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BL/U3 Topic 11 Prevention of Oppression and Mismanagement

Chapter XVI of the Companies Act, 2013 deals with the provisions relating to prevention of oppression and mismanagement of a company. Oppression and mismanagement of a company mean that the affairs of the company are being conducted in a manner that is oppressive and biased towards the minority shareholders or any member or members of the company. To prevent the same, there are provisions for the prevention and mismanagement of a company.

Application to tribunal for relief in cases of oppression, etc

According to section 241, any member of the company who complains that the affairs of the company are being conducted in a manner that is prejudicial to public interest or in a manner prejudicial or oppressive to him or any material change that is being brought about by, or in the interests of, any creditors, including debenture holders or any  class shareholders of the company etc. that would materially affect the management of the company and would make its affairs prejudicial to public interests or any of its member or class of members, may make an application to the tribunal in accordance with the provisions of section 244 of the Act.

The central government may also make an application to the tribunal for its orders where it thinks that the affairs of the company are prejudicial to public interest.

Powers of Tribunal

Under section 242 of the Act, the Tribunal has the power to order for the regulation of the conduct of affairs of the company in future, the purchase of shares, restriction on the transfer of the share, termination, setting aside or modification of any agreement, setting aside of any transfer, delivery of goods, payment, execution or other act relating to property, removal of managing director, manager, or any of the directors of the company, recovery of undue gains made by any managing director, manager or director during the period of his appointment as such, imposition of costs as may be deemed fit.

A certified copy of the order shall be filed with the registrar within 30 days of the order by the tribunal.

Any contravention of the provisions of this chapter shall lead company towards the imposing of fine which shall not be less than 10 lakh rupees and which may extend to 25 lakh rupees and every officer of the company who is in default shall be punished with an imprisonment of six months and with fine which shall not be less than twenty-five thousand rupees and which may extend to one lakh rupees.

Consequences of termination or modification of certain agreement

If an order of the tribunal set asides, modifies or terminates any ongoing agreement then as per the provisions of section 243 of the Act, such an action shall not give rise to any claims against any director or any person of the company for compensation for damages, etc. Any director, managing director, etc who has been terminated from the post as per the orders of the tribunal shall not hold the office of the same before the expiry of a period of five years from the order of the tribunal.

Right to apply under section 241

According to section 244 of the Act, the following people can apply for the orders from the tribunal-

  1. In the case of a company having share capital of not less than one hundred members of the company 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, subject to the condition that the applicant or applicants has or have paid all calls, and other sums due on his or their shares.
  2. In the case of a company not having a share capital, not less than one- fifth of the total number of its members.

Section 245 of the act talks about class action suits, wherein the class of members having a similar cause of action can file an application before the tribunal to seek necessary orders.

The prevention and oppression of mismanagement of a company is required so that there is no prejudice towards the public interest and there is no biasness towards the minority shareholders. Thereby the Act incorporates the wide provisions for the same so that there is smooth functioning of the companies, as well as the interest of all the shareholders, is put to forth.

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