JAMIA MILLIA ISLAMIA

FACULTY OF LAW

PROJECT TOPIC:

PREVENTION OF OPPRESSION

CORPORATE LAW-II

SUBMITTED BY: Khushbu Gupta

SUBMITTED TO: Dr. Qazi Mohd. Usman

B.A. LL.B. (Hons.) (Self-finance) 7th Semester

Batch: 2017 - 2022

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 ACKNOWLEDGEMENT

I have taken efforts in this project however it would not have been possible without the kind
support and help of many individuals, websites and books. I would like to extend my sincere
thanks to all of them.

I am highly indebted to Dr. Qazi Mohd. Usman for guidance and constant supervision as well as
for providing necessary information regarding the project and also for his support in completing
the project.

Khushbu Gupta

B.A. LL.B. (HONS.) SELF-FINANCE 4TH YEAR

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1.

TABLE OF CONTENTS

1. INTRODUCTION..........................................................................................................................5

2. MEANING OF OPRESSION.........................................................................................................5

3. ORIGIN OF THE CONCEPT........................................................................................................7

4. ACTS WHICH AMOUNTS TO OPRESSION..............................................................................7

5. ACTS WHICH DOES NOT AMOUNTS TO OPRESSION..........................................................8

6. WHO CAN APPLY FOR OPPRESSION?.....................................................................................9

7. WHO CAN NOT APPLY FOR OPPRESSION?..........................................................................11

8. POWERS OF TRIBUNAL...........................................................................................................11

9. GENERAL POWERS OF THE TRIBUNAL...............................................................................12

10. CLASS ACTION..........................................................................................................................13

11. CASE LAWS................................................................................................................................14

12. CONCLUSION............................................................................................................................15

13. REFERENCES.............................................................................................................................16

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 INTRODUCTION
In general, the functions of the company are governed by the decisions of the Board of Directors
who are guided by the wishes of the majority subject to the welfare of the company. The
supremacy of the majority is the fundamental rule governing company law administration. It is
settled that the actions and decisions of the majority in a company as long as their decisions are
within the framework of law and the articles of the company, those are also binding on the
shareholders of the company,

As the majority rules over the company, there is a possibility that majority may adopt measures
which are not in favour to other members of the company. The majority shareholders may tend
to abuse their powers to the detriment of the minority shareholders. Therefore it becomes
necessary to maintain the balance between rights of majority and minority shareholders fot the
proper functioning of the company. The Companies Act, 2013, has provided the protection to
minority shareholders by giving an option to go to the Tribunal for relief and the tribunal on such
application shall take to prevent oppression. The provisions are laid down under Chapter XVI of
The Companies Act, 2013, for the safeguard of the interests of the investors in companies and for
the protection of the pubic interests.

MEANING OF OPRESSION
The term oppression has not been defined under the Companies Act, 2013. It is left on the
discretion of the court to decide on the basis of the facts and circumstances of the case weather
there is oppression if minority or not. According to dictionary meaning of the term oppression, it
is any act exercised in burdensome, harsh, cruel, wrongful and unjust manner. It can also be
defined as 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.1

The meaning of the term “Oppression” has been explained by Lord Cooper in Scottish case of
Elder v. Elder & Watson Ltd2 and Wanchoo J of the Supreme Court of India in Shanti Prasad

1
http://www.legalservicesindia.com/article/482/Prevention-of-oppression-&-mismanagement.html
2
1952 SC 49 (Scotland)

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Jain v. Kalinga Tubes Ltd3 as “The essence of the matter seems to be that the conduct
complained of should at the lowest involve 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 the company is entitled to rely”.

Explanation of above:

a) The complaining member must prove that he is suffering from oppression the capacity of
a member and not in any other capacity.
b) To constitute oppression, persons who manages the affairs of the company must be guilty
of fraud, misfeasance or misconduct towards the members.
c) Oppression does not include mere domestic dispute between directors and members of
the company or lack of confidence between one set of members and other set of members
in the matter of administration.

