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MinorityRightsonOppressionandMismanagementUnderCompaniesAct,1956AndCompaniesBill,2011

Source:http://www.
Author:AnarParikh
Publishedon:June20,2013
ComparativeAnalysisonMinorityRightsonOppressionand
MismanagementUnderCompaniesAct,1956AndCompaniesBill,2011

AnarParikh'sProfileand
details

MinorityProtectionPreventionofOppressionand
MismanagementunderCompaniesAct,1956

IamMs.
Anar

Parikh,
TheRuleofMinority:
studyingin
Theprincipleofrulebymajorityhasbeenapplicabletothe
VIsemester
managementoftheaffairsofthecompanies.Thememberspass
atInstituteofLaw,
resolutionsonvarioussubjectseitherbysimplemajorityorby
NirmaUniversity
specialmajority.Oncearesolutionispassedbytherequisite
majoritythenitisbindingonallthemembersofthecompany.Onbecomingamember,each
personimpliedlygivesconsenttothewillofthemajority.Thus,ifthewrongisdonetothe
company,itisthecompanywhichisthelegalentityhavingitsownpersonalityandthatcan
onlyinstituteasuitagainstthewrongdoer,andtheshareholdersindividuallydonothavea
righttodoso.
PalmerhaslaiddowntwopropositionsafterthecaseofFossv/sHarbottleareasfollows:
1.Thefirstproposition,whichisthatthecourtwillnotordinarilyinterveneinthecaseofan
internalirregularityifthematterisonewhichthecompanycanratifyorcondonebyitsown
internalprocedure.
2.Thesecondisthatwhereitisallegedthatawronghasbeendonetoacompany,primafacie,
theonlyproperplaintiffisthecompanyitself.
TheAdvantagestothetheruleinFossv/sHarbottle:
1.Recognitionoftheseparatelegalpersonalityofthecompany
2.Needtopreserverightofmajoritytodecide
3.Multiplicityoffutilesuitsavoided
4.Litigationatsuitofaminorityfutileifmajoritydoesnotwishto
TheexceptionstotheruleinFossv/sHarbottle:
ThefollowingcasestheruleinFossv/sHarbottledoesnotapplyi.e.theminorityshareholders
maybringanactiontoprotecttheirinterest:
1.Ultraviresandillegalacts
2.BreachofFiduciaryduties
3.Fraudoroppressionagainstminority
4.Inadequatenoticeofaresolutionpassedatameetingofmembers
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5.Qualifiedmajority
6.Wherethepersonalrightsofanindividualmemberhavebeeninfringed
7.Statutoryexceptions:
Variationofclassrights[Section106]
Schemeofreconstructionandamalgamation[Section394]
Oppressionandmismanagement[Section397and398]
Rightsofdissentientshareholdersundertakeoverbids[Section395]
ThetermofOppressionunderCompaniesAct,1956:
Oppressionistheexerciseofauthorityorpowerinaburdensome,cruel,orunjustmanner.It
canalsobedefinedasanactorinstanceofoppressing,thestateofbeingoppressed,andthe
feelingofbeingheavilyburdened,mentallyorphysically,bytroubles,adverseconditions,and
anxiety.
ThetermoppressionexplainedinthecaseScottishcaseofElderv/s.Elder&WatsonLtd.
whichwascitedinthecaseofShantiPrasadJainv/s.KalingaTubesbytheSupremeCourt
Theessenceofthematterseemstobethattheconductcomplainedofshould,atthelowest,
involveavisibledeparturefromthestandardsoftheirdealing,andaviolationofthe
conditionsoffairplayonwhicheveryshareholderwhoentrustshismoneytothecompanyis
entitledtorely.
Themostimportantelementofoppressionisthatitshouldbeacontinuousact,whichmeans
thattheactmustbecontinuedbythemajorityshareholdertilldatethepetitionisfiledwiththe
Tribunal.
