Prevention of oppression and Mismanagement

Introduction :-
Under Co. Act, 1956 the terms “ prevention” and
“mismanagement” were explained differently however
under Co. Act, 2013 both have been explained under
same heading.

The provision for oppression and mismanagement are

provided under Chapter XVI OF Co. Act, 2013

In general oppression and mismanagement of Co :-

means that the affairs of the Co. are being conducted in a
manner that is oppressive & biased towards the minority
shareholders and members of Co.
The rules meant to prevent this is called / known as
Prevention of Oppression and mismanagement.

Oppression :-

The word “oppression” generally means burdensome or

unbearable or harsh.
Oppression in case of Co. :- means / refers to “the exercise of
authority / power in an unjust manner against the consent
of the other party”

The conduct of majority :- is oppressive on minority :-

(a) if it departs from fair dealing, or
(b) violate the conditions of fair play

Definition :-
The Co. Act, 2013 does not define the word oppression.
The other definitions are as follows :-

(1) As per Osborn’s dictionary :- “Oppression is a

misendeavor committed by majority shareholders,
who under colour of their majority powers
wrongfully inflict upon the minority shareholder or
shareholders any harm or injury.”
(2) Lord Cooper :- explained meaning in the case of “
Elder v/s Watson Ltd. (1952)”
“The essence of the matter seems to be that the
conduct complained of should at the lowest involve a
visible departure from the standards of fair dealing
and the conditions of fair dealing, and violation of
the conditions of fair play on which every
 shareholder who entrusts his money to the Co. is
entitled to rely.”

Having read above definition it is clear that :- “ Oppression

means lack of morality and fair dealing in the affairs f the Co.
which may be prejudicial to some members of the Co.”

Examples of Oppression :-
(1) Depriving a member of right to dividend
(2) Refusal to register transmission by will
(3) Issue of further shares benefiting a section of
shareholders
(4) No calling general meeting & keeping shareholders
in dark
(5) Increasing capital of Co. with sole purpose of gaining
control over Co.

Mismanagement :-

The definition of mismanagement is not provided under Co.

Act, 2013.
General meaning of mismanagement :- Mismanagement is a
process of managing something badly or wrongly.
Mismanagement of Co. :- refers to when affairs of Co. are
being conducted in manner :-
 Prejudicial t the interest of Co. / its members, or
 Prejudicial to/ against public interest

In short :- Mismanagement of Co. refers to the process /

practice of managing Co. ineptly/ incompletely /
dishonestly.

Conditions for relief under mismanagement of Co. :- (i.e.

When can an application be made ? )
An application can be made for relief against
mismanagement if the affairs of the Co. are being conducted
in a manner that is :-
 Prejudicial to Co. / its members
 Prejudicial to Public Interest
 Are oppressive in any manner

Examples :- Some of the examples of mismanagement are :-

(a) Violations of provisions of MOA & AOA
(b) Not filling of document with Registrar (as required
under Co. Act, 2013)
(c) Continuation of the term by director beyond
specified term
(d) Absence of basic records of co.
 (e) Sale of assets at a very low price
(f) Making secret profit
(g) Diverting Co. funds for personal use
(h) Careless conduct of Director
(i) Lack of detail in notice of meeting

Grounds for complain against oppression and

mismanagement :-

A complaint may be filed u/s 241. Can be filed to the

Tribunal by making an application.

