Chapter XVII

Prevention of Oppression and

Mismanagement
The protection available to the minority shareholders has already been dealt
with under Chapter X*I of this book. In addition to those a separate Chapter*
Prevention of Oppression and Mismanagement" has been inserted in the
Companies Act to confer certain rights on the minority to protect their interest.
The prevention of oppression and mismanagement may be discussed under
the following heads :
A. Prevention of oppression and mismanagement by Tribunal, and
B. Prevention of oppression and mismanagement by the Central
Government.
A. Prevention of oppression and mismanagement by
Tribunal
When a petition for relief in cases of oppression may be
presented.-A petition to prevent may be presented if the following conditions
are satisfied:
. That the affairs of the company are being conducted in a manner
oppressive to any member or members or prejudicial to public interest; and
2. That the fact would justify the making of a
and
winding up order on the "just
equitable" ground but such winding up would unfairly prejudice such
members.3
Thus, the petition may be presented in the following conditions:
1. Oppression:

Meaning-
There is no definition of the term 'oppression' in the
be decided on the facts of each case whether there exists Companies
Act. It is to
oppression
conduct of the majority (or minority) shareholders may be treated as
or not. The

it involves a visible departure from the standards of fair oppressive if

the conditions of fair play on which every shareholder who dealing and a violation of
entrusts money to the
company is entitled to rely. Thus, the conduct must be unjust, burdensome,
1. Chapter 6 of Part 6 of the Indian Companies Act.
2. S. 397 as amended by the Companies (Amendment) Act, 1988.
3. Tbid
4. Elder v. Elder & Watson Ltd., 1952 S.C. 49 Scotland

(372)
 Prevention of Oppression and Mismanagement 373

harsh and wrongful. But mere lack of confidence between the majority and
minority shareholders cannot be considered as oppression. However, if thelack of
confidence springs from oppression or a minority by the majority in the
management of the affairs of the company, it may be treated as oppression.
Oppressio involves at least an element of lack of probity or fair dealing to'a
concerned
member in the matter of his proprietary right as shareholder. Persons
be
with the management of the company's affairs must in connection therewith
members. It does not
guilty of fraud, misfeasance or misconduct towards the and another
include mere domestic disputes between directors and members
section in the matter of policy or administration.
sense and the
Prima facie the word "oppression" must be given its ordinary
of is oppressive to
question must be whether in that the conduct complained the
member ormembers as such." To attract the provisions of this section
a financial benefit. The
oppression is not required to be designed to obtainto desire for power and
even if it is simply due a
conduct may be oppressive
control.4
Newey
Needle India)
In the case of Needle Industries (India) Ltd. v.
inefficient or careless
the Supreme Court has held that an unwise,
Holding Ltd.,5
conduct of a
rise to a claim for this relief. The person
director cannot give
show that he has been constrained to submit
to a
complaining of oppression must
is unfair and causes prejudice to his rights
as
conduct which lacks in probity,
shareholders.
Held Oppressive
Society Ltd. v. Meyer the
Scottish Co-operative Wholesale and L. were appointed Joint Managing
In
incorporated a subsidiary company and iM.
acquired 3900 shares and society acquired
Directors of the company. M. and L. After sometimedifferences between the
company.
4000shares ofthe subsidiaryThe
society tried to bury the shares of M. and L.
at
SOciety and M. and L. arose.
so and therefore adopted a policy
of
lessthan their value but failed to do
to its own organisation to force down the
transferring the business of the company who were nominated
value of the shares. The directors of the subsidiary company
society to implement its policy. M. and L. petitioned
bythe society supported thetheir shares at a price based on their previous value
or
for an order to buy society
at such price which the Court thought
fit. The Court allowed the petition on the
the society had acted in an oppressive manner towards the minority
ground that
shareholders (i.e., M. and L.) )
the life insurance
In Hindustan Co-operative Insurance Society Ltd.,'
therefor was paid to the
business of a company was acquired and compensation

