COMPANY

LAW

PREVENTION OF OPPRESSION & MISMANAGEMENT

LAB Project

Equity Research
Report

IMT GHAZIABAD | TEAM: G04, SEC-G

What is the meaning of

Oppression

Oppression is the exercise of authority or power

in a burdensome, cruel, or unjust manner.
An act or instance of oppressing, the state of
being oppressed, and the feeling of being heavily
burdened, mentally or physically, by troubles,
adverse conditions, and anxiety.
Daleant Carrington Investment (P) Ltd. v. P.K.
Prathapan case.

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SECTION 397,398

Majority rules over company

Possibility that majority may adopt measures
which are not favorable to others.
Thus there is oppression.
Examples

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Relief From Oppression and

Mismanagement
In case of oppression of members & mismanagement of
company by majority, a requisite no. of shareholder
can apply for appropriate relief to:

The tribunal for winding up

The National Company Law Tribunal (NCLT)

The Central Govt.

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Application to NCLT (Sec. 397)

This first remedy in the hand of oppressed

members

A requisite no of shareholder can apply for

appropriate relief to NCLT

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Relief From NCLT

Section 397 of Company law indicates that the

NCLT may grant relief to an applicant on
following grounds:
The company affairs are being carried out in a
way that is harmful to public interest or
oppressive to an associate or associates.
If the NCLT feels that it is justified and fair to
wind up the company.
If it feels that winding up the organization will
cause injustice to the complainants.

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WHO CAN APPLY FOR RELIEF

Requisite number of members should sign on the application.
a)
Company having share capital:
i.
Not less than 100 members or 1/10 of the total number of
its members, whichever is less, or
ii.
By any member(s) holding not less than 1/10 of the
issued share capital.
Example : The case of Tarlok Chand Khanna And Another vs.
Raj Kumar Kapoor And Others, 1983, Delhi High Court
regarding maintanence of bank accounts by shareholders
in the company.

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Who can apply for Relief contd.

(b) In the case of a company not having a share capitalnot less than 1/5 of the total number of members [Section 399(1)
(b)].
(c) Besides Members:

Central Govt. or any person authorized by the Central Govt.

Trustees of a shareholder/member

A legal representative of a deceased member

(d) The Central GovernmentThe Central Government can also apply or authorise a member or
members to make an application under Section 397 or 398, though
the [B]requisite conditions under [a] and are not satisfied [Section
399(4)].
CASE of Satyam

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How to apply

An application under Section 399(4) must contain the names

and addresses of the applicants, the total numbers of
applicants, etc., it must be verified by an affidavit.
The Central Government may require the applicant to
produce documentary evidence in support of the complaint
[Section 399(4)].

It may also require the members to give security for costs

[Section 399(5)]
The notice of every application made to the NCLT under sec.
397/398 for oppression or mismanagement must be given by
NCLT to Central Govt.

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Act Held As Oppressive (By Court /

NCLT)

Not calling a gen. meeting & keeping the shareholder in

dark

Non maintenance of statutory records & not conducting

affairs of the co. in accordance with the Cos Act

Depriving a member of the right to dividend

Transfer of share held by Company to some shareholders

otherwise than by making an offer to all

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Contd..

Allotment of share by directors in a manner by

which majority of share-holders is reduced to a
minority
Failure to distribute the amount of compensation
received on nationalization of business of Co.
among the members, where required to be so
distributed
Countermanding decision of board of directors
who controls majority voting power, & not
allowing board to perform its functions

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Contd..

If sale of asset is made by a Co. to some of its

directors & simultaneously giving them loan to
purchase the same

Issue of further shares benefiting a section of the

share holders

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Acts Not Held As Oppressive

An unwise, inefficient careless conduct of a

director
Not declaring dividend when Co. is making loss
Non-holding of the meeting of the director
Failure to maintain proper records of the Co.

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Acts Not Held As Oppressive

Denial of inspection of books to a shareholder

Lack of details in notice of a meeting
Increasing the voting rights of the shares held by
the management

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Majority?
Relief can be granted if the application is made by
majority share holder who have been rendered
completely ineffective by the questionable acts of a
minority group.