Grounds on which application can be made :-

(1) Infringement of Public Interest / Interest of member/’s

or that of Co. :-
(i.e. the affairs of the Co. are being conducted in a manner
which is :-
 prejudicial to public interest, or
 prejudicial/ oppressive to interest of Co. / its
members)
[Note :- This relates to oppression]

(2) A material change in Co. prejudicial to Interests :-

 (a) (i.e. a material change has taken place in
management / control of Co.)
(b) This material change could be due to :-
 Alteration in BOD, or
 Alteration in Manager, or
 Alteration in any class of shareholder, or
 Alteration in its membership (where Co. has
no share capital) , or
 Any other manner
(c) The nature of material change must be such that:-
 it is likely to affect the affairs of the Co.
 after change the affair of Co. shall be now
conducted in a manner that would affect / will
be prejudicial to interests of Co. or its
members or any class of them.
[ Note :- this relates to mismanagement]

Who may make an application ? :- (Sec 244 and 241)

(1) Members of Co (Sec 244)

(a) In case of Co. having share capital :- having
 Either 100 members of Co. or
 min. 1/10th of total no. of members
(whichever is less of above two), or
  member/’s :- holding not less than 1/10th
of issued capital of Co.(Provided they
have paid all calls / other sum due on
their shares)

(b) In case of Co. not having share capital :- Min.

1/5th of total no. of members of Co. can apply.

[Note :- Additional Conditions applicable on

Application:-
The following two conditions also apply on application made
u/s 244 :-
(i) Where shares are held jointly the for purpose of such
application they are counted as one
(ii) Here the Tribunal has power to waive all requirements
as stated for Co. having share capital and Co. not having
share capital]
(iii) Consent :- Consent of other members in writing is
compulsory.
(The other member here refer to rest of the members on
whose behalf/ for whose benefit such application is being
made)
(2) Central Govt. :- (Sec241(2)) :- suo moto may make an
application to the Tribunal if the affairs of the Co. are
conducted in manner prejudicial to public interest.
 Powers of Tribunal

(1) Power to accept the application :- The Tribunal

accepts the application if its of the opinion that :-
(a) If Co. affairs :- are conducted in manner
prejudicial to / oppressive to :-
 Member/’s
 Co.
 Public Interest
(b) Order to wind up Co. :- may be prejudicial to
such member/’s but it is just and equitable on
other grounds /facts

(2) Power to pass order :-

(a) Forms of Regulation :- (i.e. provide the
regulation for the conduct of the affairs of Co. in
future)
(b) Purchase of shares :- (i.e. Co. or other
members to purchase the shares or interest of
the ordered / mentioned members)
(c) Reduction of share capital :- In case of
purchase of shares by Co. Tribunal may order
 Co. to make consequent reduction in its share
capital.
(d) Transfer/ Allotment of shares :- (i.e.
Restriction on transfer/ allotment of shares)
(e) Termination / modification of Agreement :-
(i.e. Tribunal may order to terminate / modify
any agreement between :-
 Co. & Managing Director, or
 Director or manager
[ Note :- The Tribunal here may also provide for terms/
conditions which Tribunal feels are just/equitable for such
termination or modification]
(f) Transfer delivery of goods property :-
Tribunal may set aside :-
 any transfer / delivery of goods/
payments or execution made against Co.
within 3 months (just before application)
 any other act relating to property (which
if done against/by an individual be
deemed in his insolvency of fraudulent
preference).
(g) Removal of managerial person :- (i.e.
removal of :-
 Any director of Co.,or
  Managing director, or
 Manager of Co.
(h) Appointment of managerial personnel :- (i.e.
subsequent to such removal the Tribunal may
provide for manner for appointment of
manager or managing director).
(i) Undue gain and its recovery :- (i.e.
 recovery of undue gain made by Director/
managing Director / manager
+
 Manner of utilization of recovery
Eg :- Repayment to victims or transfer to
Investor Education & Protection fund
(j) No. of Managerial personnel :- Tribunal may
direct certain no. of Directors to be appointed.
Such directors must report to Tribunal on
matters as Tribunal may direct
(k) Power to impose cost :- (i.e. may impose such
cost as it may deem fit)
(l) May also make provision for any other if
Tribunal feels its just and equitable to do so.
(m) Interim order :- to conduct Co. affairs on such
terms and conditions that are just and
equitable.
 Provision After The Order of Tribunal is passed

