Prevention of Oppression and Mismanagement

- Advertisement -
INTRODUCTION: 

In a company, every member of a company has some lawful rights, and when the member is not being given fair play towards his right. when a member cannot exercise his rights in the company smoothly and facing problems from its own company itself to exercise his rights. In short, taking away the lawful right of a member is termed Oppression. Oppression is possible when one party is stronger and other is weak, like majority shareholders can oppress the minority shareholders. As we know that the responsibility of the management is with the Board of Directors. When Board of Directors are not managing the affairs of the company in wise manner, it is termed as Mismanagement. Or else, there is likely change in composition of directors and such change is likely to have wrong impact on the management of the company. LCorporate laws work in a wat that majority is reckoned on the basic of shareholding percentage and not as per the number of shareholders. 

In the case of Foss vs Harbottle rule or the rule of majority, there is a landmark judgement where court stated that, the ones who hold the majority of shares shall rule the company and this is by default because they are the majority shareholders and they gave so much money to acquire shares i.e. they rule. Secondly, if the promoters/directors misapplied or misappropriate assets, then it is a case of promoter vs company, i.e. company can sue promoters. Other shareholders cannot sue promoters. Because the company is separate legal entity, if the property of a company is misapplied, then it is a case of company vs the promoters/directors as said before. 

 

- Advertisement -

CONDITIONS TO CONSTITUTE OPPRESSION: 

The person managing the affairs of the company are fraudulent towards members. The shareholders or the board of directors or the top level management persons who are being fraudulent to their own members of the company are said to as been oppressive towards their members. Secondly, persons must be affected in their capacity as a ‘member’. In this thing the exception is if it is the director and director got hurt then it should not be called as Oppression. Thirdly, it must be wrongful, harsh, etc. it means, there should be a wrongful conduct towards the members of the company. Fourthly, it must be a continuous act up to date of petition. A ‘single act’ of renting out premises of company without knowledge of members then it is not Oppression, there must be a continuous act to be said as oppressive. If a company’s shareholders lack confidence amongst themselves leading to irregularities, then too, it is not called as Oppression. Generally, for example: – Mukesh Ambani and Anil Ambani are shareholders and both of them don’t trust each other. Merely based on that fact, it cannot be called as Oppression. In shareholders meeting, they cannot say to another shareholder that he/she seems to be Oppressive and deny him/her as a shareholder of the company, merely you don’t like the member. You should have proper proof that because of this particular member Oppression or Fraud happens. A director who is also a member is aggrieved due to inefficiency of other directors, it is not called as Oppressive. Firstly, because inefficiency of the directors is not said as Oppression and secondly, he/she is getting lesser remuneration than others, it is not Oppression. Because he/she must be affected on member’s capacity and not in a director’s capacity. 

SECTION- 242 

- Advertisement -

It provides with powers of the tribunal; an application is filed by members or Central Government under section 241 with tribunal. So, tribunal is getting application under section 241, tribunal after making proper verification of the application they may pass an order for imposing any cost on company which is to be bound by the company. Tribunal may pass order to reduction of share capital or they may impose restriction on issue and transfer of securities. Then, termination/modification or setting aside of agreement where the agreement includes the managing director, manager, director or any other person. Then, appointment by tribunal, tribunal may appoint any person for the purpose of ensuring proper reporting with tribunal. In case the tribunal is of the opinion that key managerial personnel are not functioning properly or they are making undue gains, etc. they have the power to remove key managerial personnel by passing such an order and they can also have the power to recover undue gain made by key managerial personnel. So, after implementing all these order, company is secure to make certain changes or alterations to the Memorandum of association or articles of association and after making such amendments in MOA and AOA the same is required to be communicated to ROC within a period of 30 days.                          

SECTION- 244 

This section provides with the eligibility of members to file application under section 241 i.e. member of company can file application under section 241 but subject to section 244. The required number of members to file such an application, so the eligibility is based on the type of company. Hence, it provides with the eligibility of members to file application under section 241. Under section 244, any 100 members of the company can make a valid petition. A petition to be valid, the requirements of section 244 shall be fulfilled as on the day on which petition s filed. Any subsequent change or withdrawal of preference shareholders does not invalidate the petition.

 The Supreme Court in Dale and Carrington Invt. Private Ltd. V P.K. Prathpan, wherein, it was held that where the object of meeting by shareholders was to gain control of company by becoming majority without even intimating other shareholders about such meeting, this will be an act of Oppression.     

- Advertisement -

SECTION- 245

This section is not applicable to banking companies. Here, application is filing with tribunal. In this section, both members can file such application and as well as the depositors also have the right to file an application. They are filing the application with tribunal for taking action against company and his directors for fraudulently or unlawfully conducting the business or against the Auditor for including any misstatement in audit report, because of this the users will misunderstand the audit report or against legal advisors or consultants for any wrong information or for certain misstatements, etc. And they are seeking all or any of the following order, they are telling tribunal that you should pass the following orders that are; Restraining the company and director for an act involving breach of Memorandum and Articles of Association. Second, the company against the directors for an act which involves ultravires the provisions of the act. thirdly, restrain company and director from acting on any void resolution, actually the resolution is void but the company and its directors is going to pass such resolution. Fourthly, claim damages from company, directors, auditors, legal advisors, etc., Declares any resolution as void. Then, restraining the company and its directors for an act in contravention with the resolution.  

CONCLUSION: 

In a company, decision of the company which are taken in board meetings are taken through consent of majority shareholders. The general rule is that in the company’s general meeting, the decision of the majority shareholders in a company bind the minority shareholders. But sometimes majority abuse the power against minority shareholders or the interest of the company. The Oppression of minority or Mismanagement calls for remedial action. So, provisions are included in Companies Act related with Oppression and Mismanagement. Section 242 of the companies’ act is provided with powers of the tribunal; an application is filed by members or Central Government under section 241 with tribunal. So, tribunal is getting application under section 241, tribunal after making proper verification of the application they may pass an order for imposing any cost on company which is to be bound by the company. Tribunal may pass order to reduction of share capital or they may impose restriction on issue and transfer of securities.


Libertatem.in is now on Telegram. Follow us for regular legal updates and judgment from courts. Follow us on Google News, InstagramLinkedInFacebook & Twitter. You can subscribe to our Weekly Email Updates. You can also contribute stories like this and help us spread awareness for a better society. Submit Your Post Now.

     

                   

 

               

- Advertisement -
- Advertisement -

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

About the Author

- Advertisement -

Other Posts from this Author

More Articles Like This

- Advertisement -