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Oppression and Mismanagement
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Oppression and Mismanagement

As per the definition mentioned under section 397(1) of the Companies Act 1956, the word Oppression has been defined as “when the affairs of the company are being conducted in a manner that is detrimental to the interest of the Public, member/members”. The acts of the company that are against the provisions of the law, the acts of the company’s conduct that is against the principles of fair dealing, the acts of depriving a member of his membership, the acts of the imposition of risky objects that are being opposed by the other shareholders, the act of issuing shares to a particular section of the shareholder in order to benefit them, the act of exercising an undue or harsh burden on other members/shareholders, any other acts which cause detrimental to the interest of the members/shareholders are considered as an oppressive act.

As per the definition mentioned under section 398(1) of the Companies Act 1956, the word Mismanagement has been defined as “conducting the affairs of the company in a manner that is detrimental to the interest of the public/company”. The act which constitutes the differences between the directors, the act of improper appointment of a director, the act where the bank accounts are operated by an unauthorized person, the act of continuation in office by the director even after expiry of the term period, the acts that violate the Memorandum of Association and Articles of Association, and any other acts which cause detrimental to the interest of the members/shareholders are considered as an act of mismanagement.

An individual shareholder of the company and the minority shareholders of the company has the power to make an application to the National Company Law Tribunal in order to take up action against the abuse of power and authority which leads to an act of Oppression and Mismanagement.

Who can apply?

An application can be made by any member to the tribunal for seeking the relief in the cases of oppression under section 241 of the Companies Act 2013. The Central Government can also apply for the order of the tribunal if it is of the opinion that the acts of the company are oppressive in nature or if there is an act of mismanagement. Section 244 of the companies Act 2013 states the following requirements of the members of the company who shall have the right to make an application to the tribunal under section 241:

  • If the company has a share capital then, the members should not be less than 100 or not less than one-tenth of the total number of its members whichever is less or,
  • Any member or members holding not less than one-tenth of the issued share capital of the company. The applicant/applicants must have paid the money on all calls and other sums due on his or their shares.
  • If the company does not have a share capital then, not less than one-fifth of the total number of its members.
  • The tribunal can waive all or any of the requirements that are stated above on an application made by the members.

Powers of the National Company Law Tribunal

The powers of the National Company Law Tribunal are mentioned under section 242 of the Companies Act 2013. Following are the orders that can be passed by the National Company Law Tribunal:

  • An order for the regulation of the conduct of the company’s affairs in future.
  • An order for the removal of the director of the company.
  • An order for the purchase of shares/interest of any members by the other members or by the company.
  • An order for the consequent reduction in the share capital, in case of purchase as mentioned aforesaid.
  • An order for the imposition of costs as deemed fit.
  • An order for the restrictions on the transfer of allotment of the company’s shares.
  • An order for the recovery of undue gains made by the director during his office and the manner of utilisation of the recovery.
  • An order for the termination, setting aside or modification of any agreement that has been made between the company and the director on such terms and conditions which are not just and equitable in the opinion of the tribunal.
  • An order for the termination, setting aside or modification of any agreement that has been made between the company and any other person, except than those referred above. There is an exception that such an agreement shall not be terminated, set aside or modified except after due notice and after obtaining the consent of the concerned party.
  • An order for the setting aside of any transfer, delivery of goods, payment, execution or other act relating to the property that has been done by or against the company within a period of 3 months before making an application.
  • An order for any other matter that is just and equitable.

Appeal

An appeal can be made to the National Company Law Appellate Tribunal against the order of the National Company Law Tribunal. Any person who is aggrieved by the order of the National Company Law Tribunal can make an appeal to the National Company Law Appellate Tribunal. However, no appeal can be made, if the National Company Law Tribunal has passed the orders after taking consent from both the parties. An appeal must be made within a period of 45 days from the order passed by the National Company Law Tribunal. The extension period of 45 days can be sought after giving sufficient reasons for the delay in filing the appeal.

Conclusion

There are adequate provisions mentioned under the Companies Act 2013, to prevent the acts of Oppression and Mismanagement in the company. The Minorities shareholders are entitled to make an application to the Courts or Tribunals in order to protect their interest in the company from the Majority shareholders. Hence, the Courts or Tribunals are empowered to appoint such numbers of persons that are necessary for safeguarding the interest of the company, minority members and public at large.

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