Oppression and Mismanagement:

In addition to the protection afforded to the minorities by the exceptions to the rule of the
supremacy of majority, the Companies Act also contain special provisions for prevention of
oppression and mismanagement to safeguard the interest of investors in companies and also to
protect the public interest. The terms ‘Oppression’ and ‘mismanagement’ are not defined under
the Companies Act. The simple meaning of ‘Oppression’ is that it is an unjust or cruel exercise
of authority/ power. Whereas, ‘Mismanagement’ means conducting affairs in some prejudicial,
dishonest or inept manner. Section 241 to Section 246 covers provisions relating to ‘Oppression
and Mismanagement’ under the Companies Act. These preventive acts are not only available to
the minorities but also to the majority in the appropriate situation.

Prevention of oppression:

The first remedy in the hands of an oppressed group is to move to the Tribunal. An application
can be made under Section 241 whenever the affairs of the company are being conducted in an
oppressive manner. Section 244 provides who can apply for prevention of oppression. The
requisite number of members who must sign the application is given in Section 244. Where the
company is with a share capital, the application must be signed by at least 100 members of the
company or by one-tenth of the total number of its members, whichever is less, or by any
member or members holding one-tenth of the issued share capital of the company. If the
company is without share capital, the application has to be signed by one-fifth of the total
number of its members. Joint holders are considered as one member. However, the Tribunal
may, on application, allow any member or members to sue “if in its opinion circumstances exist
which make it just and equitable to do so”.

Once the consent of the requisite number is obtained, the application may be made by one or
more of them on behalf of and for the benefit of all of them. Here, “consent” is the same as
defined in Section 13 of the contract Act, an agreement upon the same thing in the same sense.
Accordingly, the High Court rejected a petition in MC Duraiswami v Sakthi Sugars Ltd because
the consenting members were only told that their signatures were needed for requisitioning a
meeting. It is also to be noted that in Ultrafilter (India) (P) Ltd v Ultrafilter, it was held that the
company cannot by itself be an applicant for any relief under this jurisdiction. As for what is
oppression, According to the judgment of Kalinga Tubes Ltd. v. Shanti Prasad Jain, oppression
involves at least an element of lack of fair dealing to a member in the matter of his property right
as a shareholder. A mere unwise, inefficient or careless conduct of a director cannot be construed
as oppreseive as per the judgment of Needle Industries (India) Ltd. v. Needle Industries Newey
(India) Holding Ltd.

Conditions of relief: As enumerated in Section 241, there are certain preliminary conditions
which must be satisfied to entitle a shareholder to some relief under the section. These conditions
are inbuilt in the language of the section itself.
 (a) that the affairs of the company are being conducted in a manner prejudicial or oppressive
to a member or some members or in a manner which is prejudicial to the public interest
or in a manner prejudicial to the interests of the company;
(b) a material change has taken place in the management or control of the company, whether
by an alteration in the Board of directors, or manager, or in the ownership of the
company’s shares or its membership (it being without share capital), or in any other
manner whatsoever, and that by reason of such change, it is likely that the affairs of the
company will be conducted in a manner prejudicial to its interests or its members or any
class of members.

If an oppression of this kind is established, the Tribunal will, “with a view to bringing to an end
the matters complained of, make such an order as it thinks fit”. Before this section was enacted
the only effective remedy against oppression was a winding up order under the just and equitable
clause. But this remedy was often worse than the disease. And now the Tribunal has been given
the powers to impose upon the parties whatever solution it considers just and equitable in the
circumstances. Thus, instead of forcing a sound business concern to winding up, an effort is
made to salvage it.

Examples of oppresseive acts:

1. An attempt to deprive a member of his ordinary membership rights is an “oppression”.

(Mohan Lal Chandumall v Punjab Co Ltd);
2. Suppressing notices of meetings to some of the members is an act of oppression towards
them. Casual omissions may not be, but systematic elimination of notices to some of the
members is a serious deprivation of their most important right. (Shantidevi Pratap Singh
Gaekwad v Sangram Singh P Gaekwad)
3. Not calling a general meeting, and keeping shareholders in the dark. (Re: Hindustan Co-
operative Insurance Society Ltd)
4. Allotment of shares by directors in a manner by which an existing majority of
shareholders is reduced to minority. (Anand Kumar Saigal v. Manu Properties (P.) Ltd.)
5. Sale of property to a relating entity at throw away price. (Smt. Bina Chawda v. Rezcom
Realty (P.) Ltd.)

