COMPANY LAW II

BATCH: 2020 – 25

SEMESTER: VI

DIVISION: D

NAME AND PRN:

Sanjana Parisaboina, 20010324112

Shubham Shah, 20010324130

Suhruth Devraj, 20010324134

 LEGAL FRAMEWORK FOR PREVENTING OPPRESSION AND
MISMANAGEMENT UNUDER THE INDIAN COMPANIES ACT

Abstract

The Companies Act of 2013 is a significant legislation that provides guidelines for promoting
transparency and accountability in companies. Oppression and mismanagement are two of the
most serious issues that can arise in a company and can adversely affect the interests of
shareholders and stakeholders. Good corporate governance practices are essential for
promoting transparency and accountability in companies. this research study will provide a
comprehensive understanding of the legal framework for preventing oppression and
mismanagement in companies in India and the role of good corporate governance practices in
this regard. The study will also provide insights into the challenges faced by independent
directors and the emerging trends related to oppression and mismanagement in Indian
companies. The findings of this research can help in promoting transparency and
accountability in companies and contribute to the overall development of the corporate sector
in India.

INTRODUCTION

The Companies Act 2013 is a comprehensive legislation that governs the functioning of
companies in India. It replaced the Companies Act, 1956 and brought in significant changes
to the corporate governance framework in India. The Act aims to ensure transparency,
accountability, and protection of the interests of all stakeholders, including shareholders,
employees, creditors, and the public. One of the key provisions of the Companies Act 2013 is
the protection of minority shareholders from oppression and mismanagement by the majority
shareholders or the board of directors. Oppression refers to any act or conduct that unfairly
prejudicial to the interests of any member or group of members, while mismanagement refers
to any act or conduct that is oppressive or unfairly prejudicial to the interests of the company
or its members.

Oppression and mismanagement are two of the most commonly encountered challenges in
corporate governance. These issues can arise due to a variety of reasons, including conflicts
of interest, lack of transparency, and inadequate communication between stakeholders.
Oppression can be caused by actions such as dilution of shareholding, denial of information,
exclusion from decision-making, and unfair distribution of profits, while mismanagement can
be caused by actions such as misappropriation of funds, diversion of business opportunities,
and failure to exercise due diligence. Studying oppression and mismanagement is crucial in
the corporate world as it helps to identify and address potential problems that may arise in a
company's governance structure. It is important to have a robust mechanism to protect the
rights of minority shareholders and ensure that the board of directors acts in the best interests
of the company and all its stakeholders. Failure to address issues of oppression and
mismanagement can lead to a loss of investor confidence and affect the company's long-term
sustainability. Effective corporate governance requires a strong commitment to transparency,
accountability, and ethical behaviour, and the understanding of the legal framework and best
practices for preventing and addressing issues of oppression and mismanagement.

This research covers the Companies Act 2013, its provisions related to oppression and
mismanagement, and the mechanisms provided for protecting the rights of minority
shareholders. It explores the definition and causes of oppression and mismanagement, as well
as the importance of studying these issues in the corporate world. The research also discusses
the strategies for preventing and addressing issues of oppression and mismanagement,
including promoting a culture of good governance, ensuring access to information, and
establishing effective mechanisms for dispute resolution. Overall, this research aims to
provide a comprehensive understanding of oppression and mismanagement in the corporate
world and the measures that can be taken to prevent and address these issues.

RESEARCH OBJECTIVES

1. To evaluate the effectiveness of the Companies Act 2013 and its provisions related to
oppression and mismanagement in protecting the interests of minority shareholders.
2. To identify the causes and consequences of oppression and mismanagement in the
corporate world.
3. To analyse the relationship between corporate governance and the prevention of
oppression and mismanagement in the corporate world.
 4. To provide recommendations for improving the legal framework and best practices
for preventing and addressing oppression and mismanagement, with a focus on
corporate governance.

RESEARCH QUESTIONS

Q1. What are the strengths and weaknesses of the Companies Act 2013 and its provisions
related to oppression and mismanagement, and how effective have they been in
addressing these issues in practice?
Q2. What are the causes and consequences of oppression and mismanagement in the
corporate world, and how do they affect the interests of different stakeholders?
Q3. How can corporate governance contribute to the prevention of oppression and
mismanagement in the corporate world, and what are the key factors that determine the
effectiveness of corporate governance mechanisms in this regard?
Q4. What recommendations can be made for improving the legal framework and best
practices for preventing and addressing oppression and mismanagement, with a focus
on corporate governance, and how can they be implemented at the national and
international levels?

LITERATURE REVIEW

"A Study on the Emerging Trends of Oppression and Mismanagement under the
Companies Act, 20131 by Dr. C. Kavitha”

This article provides a comprehensive analysis of the provisions related to oppression and
mismanagement under the Companies Act 2013. The author examines the legal framework of
these provisions and discusses their effectiveness in protecting the rights of minority
shareholders. The article also discusses some of the emerging trends related to oppression and
mismanagement and suggests some possible solutions to address these issues.