Section397oftheCompaniesAct,1956saysthatwhenanyaffairofthecompanyisbeing
conductedtoanymemberormembersbythewayofprejudicetopublicinterestoroppressive
thenanyoneormorethanonememberhaverighttoapplytotheTribunalbythevirtueof
Section399oftheCompaniesAct,1956.
TherequisitenumberofmemberswhomustsigntheapplicationisgivenunderSection399of
theCompaniesAct,1956.
1.Incaseofacompany,havingasharecapitalanapplicationsignedbyatleastonehundred
membersorbyatleast1/10thofthetotalnumberofitsmembers,whicheverisless
OR
Avalidapplicationmaybemadebyanymember/membersholdingnotlessthan1/10thofthe
issuedsharecapitalofthecompany
2.Incaseofacompany,havingnotasharecapitalanapplicationsignedbyatleast1/5thof
thetotalnumberofmembersofthecompany.
Ifthecalculationofrequisitemembersasper(1)mentionedabove,jointholdersoftheshares
shallbecountedasonememberonly.
ActsheldasOppression
Thefollowingarethefewactswhicharesaidtobeasoppressionthroughvariousjudgments
1.Notcallingageneralmeetingandkeepingshareholdersindark.
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2.Nonmaintenanceofstatutoryrecordsandnotconductingaffairsofthecompanyin
accordancewiththeCompaniesAct.
3.Deprivingamemberoftherighttodividend.
4.Refusaltoregistertransmissionunderwill.
5.Issueoffurthersharesbenefitingasectionofshareholders.
6.Failuretodistributetheamountofcompensationreceivedonnationalisationofbusinessof
companyamongmembers,whererequiredtobesodistributed.
ActsnotheldasOppressive
Thefollowingarethefewactswhicharesaidnottobeasoppressionthroughvarious
judgments
1.Anunwise,inefficientorcarelessconductofdirector.
2.Nonholdingofthemeetingofthedirectors.
3.Notdeclaringdividendswhencompanyismakinglosses
4.Denialofinspectionofbookstoashareholder.
5.Lackofdetailsinnoticeofameeting.
6.Nonmaintenance/Nonfilingofrecords.
7.Increasingthevotingrightsofthesharesheldbythemanagement.
ThetermofMismanagementunderCompaniesAct,1956:
Mismanagementsimplymeansinefficientorcarelessmanagementofacompanysaffairsor
properties.Mismanagementofacompanymaybecarriedoutbythemajorityshareholders,
whoworktowardstheirpersonalinterestsratherthantheinterestsofthecompanyasawhole.
Section398oftheCompaniesAct1956providesthecircumstancesthereliefcanbemade
availabletotherequisitenumberofmembersaslaiddownunderSection399incaseof
mismanagement.
Thereliefisgrantedif:
1.theaffairsofthecompanyareprejudicetothepublicinterestorprejudicetotheinterestsof
thecompany
2.Thechangeinthemanagementandthecontrolofthecompanybyalterationinitsboardof
directors,managersorintheownershipofthecompanyssharesandifnothavingshare
capitalthen`initsmembershiporinanyothermanner.Itdoesnotincludechangebroughtin
theinterestsofanycreditorincludingdebentureholdersoranyotherclassofshareholdersof
thecompany.
TherequisitenumberofmemberswhomustsigntheapplicationisgivenunderSection399of
theCompaniesAct,1956.
1.Incaseofacompany,havingasharecapitalanapplicationsignedbyatleastonehundred
membersorbyatleast1/10thofthetotalnumberofitsmembers,whicheverisless
OR
Avalidapplicationmaybemadebyanymember/membersholdingnotlessthan1/10thofthe
issuedsharecapitalofthecompany
2.Incaseofacompany,havingnotasharecapitalanapplicationsignedbyatleast1/5thof
thetotalnumberofmembersofthecompany.