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Prevention of Mismanagement

Sec. 398 of 1956 Company Act provides for relief in

case of mismanagement by majority
Requisite no. of members may apply to CLB for
appropriate relief
Inefficient management also amounts to
mismanagement and comes under the section
Mismanagement must have existed and continued at
the time of application

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Rajahmundry Electric Supply Corp.

vs A.Nageshwara Rao

Petition filed by certain shareholders on grounds of

mismanagement by directors
Thorough enquiry by the court
Considerable amounts drawn by the VC for personal use
Machinery lying in state of despair
Shareholders outside the VCs circle did not have enough
powers
Court appointed two administrators for a period of six
months

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Acts Held as Mismanagement

Serious in fight between the directors

Illegal constitution of the board of directors

Continuation of managing director in office after the

expiry of his term

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Acts Held as Mismanagement

Absence of records and losses

Operation of bank A/C by an

unauthorized person

Company doomed to trade unprofitably

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Contd..

Sale of assets at low price & with out compliance

with the Act

Violation of statutory provisions & those of articles

Violation of the condition of the Cos

memorandum

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Acts not held as Mismanagement

Building up of reserves
Merely because company incurs loss, it can not be
that it is mismanaged
Removal of secretary by majority decision of the
board of directors unless it is shown that the
removal has prejudicially affected the interest of
the Co. or the public interest

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Acts not held as

Mismanagement(contd)

Removal of director and termination of works

managers services.
Arrangement with creditors in companys bonafide
interest.

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Powers of the NCLT: Prevent change in Board of

Director
When,
a complaint is made to the Company Law Board by the managing director or
any other director or the manager of a company regarding;

Change in ownership

Change in shares held in the company,

Which,
May lead to a change in the Board of directors place which (if allowed)
would affect prejudicially the affairs of the company,
Then,
After inquiry if it thinks fit to make that it is just and proper to do so, by
order direct that no resolution passed or that may be passed or no action
taken or may be taken to effect a change in the Board of directors after
the date of the complaint shall have effect unless confirmed by the
Company Law Board.
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Powers of the NCLT

a)

b)

Sections 397 and 398 confer general powers on the Company

Law Board (now Tribunal) to end oppression and
mismanagement.
Section 402 empowers it to grant certain specific reliefs. The
reliefs contemplated under section 402 are:the regulation of the conduct of the company's affairs in
future;
the purchase of the shares or interests of any members of the
company by other members thereof or by the company;

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Powers of the NCLT

(c) in the case of a purchase of its shares by the company as aforesaid, the
consequent reduction of its share capital;
(d)

the termination, setting aside or modification of any agreement,

howsoever arrived at, between the company on the one hand, and any of
the following persons, on the other namely:
(i) the managing director,
(ii) any other director,
(iii) the managing agent,
(iv) the secretaries and treasurers, and
(v) the manager,
upon such terms and conditions as may, in the opinion of the Court, be
just and equitable in all the circumstances of the case;

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Powers of the NCLT

(e) the termination, setting aside or modification of any agreement between
the company and any person not referred to in clause (d), provided that
no such agreement shall be terminated, set aside or modified except after
due notice to the party concerned and provided further that no such
agreement shall be modified except after obtaining the consent of the
party concerned;
(f)

(g)

the setting aside of any transfer, delivery of goods, payment, execution or

other act relating to property made or done by or against the company
within three months before the date of the application under section 397
or 398, which would, if made or done by or against an individual, be
deemed in his insolvency to be a fraudulent preference;
any other matter for which in the opinion of the Court it is just and
equitable that provision should be made.

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POWER OF THE CENTRAL GOVT.

Power to prevent oppression or mismanagement
(Sec. 408)

On the application of 100 members or

members holding 10 % or more of the
total voting, central govt. may appoint
such number of persons as additional
directors.
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Power to remove managerial

personnel

When concerned person is guilty

When business being conducted by person of
unsound principles
When business is run by person in manner of
causing injury and damage to interest of trade
When business is managed by person with
intent to defraud

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Thank You