"Oppression and Mismanagement under the Companies Act, 2013: An Analysis 2” by

Pawan Tiwari

1
C. Kavitha, "A Study on the Emerging Trends of Oppression and Mismanagement under the Companies Act,
2013," 13 Int'l J. Applied Eng'g Res. 7914 (2018).
2
Pawan Tiwari, "Oppression and Mismanagement under the Companies Act, 2013: An Analysis," 4(8) Int'l J.
Mgmt. & Applied Sci. (2018).
This article provides a detailed analysis of the provisions related to oppression and
mismanagement under the Companies Act 2013. The author examines the scope and
applicability of these provisions and discusses the various remedies available to shareholders
who have been oppressed or faced mismanagement by the majority shareholders or the
management of the company. The article also highlights some of the challenges faced in
implementing these provisions and suggests some possible solutions to address these issues.

"The Importance of Good Corporate Governance3," by Shantanu Banerjee

This article discusses the importance of good corporate governance practices for businesses.
The author analyzes the benefits of corporate governance for companies, investors, and
society as a whole. The article also highlights the key principles of good corporate
governance and provides recommendations for companies to implement these practices.

"The Importance of Good Corporate Governance Practices for Corporate

Sustainability: A Review of Literature4” by Muhammad Ali & Syed Akif Hasan

This article provides a comprehensive review of the literature on the importance of good
corporate governance practices for corporate sustainability. The authors examine the link
between corporate governance and sustainable development and discuss the role of corporate
governance in promoting social responsibility and environmental sustainability. The article
also discusses the challenges faced in implementing good corporate governance practices and
suggests some possible solutions to address these issues.

"Preventing Oppression and Mismanagement in Indian Companies: A Study on Best

Practices5" by Nidhi Agarwal & Shailly Jain

This article provides an analysis of best practices for preventing oppression and
mismanagement in Indian companies. The authors examine the legal framework for
preventing these issues in India and discuss the importance of corporate governance in
promoting transparency and accountability. The article also highlights some of the emerging
trends related to oppression and mismanagement in Indian companies and suggests some
possible solutions to address these issues.

3
Shantanu Banerjee, "The Importance of Good Corporate Governance," 1(6) Int'l J. of Business and
Management Invention (2012)
4
Muhammad Ali & Syed Akif Hasan, "The Importance of Good Corporate Governance Practices for Corporate
Sustainability: A Review of Literature," 4 J. of Sustainable Fin. & Investment 157 (2014)
5
Nidhi Agarwal & Shailly Jain, "Preventing Oppression and Mismanagement in Indian Companies: A Study on
Best Practices," 5(73) J. of Applied Mgmt. & Entrepreneurship (2020)
"Best Practices for Preventing Oppression and Mismanagement in Companies: An
Overview6" by Laila Kasem & Farhana Hossain

This article provides an overview of best practices for preventing oppression and
mismanagement in companies. The authors examine the various regulatory and legal
frameworks for preventing these issues and discuss the importance of corporate governance
in promoting transparency and accountability. The article also highlights some of the
challenges faced in implementing these best practices and suggests some possible solutions to
address these issues.

"The Role of Independent Directors in Ensuring Good Corporate Governance 7" by

Kriti Puri & Prachi Kulkarni

This article examines independent directors' contributions to effective corporate governance

in businesses. The writers look at the legal and regulatory environment for independent
directors in India and talk about how crucial it is for them to encourage accountability and
openness. The essay also discusses some of the difficulties independent directors have doing
their duties and offers some potential remedies.

OPPRESSION UNDER COMPANIES ACT 2013

The majority's opinion has always been the norm for the rule. It is also true for corporate
democracy, and has been set in the case of Foss vs Harbottle. 8Because it is calculated based
on the number of shares and not the number of participants, corporate democracy is more
susceptible. The Companies Act has specific rules for the Prevention of Oppression and
Mismanagement in order to prevent the misuse of majority authority.

Oppression has been defined as “Any obvious infringement of the fair dealing requirements
that each shareholder who invests money in the company is allowed to depend on.”9

Obstruction of minority shareholders' or directors' interests by the majority shareholders or

directors is referred to as oppression. However, there are several ways in which oppression
6
Laila Kasem & Farhana Hossain, "Best Practices for Preventing Oppression and Mismanagement in
Companies: An Overview," 5(59) Int'l J. Bus. & Mgmt. Invention (2016).
7
Kriti Puri & Prachi Kulkarni, "The Role of Independent Directors in Ensuring Good Corporate Governance," 3
Int'l J. of Bus. Mgmt. & Res. 57 (2013).
8
(1843) 67 ER 189
9
can manifest itself, including the diluting of shares, the removal of directors, the improper
transfer of assets, and the abuse of authority. Unlike the previous Companies Act of 1956,
which only allowed for actions that were ongoing, Section 241 allows for actions to be
brought against prior actions as well.

