the public, and these powers, the Registrar of companies, and other regulatory bodies.

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