Oppression and Mismanagement in Companies Law
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Oppression and Mismanagement in Companies Law

Oppression is the exercising of authority or power in burdensome or inhuman imposing of burdens one cannot endure or exact more than one can perform. Mismanagement refers to the process or practice of managing poorly, artlessly, or unskillfully.

Circumstances that can be regarded as mismanagement:

  • Preventing directors from functioning
  • Violation of statutory provisions
  • Violation of MOA and AOA provisions
  • Misapplication of Funds etc.

In a corporate world, all the major decisions in the company are taken by management on a majority basis; therefore, members pass a resolution on various subjects either by simple or three fourth the majority. Accordingly, the court will ordinarily not intervene to protect minority interests affected by the resolution. However, the Companies Act has an exception to this rule in case of oppression and mismanagement.

Therefore, it is to be noted that this section comes into action whenever there is the oppression of the minority, or there is mismanagement of the affairs of a company which is harmful to the public interest or to the company’s interest and its members. This section also mentions the instances in which an application can be made to the tribunal by any member of a company or the Central Government for relief in cases of oppression and mismanagement.

Who can apply and who can’t
According to the companies Act 2013 with reference to Sec 241, namely:

  • The company has a share capital, up to one hundred member’s of the company or up to one-tenth of the total number of its member’s, whichever is less, or any member/members holding up to one-tenth of the issued share capital of the company, subject to the condition that the applicant/applicants have or have paid all calls and other sums due on his or their shares.
  • The company did not have a share capital, up to one-fifth of the total number of its members.

This section will provide relief against any affairs that have been conducted in a manner which are:

  • Prejudicial to the company’s interest,
  • Prejudicial to the public interest or
  • Oppressive to any Member:
    • By changing the member of the company,
    • Change in ownership of company’s share or board of directors or managers in case they are prejudicial to company’s interest or
    • If it has no share capital in its membership

Sec 242: Power of Tribunal

  1. If the tribunal find that the affairs of the company are being conducted in a manner prejudicial to the company’s interest, its members or to public interest and if winding up is unfairly biased to such member /members and the facts would justify that it fair to wind up the company: Tribunal may order as it deems fit.
  2. Other than the general powers laid down, an order may provide for:Regulation of company’s affairs in future
    • Purchase of shares or interests of any members of the company by any other member
    • If any shares are purchased, its subsequent reduction of share capital
    • Restriction on the allotment of shares
    • Terminating, setting aside or amendment of any agreement between the company and its Managing Director, any other director or manager
    • Terminating, setting aside or amending any agreement between the company and any other person
    • The setting aside of:
    • Any transfer, delivery of goods
      • Payment, execution or
      • Other act relating to the property

The company within 3 months before the date of the application, which would if done/by or against an individual, be deemed in his insolvency to be a false preference:

  • Termination of managing director, manager or any director of the company
  • Receipt of unaccounted gain made by any managing director/manager/director and the utilization of the amount.
  • Way of appointment of managing director/manager of the company may be consequent to an order of removing
  • Recruitment of several such persons as directors.
  • Imposition of costs as may be considered fit by the tribunal.
  • Any other matters which the tribunal thinks it is justified
  • After the tribunal’s order, filing the certified copy of the order with ROC within 30 days is mandatory.

Thus the Companies Act, 2013 certifies that the rights of the minority members are protected in every plausible manner. However, the stake held by them in a company is not in any manner submissive to the majority and the law must protect their interests from any repulsive activity of the latter.

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