According to Lord Keith “Oppression means lack of morality and fair dealings in the affairs of
the company which may be prejudicial to some members of the company.”4

In Shanti Prasad Jain v. Kalinga Tubes Ltd5 it was held that any person claiming relief on the
ground of oppression has to prove on the part of majority, the following

a) lack of probity
b) unfair conduct
c) prejudice to him in the exercise of legal and proprietary rights as a shareholder

In Lalita Rajya Lakshmi v. Indian Motor Co6, it was held that minor acts of mismanagement are
not to be regarded as oppression.

Thus oppression means when the affairs of the company are conducted in a manner prejudicial to
the public interest or in a unjust manner to the member(s).

3
AIR 1965 SC 1535
4
https://taxguru.in/company-law/oppression-mismanagement-companies-act-2013.html
5
AIR 1965 SC 1535
6
AIR 1962 Cal 147

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 ORIGIN OF THE CONCEPT
his rule was laid down in 19th century in the case of Foss v. Harbottle7, the suit was filed by two
shareholders of the company against the directors charging them with various fraudulent and
illegal transactions because of which the propert of the company was misapplied and wasted.
The suit was rejected regarding those transactions which the directors had the power to confirm.
The court was of the view that:

“The conduct with which the defendants are charged is an injury not to the plaintiffs exclusively,
it is an injury to the whole corporation. In such cases the rule is that the corporation should sue in
its own name and in its corporate character. It is not a matter of course for any individual
members of a corporation thus to assume to themselves the right of suing in the name of the
corporation.”

This rule was restated in in Edwards v. Halliwell8, it was held that no individual member of the
company is allowed to maintain an action in respect of that matter for the simple reason that, if a
mere majority of the members of the company is in favour of what has been done, then cadet
quaestio.

The Indian case illustrating the rule in Foss v. Harbottle is Bhajekar v. Shinkar9, The Board of
Directors of a Company passed a resolution appointing certain persons as managing agents (now
abolished). The resolution was confirmed by the company in general meeting with full
knowledge of all the material facts. Some of the directors brought a suit for a declaration that the
resolution was invalid on the grounds of certain irregularities. Held, it was open to the company
to ratify the resolution even if it was irregular and the plaintiffs were not, under these
circumstances, entitled to maintain the suit and ask the court to interfere.

ACTS WHICH AMOUNTS TO OPRESSION

According to judicial pronouncements acts which are held to be oppressive are as follows:

1) depriving a shareholder from his voting rights.

7
(1843) 67 ER 189
8
(1950) 2 All ER 1064
9
(1934) 4 Comp Cas 434

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 2) Depriving shareholder from receiving dividend.
3) Appointment of a director at an EOGM of which no notice was offered to the minority.
4) Forcing new and risky objects upon an unwilling minority.10
5) To deprive a member of his ordinary membership rights.11\
6) Not maintaining statutory records.
7) Affairs of the company are not conducted according to the provisions of Companies Act,
2013.
8) Suppressing notices of the meetings to some of the members of the company.12
9) Refusal to register transmission under will.
10) Issue of further shares benefiting a section of shareholders.
11) Continuous refusal by company to register shares.13
12) Refusal to accept transfer and transmission of shares.14
13) Failure to distribute the amount of compensation received on nationalisation of business
of company among members, where required to be so distributed.15

ACTS WHICH DOES NOT AMOUNTS TO OPRESSION

According to judicial pronouncements acts which are held not to be oppressive in nature are as
follows:

1) An unwise, inefficient or careless conduct of director.