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Ifthecalculationofrequisitemembersasper(1)mentionedabove,jointholdersoftheshares
shallbecountedasonememberonly.
ActsheldasMismanagement
Thefollowingarethefewactswhicharesaidtobeasmismanagementthroughvarious
judgments
1.Wherethereisseriousinfightingbetweendirectors.
2.WheretheBoardofDirectorsisnotlegalandtheillegalisbeingcontinued.
3.Diversionoffundsofthecompanyforthebenefitofmajoritygroup.
4.Wherebankaccountwasoperatedbyunauthorizedpersons.
5.Wherethedirectorstakenoseriousactiontorecoveramountsembezzled.
6.Wherethemanagingdirectorsofthecompanycontinuedinofficeevenaftertheirtermwas
expiredandnomeetingwasheldtoreappointthem.
7.ViolationofMemorandum.
8.Companydoomedtotradeunprofitably.
9.ViolationofstatutoryprovisionsanditsArticles.
10.SaleofassetsatlowpriceandnoncomplianceoftheAct.
ActsnotheldasMismanagement
Thefollowingarethefewactswhicharesaidnottobeasmismanagementthroughvarious
judgments
1.Buildingofreservesandnotdeclaringdividends.
2.Companyincurringlosses
3.Arrangementwithcreditorsincompanysbonafideinterest.
4.Removalofdirectorsandterminationofwoksmanagerservices.
ComparativestudyonMinorityRightunderCompaniesAct,1956andCompaniesBill,2011
TheComparisonamongtheprovisionsoftheoppressionandmismanagementunder
CompaniesAct,1956andproposedCompaniesBill,2011canbeseenunderSection397and
398ofCompaniesAct,1956withtheClause241andClause245oftheproposedCompanies
Bill,2011.
1.CombinedProvisionsforreliefrelatedtooppressionandmismanagement:
Section397and398ofthecompaniesacttalksaboutoppressionandmismanagement
respectively.Thecircumstancesforgrantingreliefhasbeenspecifiedonlyformismanagement
andnotforoppressionundercompaniesact,1956.
Itdoesnotclearlyspecifyastowhichcircumstancesaretobeincludedundertheterm
oppression.TheSectiononlymentionsabouttheactofthecompanyprejudicetopublic
interestoroppressivetooneormorethanonememberofthecompany.
ButtheClause241oftheCompaniesBill,2011combinesboththeprovisionsofoppression
andmismanagementasone.Sothecircumstancesforgrantingrelieftomismanagementwill
alsobenowapplicabletooppressionasbothhavecomeunderthesameprovision.
2.NewClause245hasbeenaddedtotheCompaniesBill,2011:
TheClause245oftheCompaniesBill,2011,saysthatnotonlymember/sbutalsodepositor/s
oranyclassofthemasthecasemaybecanfileanapplicationbeforetheTribunaliftheaffairs
ofthecompanyarebeingconductedprejudicetotheinterestsofthecompany,itsmembersor
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depositors.
Themembersordepositorscanseekfollowingorders:
1.torestrainthecompanyfromcommittinganactwhichisultraviresthearticlesor
memorandumofthecompany
2.torestrainthecompanyfromcommittingbreachofanyprovisionofthecompanys
memorandumorarticles
3.todeclarearesolutionalteringthememorandumorarticlesofthecompanyasvoidifthe
resolutionwaspassedbysuppressionofmaterialfactsorobtainedbymisstatementtothe
membersordepositors
4.torestrainthecompanyanditsdirectorsfromactingonsuchresolution
5.torestrainthecompanyfromdoinganactwhichiscontrarytotheprovisionsofthisActor
anyotherlawforthetimebeinginforce
6.torestrainthecompanyfromtakingactioncontrarytoanyresolutionpassedbythe
members
7.toclaimdamagesorcompensationordemandanyothersuitableactionfromoragainst
a.thecompanyoritsdirectorsforanyfraudulent,unlawfulorwrongfulactoromissionor
conductoranylikelyactoromissionorconductonitsortheirpart
b.theauditorincludingauditfirmofthecompanyforanyimproperormisleadingstatementof
particularsmadeinhisauditreportorforanyfraudulent,unlawfulorwrongfulactorconduct
or
c.anyexpertoradvisororconsultantoranyotherpersonforanyincorrectormisleading
statementmadetothecompanyorforanyfraudulent,unlawfulorwrongfulactorconductor
anylikelyactorconductonhispart
8.toseekanyotherremedyastheTribunalmaydeemfit.
Theapplicationforthesamehastobesignedbytherequisitenumberofmembersasspecified
underSection399oftheCompaniesAct,1956.
Theapplicationforthesamehastosignedbytherequisitenumberofdepositorsshallbe
1.atleastonehundreddepositorsornotlessthansuchpercentageofthetotalnumberof
depositorsasmaybeprescribed,whicheverisless.
OR
2.Anydepositorordepositorstowhomthecompanyowessuchpercentageoftotaldepositsof
thecompanyasmaybeprescribed.
Whileconsideringanapplicationundersubsection(1),theTribunalshalltakeintoaccount,in
particular
1.whetherthememberordepositorisactingingoodfaithinmakingtheapplicationfor
seekinganorder