1. Jermyn Street Turkish Baths Ltd., (1971) 3 All E.R. 184.

2. Cited in Kalinga Tubes Ltd. v. Shanti Prasad Jain, (1964) 1 Comp. LJ. 117 from Scottish

Co-operative Wholesale Societyv. (1959) A.C. 324 and H.R. Harmer Ltd., (1958)
Meyer,
8 All E.R. 689.
8 Al E.R. 689.
3. In re, H.R. Harmer Ltd., (1958)
v. TA. Mani, A.I.R. 196o
Mad. 338.
4. Ibid.; See also KR.S. Narayana lyengar
5. A.I.R 1981 S.C. 1298.
6. A.I.R. 1959 S.C. 324.
7. A.I.R. 1961 Cal. 443.
 374 Company Law

company. The directors who had the majority voting power refused to distribute
the amount of compensation among the shareholders and attempted to use it in
some other business. This was held to be oppression on minority because they
attempted to force the minority shareholders to invest their money in a different
kind of business against their will.
In Mohanlal Chandumal v. The Punjab Co. Ltd.,' a company altered its
articles in such a manner asto depriveits non-trading membersof their right to
wote, call meeting and receive dividends. The Court held it to be oppression on
minority
In Gujarabai v. Patny Transport, the directors refused to register a
transfer made in favour of the petition due to their private dispute with the
petitioners. The conduct of the directors amounted to oppression because it
involved the violation of the conditions of fair play on which every shareholder
who entrusted his money to the company was entitled to rely.
Tt is a controversialissue whether or not this remedy is available to the
majority shareholders.-According to the Calcutta High Court," the remedies are
available not only to the minority but also to the majority shareholders. When
minority by force or other wrongful act prevents the majority to exercise their
lawful rights as shareholders, the act of the majority may be
of majority and the majority may apply under S.
treatd as oppressionn
397 for relief."
But a view contrary to this view of the Calcutta High Court has been
expressed by the Delhi High Court in Suresh Kumar Sanghi v. Supreme Motors
Ltd In this case the Delhi High Court has held that S. 397 cannot be invoked on
the ground of oppression of
majority by the minority. The complaint of
oppression has to be by minority shareholders. In this case shareholders amongst
the two groups were equal and therefore no
group could be said to be belonging
to the majority or the
minority groups of shareholders. The complaint of
oppression made by one group could not be said to be
made by the minority group of shareholders and thereforecomplaint
of oppression
the provisions of S. 397
could not be invoked.
The view of the Calcutta
High Court appears to be more correct.
Not Oppressive.
This remedy will not be allowed in
the case of minor acts of
mismanagement. Mere unwise, inefficient and careless conduct of a director in
the performance of his duties
cannot in itself be taken as oppressive so as to
attract the provisions of S. 397.
In Five Minutes Car Wash Services
been unwise, inefficient and careless in the
Ltd.," the
petitioner alleged that E has
performance of his duties as Managing
Director and Chairman of the Board of Directors. The petition was dismissed for

1. A.I.R. 1961 Punjab 485.

2. (1965) 2 Comp. L.J. 234.
2. Ramashanker Prasad v. Sindhri Iron Foundary Ltd., A.I.R. 1966 Cal. 512.
4. Tbid.
5. 1982 Tax. L.R. 2412 (Delhi).
6 In re. Five Minutes Car Wash Services Ltd., (1966) 1 All E.R. 242.

7. (1966) 1 All E.R. 242.

 Prevention of Oppression and Mismanagement 375

the allegation was not sufficient for relief under S. 397.

A mere denial of rights of inspection or non-compliance with the formalities
required in the matter of giving notice of a general meeting or refusal to declare
more than moderate rate of dividend, even though the profits earned by the
company can justify a high rate of dividend, does not in itself amount to
oppression.' Similarly, a mere illegal or irregular act do not amount to oppression
unless they are oppressive or prejudicial to public or to the interest of the
company.
In Shanti Prasad Jain v. Kalinga Tubes Ltd.," there were three groups of
shareholders in the company holding shares in equal proportion and with equal
representation on the Board of Directors. There was an agreement between them
to maintain this equilibrium but no such agreement was incorporated in the
articles of the company. After sometime the company proposed to issue certain
new shares. The two groups of shareholders were united so as to constitute
majority and passed a resolution proposing to offer these shares to outsiders. The
resolution was carried out. The minority group of the shareholders brought an
action contending that the new shares were allotted to the friends of the majority
so as to increase their voting power and therefore allotment was mala fide and
amounted to oppression of the minority. The petition was dismissed on the
ground that in the circumstances of the case there was no oppression of minority.
The private agreement between the parties to maintain the equilibrium was not

binding the company and the majority was fully capable under S. 81 to direct
on
free issue of the shares by passing a resolution.
In Re, Jermyn Street Turkish Bath Ltd.,* a director took further shares of
the company to avoid the possible liquidation of the company and thereby
obtained majority shareholding în the company. After sometime the company
became prosperous and the director drew excessive remunerations and no
dividends were paid to other shareholders. On an action brought by the other
shareholders the Court held that the conduct of the director was not oppressive
because the allotment of the shares to the director formed part of the arrangement
entered into bona fide for the benefit of the company under which she (the
director) received the shares as an additional security for the money invested by
her in the company and also because the excessive remuneration taken by the
director did not itself amount to oppression.