2) Not holding the meetings of the directors.
3) Failure to declare dividend or not declaring dividends when company is in losses.
4) Denial of inspection of books of accounts to a shareholder.
5) Lack of details in the notice of a meeting.
6) Not maintaining records properly.
7) Non-filing of the records.
8) Increasing the voting rights of the shares held by the management.
10
Mohan Lal Chandumall v. Punjab Co Ltd, AIR 1961 Punj 485
11
Hindustan Coop Insurance Society Ltd, re, AIR 1961 Cal 443
12
Shantidevi Pratap Singh Gaekwad v. Sangram Singh P Gaekwad, (1996) 1 Comp LJ 72 (Guj)
13
Kumar Exporters (P) Ltd v. Naini Oxygen and Acetylene Gas Ltd, 1985 58 CompCas 97 All
14
Gajarabai v. Patni Transport (P) Ltd, (1965) 2 Comp LJ 234
15
Hindustan Coop Insurance Society Ltd, re, AIR 1961 Cal 443

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 9) Refusal to declare more than moderate rate of dividend even if the profits earned could
justify a higher rate of dividend.
10) Drawing of salary by the director for his services rendered, even though the company is
suffering losses

WHO CAN APPLY FOR OPPRESSION?

The first remedy in the hands of the oppression members of the company is to move to the
tribunal. Under Section 241 of The Companies Act, 2013, the provision has been laid down to
file an application to the tribunal for the relief iln the cases of oppression.

Section 241(1) of The Companies Act, 2013, Right to apply by a member:

Any member of a company may apply to the Tribunal who complains that—

The affairs of the company have been or are being conducted in a manner:

a) prejudicial to public interest

b) prejudicial or oppressive to him or any other member or members
c) prejudicial to the interests of the company

It is to be noted that such member may apply to the Tribunal only if he has a right to apply under
section 244, for an order under Chapter XVI.

Section 241(2) of The Companies act, 2013, Right to apply by Central Government:

The Central Government may itself apply to the Tribunal for an order if it is of the opinion that
the affairs of the company are being conducted in a manner prejudicial to public interest under
section 241(2).

The applications u/s 241(2) in respect of prescribed company or class of companies shall be
made before the Principal Bench of the Tribunal which shall be dealt with by such Bench.

The requisite number of members who must sign the application is given under Section 244 of
The Companies Act, 2013. The requirement depends on the fact that weather the company is
with the share capital or not. The requirements are as follows:

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 a) In the 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 have paid
all calls and other sums due on their shares.
b) In the case of a company not having a share capital, not less than one-fifth of the total
number of its members.
c) The Tribunal may, if in its opinion circumstances exist which make it just and equitable
so to do, authorise any member or members of the company to apply to the court,
notwithstanding that the two abovementioned requirements are not fulfilled.16

Besides members of the company the following persons may also have right to file an
application before tribunal for relief:

a) Any person authorised by the Central Government can also file a petition.
b) A legal representative of a deceased member, on whom title to the shares devolves by
operation of law.

In Varadrajan v. Venkateswara Solvent Extraction (P) Ltd17, it was held that once the consent of
the required number of members has been obtained in writing, the application may be made by
one or more of them on behalf of and for the benefit of all of them.

In Makhan Lal Jain v. Amrit Banaspati Co Ltd18, it was held that there cannot be a blanket
consent.

In CP Gnanasambandam v. TN Transports (P) Ltd19, the Madras High Court in a petition

Against transport company refused to take into account the subsequent conduct of the majority in
disposing of all the buses of the company. The petitioner was not allowed to take the advantage
of the circumstances that occurred after the presentation of that petition.

In Stadmed (P) Ltd v. Kshetra Mohan Saha20, it was held that where a person has obtained a
decree for rectification of the company’s register of members so as to have his name entered in
16
Section 244(1) proviso of The Companies Act, 2013
17
(1994) 80 Comp Cas 693 (Mad)
18
(1953) 23 Comp Cas 100
19
(1971) 41 Comp Cas 26 (Mad)
20
AIR 1968 Cal 572

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it, he may apply for relief under the section although decree has yet not been enforced and the
register does not show his name.