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2.anyevidencebeforeitastotheinvolvementofanypersonotherthandirectorsorofficersof
thecompanyonanyofthemattersprovidedinclauses(a)to(f)ofsubsection(1)
3.whetherthecauseofactionisonewhichthememberordepositorcouldpursueinhisown
rightratherthanthroughanorderunderthissection
4.anyevidencebeforeitastotheviewsofthemembersordepositorsofthecompanywho
havenopersonalinterest,directorindirect,inthematterbeingproceededunderthissection
5.wherethecauseofactionisanactoromissionthatisyettooccur,whethertheactor
omissioncouldbe,andinthecircumstanceswouldbelikelytobe
a.authorizedbythecompanybeforeitoccursor
b.ratifiedbythecompanyafteritoccurs
6.Wherethecauseofactionisanactoromissionthathasalreadyoccurred,whethertheactor
omissioncouldbe,andinthecircumstanceswouldbelikelytobe,ratifiedbythecompany.
ThisClause245isnotapplicabletoBankingCompanies.Thus,theClause245providesfor
thevariousorderswhichthemembersorthedepositoriescanseek,therequisitenumber
requiredforfilinganapplicationandalsoabouttheparticularstheTribunaltakeintoaccount
whileconsideringanapplication.Hence,thenewaddedclausehasexpandedthescopefor
makinganapplicationaswellasprovidesaconcretebaseonwhichanapplicationcanbe
consideredandalsoastowhatorderscanbepassed.
Conclusion
ThattherewillbedrasticchangeintheMinorityRightsaftertheenactmentofCompaniesBill
2011.TherehasbeenmajorchangeintheproposedCompaniesBill,2011.TheClause241of
theBillalsoincludesOppressionforgrantingtherelieftotheminority.TheSection397of
theCompaniesAct,1956doesnotdefinethescopeofoppressionbutthesameisdefined
undertheBill.
ThesecondmajorchangebroughtintheBillisthatofClause245whichisnewlyadded.This
clauseclearlystatesthatnotonlymembersbutdepositorscanfileanapplicationinthe
Tribunal.Italsofurtherstateswhatordersthemembersorthedepositorscanseekfromthe
TribunalandalsowhatorderstheTribunalcangivetothereliefseeker.Thus,therehavebeen
majorchangesproposedintheCompaniesBill,2011intheRightsofMinorities.
CompaniesAct,1956definesfewoftherightsgiventotheminorities.Oneofthemis
OppressionandMismanagementdefinedunderSection397and398oftheCompaniesAct,
1956.Butthescopeforseekingthereliefisnotdefinedinthecaseofoppression.Theorders
onwhichtheapplicantscanseekreliefandtheorderswhichtheTribunalcangivearealsonot
mentioned.Itdoesnotgiveclearpictureastowhatreliefcanbetakenbytheapplicantinthe
caseofoppressionandmismanagement.
Ontheotherhand,CompaniesBill,2011clarifiesallsuchvariousdoubtsastothescopefor
seekingthereliefunderoppressionunderClause241andprovidingtheideaaboutordersi.e.
whatapplicantscanseekandwhattribunalhastoprovideundernewlyaddedClauseof245.
Thus,givesclearideatotheminoritiesiftheywanttoseekreliefunderOppressionand
Mismanagement.

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Thus,aftercomparingbothCompaniesAct,1956andCompaniesBill,2011onOppression
andMismanagement,itcanbeconcludedthattheproposedchangesareverymuchusefulto
theminoritiesasitgivesclearpictureforthesame.
~~~~~~~~~~~~
Bibliography
Website:
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http://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2012.pdf
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mismanagement4821.html
#TheCorporateProfessionalGroup,CompaniesBill2011MajorHighlights,Taxguru,Dec
152011,http://taxguru.in/companylaw/companiesbill2011majorhighlights.html
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ArrangementofClauses,MinstryofCorporateAffairs,Dec22011,
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A.K.MajumdarandDr.G.K.Kapoor,CompanyLaw,TaxmannPublication(P.)Ltd.,15th
Edition.
CompanyLaw,TheInstituteofCompanySecretariesofIndia,2011Series
Theauthorcanbereachedat:anarparikh7@legalserviceindia.com

ThisarticlehasbeenawardedFor
ExcellenceinOriginalLegal
Researchworkbyourpenalof
Judges

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