"Prevention of Oppression and Mismanagement": Under Section (241 to 246)
Key Points:
1. Introduction.
2. Meaning of Oppression.
3. Meaning of Mismanagement.
4. Who can apply to Tribunal?
5. Powers of Tribunal: Under Section (242)
6. Effects of the order of Tribunal.
7. Class Action: Under Section (245)
8. Reasons / Bases to File Application.
- Rights of Tribunal regarding Prevention of Oppression and Mismanagement Section (241)
- Consequence of Termination /Modification of Certain Agreement: Under Section (243)
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1. Introduction:
Members of a company control the management and its
policies. It is done by majority. Directors are appointed by members to manage
the affairs of the company and directors manage the company with consent of the
members. Thus the majority succeed in doing those works what they want.
It creates oppression against the minority and this
evil gradually spreads to the entire company which severely affect the interest
of minority.
To curb this oppression /evil, there are some
provisions in Companies Act, 2013 which prohibit the misuse of oppressions
committed by majority and gives rights to minority to present their plea before
the Tribunal to get remedy.
These provisions are given from section (241 to 246).
2. Meaning of Oppression:
Oppression is a social act of inflicting severe
reactions on an individual group or institution.
Cambridge dictionary - A feeling of being very
uncomfortable and worried.
Oppression is not defined in company law 2013. But
the court defines it as a conduct that includes a visible departure from the
standards of fair dealing and violation of conditions that require fair
practice for rights of shareholders.
Oppression involves fraud, breach of duty and misconduct.
3. Meaning of Mismanagement:
Mismanagement is also not defined in company law
2013. It may be described as a control on matters of the company in unjust and dishonest
matter.
It also refers the process of managing incompetently,
wrongly or badly.
4. Rights of Tribunal regarding Prevention of Oppression
and Mismanagement Section (241):
On submitting the application before the Tribunal,
the Tribunal can exercise its powers in two conditions -
(i) In case of oppression. (ii) In case of Mismanagement.
5.. Who can apply to Tribunal?
In case of oppression and mismanagement, following
members may apply to Tribunal for remedies -
(i) In case of Company with a Share Capital -
Not less than 100 members or not less than 1/10th
of the total number of its members whichever is less, or
Any member or members holding not less than 1/10th
of the issued share capital of the company.
Note - The applicant should have paid all the calls
and other sums payable on shares.
(ii) In case of a company with no share capital -
Not less than 1/5th of the total number
of its members. Section (244)
Anyone or more than one members, after obtaining
consent of other members, may apply on behalf of all of them. The Central Government
may allow less number of applicants, if deems think appropriate under section (241)
(1) Application in Tribunal in case of Injustice -
If members complain about Injustice and the Tribunal
is of the opinion that (a) The management of the company is being performed
which is against public policy or unjust against anyone or more members and (b)
The Order of winding up of the company shall be harmful to the interest of such
members,
The Tribunal may order to rectify the related
matters as it thinks fit.
Such an order is an alternative to order of winding
up.
Case Laws - (i) N R Murthy Vs ID corporation of
Odisha.
(ii) Elder Vs Elder and Watson Limited.
(2). Application in Tribunal in case of Mismanagement
-
If members of the company, feel that -
(i) The functions of the company are against Public
Interest or companies interest, or
(ii) Due to any substantial change in control of
management of the company, it is possible that such change may go against
Public Interest or company’s interest,
The members may apply to Tribunal for prohibiting
this mismanagement.
If on the basis of such application, the Tribunal
believes that there is Mismanagement in the company which may cause harm to
interest of public or company, that Tribunal may pass such an order as it thinks
appropriate.
Note - As provided in section (241), change made in
management or control of the company, which negatively affects the interest of
company, is called 'Mismanagement'. e.g. (i) Change in Board of Directors or Management,
(ii) Change in ownership of shares, (iii) In case of company with no share
capital, any change occurred in membership of company etc.
Case Laws - (i) V J Thomas Vs Kuttanav Rubber
Company Limited.
(ii) Kumar Exporters Private Limited and Others Vs
Naini Oxygen and Acetylene Gas Company Limited and Others.
6. Powers of Tribunal: Under Section (242):
(I) Power to Prevent Oppression and Mismanagement -
The Tribunal may issue orders for followings -
(i) To regularize the affairs of the company in
future.
(ii) To purchase the interest or shares of the
members of the company by other members or company itself.
(iii) To reduce the share capital of the company in
case of purchase of shares by the company.
