OPPRESSION & MISMANAGEMENT

I) Introduction:

The term of oppression and mismanagement aren’t defined into the act, mainly under the Companies Act
2013 Corporate governance is a set of principles and procedures that the directors of the company uses to
ensure that proper policies are adhered to and there is transparency, accountability, etc. Corporate
governance is a concept that is fading in the modern business environment as people strive to increase
their financial gain and take over the company. A company's mismanagement and exploitation of minority
shareholders are reflected in its operations. Aspects of the activities include conduct that is unfair to the
general public or any employee of the company. According to the Companies Act, 2013, any company
member can submit a request to the Tribunal asking for the prevention of oppression and poor
management of the business if any wrongdoing occurs. Such a request entails a plea seeking redress. In
this article, we'll talk about how minorities can deal with workplace oppression and bad management. The
general meeting, which has last say over all managerial decisions, can take ordinary resolutions on certain
matters and orders. Before the Companies Act of 2013 was passed, only one appropriate solution for
persecution was a winding up order, which was governed by Section 433 of the Companies Act of 1956,
which is now Section 271 of the Companies Act of 2013 as an ordinary resolution on others.

The concept of oppression mainly refers to those circumstances where a group of people exercise their
authority harsh, unequal and unfair manner. According to Black Law’s dictionary oppression is a malicious
or unjust use of powers or exercise of their authority. In other words where are any individual use their
powers for wrongful conduct, oppressive and for dishonest with the organization.

The term “mismanagement” refers to the management of a firm’s operations in such a manner which is
either detrimental to the company’s profits or harmful towards the interest of the public. It is also referred to
as poor management when there has been a significant change in the ownership of the company’s shares,
when there is no capital formation in the company’s affiliation, or in any other situation where this is
probably that the administration will be operated in a manner which is harmful to the company’s or the
public interest. In order for the corporation to operate well, according to Palmer, a good balance between a
majority and minority rights is required.

In under the companies Rule of majority has been governed and it will imply majority of the shareholder of
the company. Any problem faced by the majority of the company in the meeting. when a Declaration has
been passed , it bind every shareholders of the company , it depends on them they want to vote or
excluded themselves .In every company shareholder has a right to vote into the voting at the time of
Declaration according to their percentage of the company’s equity. Mainly the majority shareholders of the
company enjoy their powers and rights over the minority shareholders.

RULE OF MAJORITY:

There are companies who governed by the rule of majority and it consider the will of majority of members
which prevails in the management operations of the company. Any issue related to the management it is
decided by the proper memorandum /resolution passed by the majority of shareholders into the company.
It is passed by the every minority or majority shareholder though it is binding every member if he/she votes
against the memorandum or withdraws himself from the voting but there vote is depends upon the equity
share of capital.
II) Historical Background of oppression and mismanagement in the act:
Prior to 1956 there has been no statutory provision to fight oppression and mismanagement within the
companies. At that point best judicial treatment became available below „simply and in equitable sections.
„For the primary time, on the idea of hints of the “Bhabha committee,” section 397 and 398 became
inserted in under the companies Act, 1956 to offer treatments via utility to company Law Board in
instances of oppression and mismanagement within the affairs of the business enterprise. Prior to
enactment of the companies Act, 2013, provisions referring to oppression and mismanagement have been
integrating in specific sections i.e., below phase 397 oppression & below sections 241 to 246 has been
supplied in the companies Act, 2013, with a view to test the abuse of powers into the shape of oppression
and mismanagement, the companies Act incorporates unique provisions for prevention of such activities.
The purpose of such provisions contains in sections 241 to 246 of the Act of 2013 is to guard the interest
of investors /contributors in addition to defend the general public Interest.6 According to Halsbury’s Laws
of England, Oppression means a burdensome, harsh and wrongful conduct7 . According to Companies
Act 2013, Oppression has been described as whilst affairs of the employer are being carried out in a way
prejudiced to public interest or in a way prejudicial to public interest or in a way oppressive to any member
or members. Although, an employer has a life unbiased from its members, its affairs are carried on via way
of means of the control. Difficulty rises whilst the hobbies of shareholders var. However, the control of
agencies relies upon the majority. The oppression and mismanagement was originally discovered in
section 153-c of the companies Act of 1913 it was shown as a result of an amendment in 1951 and it was
associated with the idea of oppression of the company shareholders. There are provisions which are given
under the section 397 who deals with Oppression which is designed through the help of section 210 of the
English companies‟ act 1948. Under this provision, the contested action must be taken for detrimental to
organization’s interests, oppressive of member or group of members or general interest of the public. By
winding up the corporation the company and its shareholders will resolve any disagreement. In 1956 the
Cohen committee in England recommended the term and concept of oppression as a substitute treatment.
In Indian law there has been given same reasons and using same treatment/remedy under section 397
into the company’s act 1956 and which currently known as companies act 2013. Under section 398 of
companies Act 1956, This section conducting the affairs of the company in a manner of prejudicial to public
interest or in a manner prejudicial to the interest of the company or there has been a material change in the
management and control of the company and by reason of such change it is likely that affairs of the
company will be conducted in a manner prejudicial to public interest or interest of the company.