In SBI v. Business Development Consultants (P) Ltd21, a trustee holder of shares whom the
company was refusing to register was allowed to file petition.

In Geeta Kapoor v. Union of India22, a person who was not a shareholder of the company but had
a grievance about the value of shares at which they were being allotted can file a civil suit.

WHO CAN NOT APPLY FOR OPPRESSION?

The following persons can’t apply for relief:

a) A member whose calls or other sums due on their shares have not been paid.
b) A holder of a letter of allotment of a partly paid share.
c) A holder of a share warrant.
d) A transferee of shares who has not lodged the shares for transfer to the company.

POWERS OF TRIBUNAL
The powers of the tribunal under section 241 and 242 are fairly wide. The Tribunal has the
power to do justice to the parties and can pass an order for the smooth functioning of the
business even in absence of finding an oppression. If the tribunal is of the opinion that:

a) the company‘s affairs have been or are being conducted in a manner prejudicial to public
interest or members or company; and
b) to windup the company would unfairly prejudice such member or members, but that
otherwise the facts would justify the making of winding-up order on the ground that it
was just and equitable that the company should be wound up,

the Tribunal may, with a view to settle the matters that were applied for, make such order as it
thinks fit.23
21
(2005) 128 Comp Cas 557
22
(2006) 132 Comp Cas 369 (Del)
23
Section 242(1) of The Companies Act, 2013

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 GENERAL POWERS OF THE TRIBUNAL
The general powers and orders of the tribunal are as follows24:

a) The regulation of conduct of affairs of the company in future25;

b) The purchase of shares or interests of any members of the company by other members
thereof or by the company26;
c) In the case of a purchase of its shares by the company as aforesaid, the consequent
reduction of its share capital27;
d) Restrictions on the transfer or allotment of the shares of the company;
e) The termination, setting aside or modification, of any agreement, howsoever arrived at,
between the company and the managing director, any other director or manager, upon
such terms and conditions as may, in the opinion of the Tribunal, be just and equitable in
the circumstances of the case;
f) The termination, setting aside or modification of any agreement between the company
and any person other than those referred to in clause (e):
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 this section, which would, if made or done by or against
an individual, be deemed in his insolvency to be a fraudulent preference28;
h) Removal of the managing director, manager or any of the directors of the company;
i) Recovery of undue gains made by any managing director, manager or director during the
period of his appointment as such and the manner of utilisation of the recovery including
transfer to Investor Education and Protection Fund or repayment to identifiable victims;
j) The manner in which the managing director or manager of the company may be
appointed subsequent to an order removing the existing managing director or manager of
the company made under clause (h);

24
Section 242(2) of The Companies Act, 2013
25
Gurdas Ltd v. Haridas Mundra, (1959) 29 Comp Cas 549 (Cal)
26
Suresh Kumar Sanghi v. Supreme Motors Ltd, (1983) 54 Comp Cas 235 (Del)
27
Vijay Krishan Jaidka v. Jaidka Motor Co. Ltd., (1996) 23 CLA 289 (CLB)
28
Roshan Lal Agarwal v. Sheoram Bubna, (1980) 50 Comp Cas 243 (Pat)

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 k) Appointment of such number of persons as directors, who may be required by the
Tribunal to report to the Tribunal on such matters as the Tribunal may direct;
l) Imposition of costs as may be deemed fit by the Tribunal;
m) Any other matter for which, in the opinion of the Tribunal, it is just and equitable that
provision should be made29.