(1) Filling of Order :- Co. must file the order with

Registrar within 30 days (from date of order of
Tribunal)
(2) If Order involves alteration of MOA/AOA : - In this
case :-
 Scope of change = scope of change ordered
 Anything beyond (i.e. inconsistent with order)
cannot be done without permission of Tribunal
 Effect of alteration made = effect of alteration
made in MOA/AOA in MOA / AOA on
order of Tribunal (under provisions of
Co. Act, 2013)

 Copy of order 9altering/ giving leave to alter

MOA/AOA) :- must be filed with Registrar within
30 days (from date of order)
 If Co. fails to alter MOA/AOA or alters beyond
the scope allowed :- then :-
Co :- is punishable with Fine Min :- 1 lakh/- upto
max :- 25lakh/-
 Every officer of Co. at default :- is punishable
with :- Imprisonment :- max 6 months
Fine :- Min :- 25000/- upto max :- 1 lakh/-
Or both.

(3) If Order results in Termination/Modification of

certain agreements :- (sec243)

(a) No right to Damage/ compensation :- (i.e. does not

provide any person Right to damage / compensation
for loss of office.
(b) No right to re-appointment :- Any Director/manager/
managing director whose agreement is terminated
cannot be re-appointed to act as such for next 5 years
(from date of termination) except with the approval of
Tribunal

APPEAL In case of Oppression and Mismanagement

u/s 410 :- The Appellate Tribunal as formed by Central Govt.
is known as National Company Law Appellate Tribunal
(NCLAT)
u/s 421 :- An appeal against an order of Tribunal (i.e.
National Company Law Tribunal) shall lie in National
Company Law Appellate Tribunal (NCLAT)

Who may file an appeal? :-

Any person aggrieved from the order of Tribunal may file an
appeal.
However, No appeal can be filed for an order that is passed
with consent of all parties to suit

Time Limit for an Appeal :- An appeal :-

(a) Must be filed within 45 days (from date of order of
Tribunal)
(b) Can be filed after expiry of 45 days (from order of
tribunal ). Provided :-
 Appellate Tribunal is satisfied that there exist a
sufficient cause for not filing within 45 days
 Such extension should not exceed 45 days.

After receipt of Appeal :-

Tribunal must give parties a reasonable opportunity of
being heard and then pass order
The order can be for confirming/ modifying/ setting
aside the order passed by Tribunal
 After the passing of order :- a copy of order is sent by
Appellate Tribunal to :-
 Tribunal
+
 Each parties to appeal
Difference between oppression and mismanagement

Sr. No Basis Oppression Mismanagement

1. Meaning Oppression means Mismanagement

lack of morality / fair refers to the process /
dealing in the affairs practice of managing
of the Co. which may Co.
be prejudicial to any ineptly/incompletely/
member of Co./ Co./ dishonestly
Public interest

2. Condition Provided u/s 241(1) Provided u/s 241(2)

necessary When affairs f the Co. When its established
for grant of are being conducted that the affairs of the
relief in a manner :- Co. are conducted in
(a) prejudicial to manner prejudicial
public to:-
interest (a) Co.
(b) oppressive to (b) Public
 member Interest
(c) prejudicial to (c) By reason of
Co. interest change of
control of Co.

3. Winding up U/s 397 in case of u/s 398 in case of

oppression winding mismanagement
up require facts to winding up does not
prove oppression require facts to claim
relief

4. Relief u/s u/s 397 Tribunal u/s 398 this is of

397 & 398 seek to end complain preventive nature

Class Action

Meaning :-

Class action generally means a lawsuit filed/ defended by an

individual acting on behalf of a group.
Under Co. Law :- Class action is one where a class / group of
persons/ people with common grievance join hands to seek
relief

Class action though existed in legal system for decades but

under Co. law its added only under Co. Act, 2013. Section
245 provides for class action.

Reason for class Action :- (i.e. when can a class action be

filed) :-

Id the members/ depositor/ or any other class of them are

of opinion that the affairs of the Co. are being conducted in a
manner prejudicial to Co. or its members or depositories.