III) Prevention of oppression [Section 241]:

Prevention of oppression under section 241 has some exceptions in which any member or shareholder of
the company can file an application to the tribunal .According to sec 241, individuals who have
experienced persecution, etc., may submit a request for redress to the Tribunal. If a member or
shareholder of the organization satisfies the section 244 criterion, they may file an application under
section 241. When corporate activities have already been run in a way that is oppressive to one or more
members of the company, or against the firm’s interests or the public interest, a complaint may be lodged.
The company has undergone a material change that is detrimental to the business or its representatives.
A modification in the composition of the Directors, acquisition of the stock of the organization, and any
category of shareholders is considered a material change.
CASE: This idea of oppression and mismanagement was come from the Foss v. Harbottle, court of
chancery, 9 in this case court was held that the minority shareholder has no right to take any action for any
wrongful conduct which the majority of shareholders can be approved. Under this it was also ruled that the
any wrongful act has been done into the company the shareholder or any member of the company has no
right to take any legal action because both shareholders and company different legal entities according to
the company laws . Mainly under this case minority shareholders has no power to complain on wrongful
act over the majority of shareholders into the Company.

Analysis of section 241:

1. Under the section 241 of the companies Act 2013 has transferred all the functions of two National
Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT). The company law
board has powers to grant relief to members and shareholders against the oppression and
mismanagement.

2. The companies Act 1956 did not deal with past aspects of oppression that had already occurred and
that are still occurring at the complaint filing date. The Company Act 213 Part A section broadened the
scope of protesting previously finished operations.

3. The section 397 and section 398 of companies Act 1956 talk about the unfair power abuse by the
individual in charge of management of the Company.

4. The application could not be maintained under section 241 if the wrongs envisioned were committed
against a former director.

5. Even if proven in the past, accusation of misconduct is insufficient to establish a current harm to the
business or the public interest.

IV) Prevention of Mismanagement:

Under section 398 of companies Act 1956, This section conducting the affairs of the company in a manner
of prejudicial to public interest or in a manner prejudicial to the interest of the company or there has been a
material change in the management and control of the company and by reason of such change it is likely
that affairs of the company will be conducted in a manner prejudicial to public interest or interest of the
company.

CASE: In Central government Vs. Kopran Ltd., the High court also held that the current tense, not the
coming or the past, is how the company’s activities are now being managed. Therefore, the corporate law
panel cannot intervene on the grounds that a firm might later act in a way that would be detrimental to the
interest of the public.

CASE: TATA Vs. MISTRY Under this case on 24.10.2016 Tata sons ltd. Conducted a board meeting with
a number of agenda items during which Cyrus Mistry, the company’s chairman was removed by his post
without giving 15 days prior notice .After the Pallonji family companies that own more than 18 % of the
company’s equity filed a petition against Ratan Tata . In order to force minority shareholders to follow
orders, it was oppressive to eliminate Cyrus Mistry from his position as a managing chairman of the
company.
V) Powers of Tribunal [section 242]:

The Tribunal may issue the required decisions if the company’s business practices are harming the
interests of its shareholders or if winding up the Company will unjustly disadvantage those members. The
instructions may address to business operations, shareholding reductions, restrictions on the exchange of
shares, managerial employee dismissal, recouping unauthorized gains made by managing people etc.