(iv) On termination or correction of any agreement
done between the company and the following persons - (a) Managing Director, (b)
Any other Director, (c) Managing Agent, (d) Secretary, (e) Treasurer and (f) Manager
(v) Agreement between company and the members who
have not be mentioned in (iv) cannot be terminated or corrected as long as not
informed to the concerned parties.
(vi) For cancellation of any transfer, delivery or
payment of any property by the company.
(vii) For any other matter, which the Tribunal
thinks justifiable under section (242).
(II) Power to Issue Interim Order -
On any application given by any person, before
giving any Final Decision, the Tribunal may issue any such interim order to
control the affairs, which it thinks appropriate and justifiable section (242).
7. Effects of the Order of Tribunal:
(i) Effects on MOA and AOA -
If subject to any order of the company, any changes
have been made in AOA or MOA no company can make such a change which has been
made in the contrary to the change made by Tribunal or the change made does not
match with the change made by the company.
If the company makes any change in MOA or AOA, its
information should be given by the company to the ROC within 30 days.
(ii) Effects on Managers /Officers -
If, as a result of the order of the Tribunal,
agreements made with manager /officers (Managing Director, Director, Manager
etc.) get cancelled or any amendments are made in the agreements and due to this
amendment, any person is removed from his post, then - (a) No compensation
shall be given to him and (b) He will not be appointed on same post till next 5
years.
(iii) Penalty – Under Section 242 (8)
If any company violates the provisions of section
242 (5), the company will be imposed with the penalty of minimum ₹ 1 lakh to
maximum ₹ 25 lakhs and every defaulting officer of the company shall be
punished with imprisonment of maximum 6 month or with fine of minimum ₹ 25000
and maximum ₹ 1 lakh or with both.
8. Consequence of Termination /Modification of Certain
Agreement: Under Section (243)
(i) Where an order issued under section (242);
terminates, sets aside or modified an agreement such as is referred to in sub -
section (2) in that section -
(a) Such order shall not give rise to any claims
whatever against the company by any person for damages or for compensation for
loss of office or in any other respect either in pursuance of the agreement or
otherwise.
(b) No managing director or other director or
manager whose agreement is so terminated or set aside shall, for a period of 5
years from the date of order terminating or setting aside the agreement,
without the leave of the Tribunal, be appointed, or act, as the managing
director or other director or manager of the company.
Provided that the Tribunal shall not grant leave
under this clause unless notice of the intention to apply for leave as been served
on the central government and that government has been given a reasonable
opportunity of being heard in the matter.
(ii) The person who knowingly violated the clause (b)
of sub-section (1) and acts as a managing director or other director or manager
of the company and such every director who knowingly becomes a part of such
violation, shall be punishable with imprisonment for the term which may extend
to 6 months of with fine which may extend to ₹ 5 Lakhs or with both.
9. Class Action: Under Section (245)
(i) If Member (s) or Depositor (s) of the company
feel that the business of the company is carrying out against the interest of
them, they can file an application before the Tribunal in this regard.
(ii) The Member (s) or Depositor (s) rise the demand
for action against the auditor or firm of the auditor, the concerned audit firm
and every defaulting partner shall be declared as responsible.
(iii) (a) In case of a company with share capital
minimum 100 members of the company or any specified number of total members of
company whichever is less or any member (s) who have specified person of issued
share capital of the company, may make demand.
(b) In case of company with no share capital 1/5th
of number of total members.
(iv) Order issued by Tribunal shall be applicable to
the company, all the members, depositors and auditor (including firm of Auditor,
Expert, Consultant and Advisor) or any person of the company.
(v) Any company, who under this section fails to
implement the order issued by Tribunal, it will be fined with minimum ₹ 5 lakhs
and maximum ₹ 25 lakhs, and every defaulting officer of the company shall be
punished with imprisonment of a term of up to 3 years, and with fine of ₹ 25000
and maximum ₹ 1 lakh or with both.
10. Reasons / Bases to File Application:
For following purposes, application may be submitted
before the Tribunal -
(i) Prohibiting of the company from ultra-virus Acts
of MOA and AOA.
(ii) Prohibiting of the company from violating
provisions of MOA and AOA.
(iii) If any resolution have been passed by winding
the important facts or by misstatements which alter the MOA and AOA, declaring
such resolution void and null.
(iv) Prohibiting the company and directors to work
on resolution.
(v) Prohibiting the company to do such acts which
are against the provisions of Companies Act or other laws.
(vi) Any other remedy with which the Tribunal may think appropriate.