CLASS ACTION
Class action suit refers to a suit that allows large number of people having common interest in a
matter to sue or be sued as a group. The number of members who can apply to the Tribunal
under the right of class action is provided under section 245(3). The grounds of action are
specified under section 245(1). Section 245(1) reads as follows:

Members or depositors or any class of them, may file a class action suit if they are of the opinion
that the management or conduct of the affairs of the company are being conducted in a manner
prejudicial to the interests of the company or its members or depositors seeking all or any of the
following orders, namely:

a) To restrain the company from committing an act which is ultra vires the articles or
memorandum of the company.
b) To restrain the company from committing breach of any provision of the company’s
memorandum or articles
c) To declare a resolution altering the memorandum or articles of the company as void if the
resolution was passed by suppression of material facts or obtained by mis-statement to
the members or depositors.
d) To restrain the company and its directors from acting on such resolution.
e) To restrain the company from doing an act which is contrary to the provisions of this Act
or any other law for the time being in force.
f) To restrain the company from taking action contrary to any resolution passed by the
members.

29
Arun Dhawan v. Lokesh Dhawan, (2015) 188 Comp Cas 161

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 g) To claim damages or compensation or demTand against the Company or its directors,
auditor, expert or advisor.

CASE LAWS
In Lalita Rajya Lakshmi v. India Motor Co30, the court held that the minor acts of
mismanagement are not to be regarded as oppression.

In Sindri Iron Foundry (P) Ltd, re31, it was held that if the court is satisfied of the acts of
oppression then relief under section 241 can be allowed to majority group also.

In Lundie Bros Ltd, re32, a minority shareholder of the company was removed from his position
as a working director. As an ordinary shareholder he would have gained nothing as the company
had never paid dividends, director’s remuneration being the only return on investment. Yet he
could not complain of it because he had suffered as a director and not as a member. Directorship
is one of the privileges of membership. The court held that any deprivation of this privilege is a
kind of oppression as member.

In Gaurishankar Neelkanth Kalyani v. Sulochana Neelkanth Kalyani33, a petition involving

complicated questions of facts relating to fraud and fabrication of documents was held to be
maintainable.

In Sanjivbhai Kirtibhai Patel v. Biocare Remedies (P) ltd34, the Tribunal did not cancel the
allotment and purchase of shares by respondents, even though the same was proved to be an act
of oppression against the minority, because it was not in the interest of the company to declare
increase in authorized share capital as illegal.

30
AIR 1962 Cal 127
31
(1963) 69 CWN 118
32
(1968) 1 WLR 1051
33
(2014) 185 Comp Cas 300 (CLB)
34
(2017) 203 Comp Cas 5 (NCLAT)

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 CONCLUSION
The Act and the Tribunal both try to make a balance between Right to Majority to rule and the
protection of interests of the minority shareholders through the prevention of Oppression. By
examining the provisions of the Companies Act, 2013, it can be concluded that legislative intent
in Companies Act, 2013 is to safeguard the minority interest in a more comprehensive manner.
The provisions of Companies Act, 2013 not only requires proper implementation upon
addressing the present gap, but also requires creating confidence in the minority shareholders
with respect to the institutional and regulatory mechanism which ensures that interest of minority
shareholders shall be given due consideration.

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 REFERENCES

STATUTE

1. The Companies Act, 2013 (18 of 2013)

BOOKS

1. Avtar Singh, Company Law (Eastern Book Company, 17th edn., 2018)
2. Dr N.V. Paranjape, Company Law (Central Law Agency, Allahabad)

WEBSITES

1. http://www.legalservicesindia.com/article/482/Prevention-of-oppression-&-
mismanagement.html
2. https://taxguru.in/company-law/prevention-oppression-mismanagement.html
3. https://taxguru.in/company-law/oppression-mismanagement.html
4. https://www.scribd.com/presentation/64674895/Prevention-of-Oppression-amp-
Mismanagement
5. https://www.scribd.com/document/435306565/Project-Report-Final
6. www.indiankanoon.org
7. https://taxguru.in/company-law/oppression-mismanagement-companies-act-2013.html
8. http://www.legalservicesindia.com/article/125/Oppression-&-Mismanagement.html
9. https://www.scribd.com/document/269745007/Prevention-of-Oppression-Mismanagement
10. https://blog.ipleaders.in/prevention-of-oppression-and-mismanagement/

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