According to the Act, any member or members who hold shares in the company with a
nominal value of at least Rs. 1 lakh or who represent at least one-tenth of the total voting
power are eligible to file an application with the National Company Law Tribunal (NCLT)
for relief in cases of oppression.

In Rao (V.M.) v. Rajeswari Ramakrishnan 10, it was noted that being treated harshly or
unfairly in another role, such as that of a director or creditor, falls beyond the scope of this
section. That the oppression complained of must harm a person in his or her capacity or
character as a member of the company. This was further reiterated by the Supreme Court in
the case of Tata Consultancy Services Ltd. v. Cyrus Investment (P) Ltd11

ANALYSIS OF THE TATA-MISTRY CASE

The Tata Mistry case,12was a landmark case in India's corporate history, as it involved a high-
profile dispute between the Tata Group and its former chairman, Cyrus Mistry, who had been
ousted from the company in 2016.

The issue at the heart of the case was whether Cyrus Mistry, who was a minority shareholder
in Tata Sons, the holding company of the Tata Group, had been unfairly oppressed by the
majority shareholders, namely the Tata Trusts, which held a 66% stake in Tata Sons.

Mistry alleged that the Tata Group had engaged in a range of oppressive conduct, including
mismanagement, oppression of minority shareholders, and breach of fiduciary duties by the
directors of Tata Sons. He claimed that the actions of the majority shareholders were
detrimental to the interests of minority shareholders, including himself, and that he had been
unfairly removed from his position as chairman.

In December 2019, the National Company Law Appellate Tribunal (NCLAT) ruled in favor
of Mistry, holding that his removal as chairman was illegal and that the actions of the
majority shareholders amounted to oppressive conduct under Section 241 of the Companies
Act 2013. The NCLAT held that the Tata Group had engaged in a range of misconduct,
10
1987 61 CompCas 20 Mad
11
(2021) 9 SCC 449
12
id
including suppression of facts, lack of corporate governance, and mismanagement, and
ordered that Mistry be reinstated as chairman of Tata Sons.

However, in January 2020, the Supreme Court of India overturned the NCLAT's decision,
holding that Mistry's removal was not illegal and that the actions of the majority shareholders
did not amount to oppressive conduct. The Supreme Court held that the relationship between
Tata Sons and its shareholders was not one of trust, but of a commercial nature, and that
Mistry had failed to prove that the actions of the majority shareholders were oppressive or
prejudicial to the interests of minority shareholders.

CORPORATE GOVERNANCE AND IT’S ROLE IN PREVENTING OPRESSION

AND MISMANAGEMENT

Corporate governance is a broad phrase that may be construed in a variety of ways since it is
challenging to define it in isolation. It is described as "a system by which companies are
directed and controlled" in the Committee Report by Cadbury.13

By ensuring that the board of directors and the company's management have a distinct
separation of powers, corporate governance may aid in preventing tyranny and poor
management. The board of directors should be in charge of supervising the administration of
the firm and making sure that it is operating in the best interests of all parties involved,
including minority shareholders. This can be accomplished by adding independent directors
to the board who are neutral and have no ties to the business or its management.

Making sure that there are enough checks and balances in place to prevent conflicts of
interest is another crucial part of corporate governance. This can be accomplished by
establishing independent committees to monitor transactions between related parties and
establishing policies and processes that demand disclosure of possible conflicts of interest.

Companies can ensure they are operating in the best interests of all stakeholders, including
minority shareholders, and fostering long-term sustainable growth by developing the
necessary systems and procedures to encourage openness, accountability, and justice.

13
COMMITTEE ON THE FINANCIAL ASPECTS OF CORPORATE GOVERNANCE & CADBURY, A.
Report of the Committee on the Financial Aspects of Corporate Governance, (1992) London
 CONCLUSION
In conclusion, the Companies Act 2013 provides a comprehensive legal framework for
dealing with issues of oppression and mismanagement in companies. The Act recognizes the
importance of protecting the interests of minority shareholders and other stakeholders, and
provides them with legal remedies to seek redressal for any oppressive or mismanagement
conduct by the majority shareholders or directors.

Through our analysis of the concept of oppression and mismanagement, as well as the
provisions and judicial remedies available under the Act, we have seen that the law has
evolved to offer greater protection to minority shareholders and stakeholders, and that the
courts have played an important role in interpreting and enforcing the law in this regard.
However, as with any legal framework, the effectiveness of the Act's provisions depends on
their interpretation and enforcement by the courts, as well as on the willingness of companies
to adopt sound governance practices.

In light of these findings, it is clear that there is a need for ongoing vigilance and
improvement in the corporate governance practices of Indian companies, particularly with
regard to the protection of minority shareholder and stakeholder rights. Only through a
continued commitment to transparency, accountability, and fairness can we hope to prevent
oppression and mismanagement, and ensure the long-term success and sustainability of our
corporate sector.