MISMANGEMENT:

Section 241(1)(b) provides for relief in cases of mismanagement. For a petition under this
section to succeed, it must be established that the affairs of the company are being conducted in a
manner prejudicial to the interest of the company or public interest, or that, by reason of any
change in the management or control of the company, it is likely that the affairs of the company
will be conducted in that manner.

If the Tribunal is so convinced, it may, with a view to bringing to an end or preventing the matter
complained of or apprehended, make such order as it thinks fit. In Rajahmundry Electric Supply
Corpn Ltd v A Nageshwara Rao, a petition was brought against a company by certain
shareholders on the ground of mismanagement by directors. The court found that the Vice-
Chairman grossly mismanaged the affairs of the company and had drawn considerable amounts
for his personal purposes, that large amounts were owing to the Government for charges for
supply of electricity, that machinery was in a state of disrepair, that the directorate had become
greatly attenuated and that the shareholders outside the group of the Chairman were powerless to
set matters right. This was held to be sufficient evidence of mismanagement. The court
accordingly appointed two administrators for the management of the company for a period of six
months vesting in them all the powers of the directorate.

It is to be noted that there should be present and continuing mismanagement. The charges of
mismanagement in the past, even if proved, are not enough to establish an existing injury to the
interest of the company or public interest.

Acts held as mismanagement:

1. Gross neglect of the interest of the company by selling its only assets.
2. When directors make no effort to recover embezzled amounts.
3. Operation of bank account of the company by unauthorized personnel.
4. Violation of statutory provisions and articles of the company.

Powers of Tribunal:

The Powers of the Tribunal under Sections 241 and 242 are fairly wide. The Tribunal may make
any order for the regulation of the conduct of the company’s affairs upon such terms and
conditions as it may think fit. The Tribunal has the power to do justice to the parties and can pass
an order for the smooth conducting of business even in absence of finding of oppression and
mismanagement. Section 242 does make an attempt to define the powers of the Tribunal. This
section provides that without prejudice to the generality of the powers of the CLB, any order
under Section 241 may provide for:

(a) The regulation of the conduct of the company’s affairs in future. Thus, for example, in
Richardson and Gurdas Ltd v Haridas Mundra, the court appointed a special officer with
an advisory board to the total exclusion of the shareholders of a company to function
subject to the terms and conditions laid down in the order. In Bennett, Coleman & Co v
Union of India, the Court ordered a new article into the articles of association providing
that all the shareholders’ directors will retire every year and held that the clause was valid
even if it was against the provisions of Section 255.
(b) The purchase of the shares or interest of any members of the company by other members
or by the company.
(c) In the case of a purchase by the company of its shares, the consequent reduction of its
share capital.
(d) Restriction on allotment or transfer of shares of the company.
 (e) The termination, setting aside or modification of an agreement between the company and
any managerial personnel upon such terms and conditions as the Tribunal may consider
just and equitable.
(f) The termination, setting aside or modification of any agreement with any person,
provided due notice has been given to him and his consent obtained.
(g) 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 application which would be deemed to be insolvency of an individual or a fraudulent
preference.
(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.
(k) Appointment of such number of persons as directors who may be required by the
Tribunal to report to it on such matters as the Tribunal may direct.
(l) Imposition of costs
(m)Any other matter as per the tribunal

In situations of irreconcilable disputes, the usual approach has been to order the rival groups to
part ways in the interests of the company and as per Gurnir Singh Gill v Saz International (P)
Ltd, The powers under these provisions are not affected by the existence of an arbitration clause.
The Tribunal may, however, in its discretion refer the matter to arbitration in terms of the parties’
agreement and exercise any powers only thereafter. Other than that, the Tribunal may, on the
application of any party to a proceeding, make any interim order under Section 242(4) which it
thinks fit for regulating the conduct of the company’s affairs upon such terms and conditions as
appear to be just and equitable.