Some Recent Trends In Oppression & Mismanagement Cases Under The Companies Act, 2013

• Published date: 09 June 2021
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Shareholders
• Law Firm: Factum Law
• Author: Mitali Kshatriya and Kumar Sudeep

"...and every city or house divided against itself

will not stand." -Matthew, 12:25

The provisions regulating oppression and mismanagement in companies are an integral part of corporate governance. They ensure that interests of a company are protected and that no shareholder or member of the company faces undue bias or prejudice.

Functioning of companies, of any significant size in terms of issued shares, is based on the broad rule of corporate democracy, i.e. the company makes decisions on its various affairs based on the rule of majority voting, in one form or another, with votes being cast by its shareholders to approve or disapprove of a particular course of action. However, it may sometimes be the case that the decisions of the majority are prejudicial to the company or to the public interest, or prejudicial or oppressive to any of its members. The provisions relating to oppression and mismanagement are included in company law as exception to the majority rule, with a view to prevent misuse or abuse of the voting power of the majority shareholders.

The term 'oppression' involves a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely.¹ Whereas mismanagement implies that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company.²

Provisions relating to oppression and mismanagement are found in Sections 241-246 of the Companies Act, 2013. The relevant provisions and their operation are discussed hereinunder.

When can an application be made:

Section 241 provides that members can approach the National Company Law Tribunal ("Tribunal") in two cases. First, if the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to them or any other member(s), or in a manner prejudicial to the interests of the company.

Secondly, if there is a material change in the management and control of the company by an alteration in the board of directors, membership or share capital, or in any other manner, and the change is likely to cause the affairs of the company to be conducted in a manner prejudicial to the affairs of the company or to its members or any class of members. However, if such change is brought about in the interest of creditors, debenture-holders, or any class of shareholders of the company then the change will not qualify as a material change.

Who can make the application:

Section 244 gives the following people the right to apply for an action under Section 241:

1. in case of a company having a share capital, 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...