Depending on the circumstances of the case, the Tribunals may issue an order regulating how the
company’s business is conducted under the conditions and restrictions it considers just and equitable. The
Tribunal may use its authority to:

a) The rules governing how business operations will be conducted in the long term. b) The

resulting decrease in the company’s equity inside the event that it buys its very own shares. c) The

company or other members acquiring any interests that belong to any member. d) An additional

element that the tribunal deems to be fair and to just.

VI) Eligibility criteria for drafting or filing a petition under section 244:

The phrase any individual take an interest in the firm’s operations of the organization may attract the
tribunals notice to a condition which necessitates tribunal involvement is used in the legislation.

This section states that if a corporation has share capital, the application can only be submitted by such a
member with the approval of at least 100 other members, or one-tenth of all members, whatever is fewer.
Each member or shareholder who owns a tenth of the issued share capital may also submit an application
that is admissible. The petitioners must have completed all demands or other payments owing upon his
shares in order for their petition to be considered genuine.

VII) Right to apply under section 241[section244]:

⮚ In under the company, if there is shareholding than total member of the company not exceeded to
hundred members or at least 10 percent of the total number of employees and the applicant must
have paid all calls and other obligations related to their shares in order for them to be included in
the company’s issues share capital.
⮚ At below the one-fifth of the entire number of the firm’s members with in case of a corporation
without shareholding.
⮚ If a company’s members or anyone else or more is eligible to submit an application on behalf of
them.
Companies Bill 2009:

The Companies Bill 2009 talks about Prevention of oppression and Mismanagement under clause 212-
217. Corporate operations are now being carried out in such a manner that is detrimental to the general
public’s benefit or an members of the organization , there have been substantial shift in the organization’s
administration or control of the company decided to bring through a new board of managers and directors
or the ownership of the company’s shares, or in any other way, and such change will cause the
organization affairs to be implemented in a certain way that is detrimental to the interest, among those
members, or those of any class. The firm’s creditor, debt holders, or any category of shareholders is not
seeing their interest served by this adjustment.

VIII) Application to NCLT for relief in oppression etc.:

The company’s business dealings have been or currently having carried out in such a sense that is also
harmful towards the general public’s interest, or repressive to the member in question or to any additional
firm shareholders or members. When the federal government central Government believes that company’s
business practices are incompatible with the public interest, this may independently request an injunction
from the Tribunal. A person who is involved in the management and conduct of business operations is or
has become associated with it liable of fraud, showed significant differences, repeated carelessness,
failure in performing his responsibilities and functions under the law, or breach of confidence. The
company’s performance is no currently being handled by the individual in question, but has not been
managed by the individual in question, in a manner that is consistent with ethical business behavior.

IX) Conclusion:

The process by which harmed a shareholders can apply towards the Tribunal for remedy in situations of
exploitation and poor management. Under section 241, only representatives who meet the requirements
may submit an application. Those members who may appeal under Section 241 are listed in Section 244.
Entities with shareholding are judged according to different standards than those without. The Tribunal's
powers are covered in Section 242.The Tribunal has a wide range of authority to help the minority
shareholders. As a result, the Tribunal can check for tyranny and poor management and give remedies.
The Companies Act 2013, which has been revised and stands out for their exceptional focus on minority
rights, has replaced the Company's Act of 1956. This is not only provides the minority stockholders a
sense of security, but it also limits the corporation's expansion. After the new act was included the
preventative measures of persecution and mistreatment that were decided to bring before the NCLT and
NCLAT enhanced. Since it is impractical to pursue hundreds of claims separately, the class action suit as
well as right to petition for relief combines them, making the process much more effective. Instances like
this are less likely to add to the already busy courts as a result of this.