Procedure for class action :-

(1) Whom an application may be filed? :- Tribunal

[Note :- An application for class action cannot be made in
case of a banking Co.]

(2) Who can make an application?

The application may be made by such :-
 Person, or
  group of persons, or
 any association of persons
who represent the persons affected by any act/omission for
which such application is being made.

On whose behalf the application is made :-

Such No. of members or Depositors or any class of them who
seek any damages/ compensation / any other suitable
action may make an application before Tribunal

(3) Relief :- The application may be made to Tribunal to

seek any of the following reliefs:-

(a) to seek damage or compensation

(b) to restrain Co. :-
 from committing any act that is ultravires Co.
MOA and AOA, or
 from committing breach of any provisions of
Co. MOA s& AOA.

(c) To seek declaration of resolution as void :- If the

resolution to alter the MOA & AOA is passed by :-
 Suppression of material facts
  Misstatement to members/ depositors
To seek declaration of resolution for alteration of
MOA and AOA as void
(d) To restrain Co. + Directors from acting on resolution
(e) To restrain Co. from acting contrary to resolution
passed by members.
(f) To claim (damages/ compensation/any other
suitable action) from / against :-
 Co.
 Its directors
[Note :- For Co and Director both :- for any
unlawful/fraudulent/wrongful act]
 Auditor (including Auditing Firm) :-
for any improper /misleading statement made
in Audit report
+
for any unlawful/fraudulent/wrongful act
[Note :- Where an application is made against Audit firm
then the liability of firm includes liability of each partner of
firm ]
 Expert/Advisor/Consultant/any other
person:- for incorrect or misleading statement
made to the Co.
+
 for any unlawful/fraudulent/wrongful act

(g) Any other remedy as Tribunal may deem fit

(4) Requisites for considering an application :-

The Tribunal has power to accept or reject an application
made for class action.
The Tribunal shall accept application if following requisites
are fulfilled :-
(a) Depositor/ member :- must be acting in good faith
(b) Evidences :-
 Relating to involvement of persons (other than
directors/officers of Co.) in commission for any
inviting class action
 As to views of members / depositors who have
no personal interest (direct/indirect) in the
matter.
(c) Cause of action
 Is one in which member/depositor can pursue
in his own right
 Involves act/ omission yet to occur but
circumstances are such that such act or
omission would be authorized by Co. or ratified
by Co. once it occurs.
  Involves act/omission already occurred and
circumstances are such that it would be ratified
by Co.

(5) Additional Requisites conditions applicable/

required to be fulfilled :-
(a) Two class applications for same cause of action are not
allowed. (i.e. all similar applications must be clubbed
into 1)
(b) The member / depositor get to choose the lead
applicant for class action
(c) If member/ Tribunal unable to choose then the
Tribunal has power to choose the lead applicant.
(d) Once the application is accepted by Tribunal :- Public
notice of admission must be served on :-
 members of Co.
+
 depositors of Co.
(e) The cost and expenses involved in cause of action must
be defrayed or returned by :-
 Co. , or
 Any other person responsible for oppressive
act.
Grounds for Rejection of Application by tribunal :-
If an application filed in Tribunal is frivolous or vexatious
Then :- Tribunal has power to :-
 Reject the application,
+
 Order applicant to pay opposite party a cost
of max Rs. 1lakh/-

Order of Tribunal is Binding :-

An order passed by Tribunal u/s 245 is binding on :-
 Members
 Depositors
 Auditors
 Audit Firm
 Expert
 Consultant
 Advisor
 Any other person associated with Co.

Provision for contravention of order of Tribunal

u/s 245 :- If Co. fails to comply with the orders passed by
Tribunal then :-
(a) Co. is punishable with :-
 Fine :- Min, 5 lakh/- and max. 25lakh/-
(b) Every officer of Co. is punishable with :-
 Imprisonment :- Max 3 years
 Fine :- Min :- 25000/- and max 1lakh/-.
 Or both