2. Oppression must be of continuing nature.

The words "the affairs of the company are being conducting" in S. 397
indicate that the oppression must be of a continuing process. It must be in
existenceat the date of the petition."There must be continuous acts on the part
ofthe majority shareholders continuing up to the date of petition showing that the
1. Maharani Lalita Rajya Lakshmi v. Indian Motor Co., A.l.R. 1962 Cal. 127.
2. See Seth Mohan Lal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co., 34
Comp. Cas. 777.
3. (1965) 1 Comp. LJ. 193.
4. (1971) 3 All E.R. 184.
5. Suresh Kumar Sanghi v. Supreme Motors Ltd., 1982 Tax LR. 2412 (Del.).
6. Kuldeep Singh Dhillon v. Poragoan Uility Financier, (1988) 64 Comp. Cas. 19 (P &
H).
 376 Company Law

affairs of the company were being conducted in a manner oppressive to some

parts of the members." Past conduct which does not affect the present state of the
company is not sufficient for a petition under this section.

3. Qppression as a member.
The oppression complained of by a member must be his oppression as a
member and not in any other capacity. Thus, the petition must prove that he is
suffering from oppression in his capacity as a member
In Elder v. Elder & Watson, the petitioners alleged that they had suffered
oppression at the hands of other shareholders who had used their voting power to
remove the petitioners from their offices as
directors and from their employment
as secretary and The
manager. Court dismissed the petition because the
petitioners did not suffer from the oppression in their capacity as members but his
capacity of directors or employees of the company
4. Facts must
justify a winding up order.
The facts alleged in th
petition must be such as to justify a winding up order
under the "just and equitable" clause of S.
433, ptherwise the petition cannot be
entertained under this section.
In England, the limitation that facts in
order has been removed and the Court
petition should justify a winding up
can restrain any act which is unfairly
prejudicial to some part of the members.
In India the petition under S. 397
cannot be entertained unless the facts
alleged in petition justify a winding up order. The petition under
Company Law appears to be more reasonable and pragmatic and therefore English
it is
suggested that a change similar to that under English Law should also be
introduced under the Indian Companies Act. However, no such
been introduced so far and thus, even amendment has
cannot be entertained unless the facts
today in India the
petition under S. 397
alleged in the petition are such as to
a winding up order under the
just and equitable clause of S. 433. The facts justify
in the petitionmust justify the making of a winding alleged
order on the 'just and
equitable ground' but the winding up order should not up be given because it would
unfairly prejudice. the member presentirg the petition or other members of the
company.* Thus, the petitioner must prove not only that the
petition justify the winding up order but also that it should notfacts
be
alleged in the
made
it will unfairly
prejudice the petitioner or other members of the company.3because
1. Shanti Prasad Jain v. Kalinga Tubes
Ltd., (1965) 1 Comp. L.J. 193; See also
Harmer Ltd., (1958) 8 All E.R. 689; Re, Five Re, H.R.
Minute Car Wash Service
All E.R. 242. Ltd., (1966) 1
2. 1952 S.L.T. 112. Followed in Lundle Brother
Ltd, Re, (1965) 1 W.L.R. 1051, where the
petitioners alleged that he has been forced out of his
his petition was dismissed because he position as/ a working director but
had suftered
followed in Bellador Silk Ltd., Re, (1965) 1 All E.R.
as a
director/ not as a member. Also
that he had been excluded from the Board but 667
where the petitioner
his petition was complained
complaint of exclusion was one of his oppression as a director, dismissed for his
and not as a member.
. See Rattan Singh v.Moga Transport Co., A.l.R. 1959
Lakshmi v. Indian Motor Co., A.I.R. 1962 Cal. 127. Punj. 196; Maharani Lal Rajya
A. See also Hanuman Prasad bagri v. Bagress Cereals Put.
Ltd., AIR 2001 SC 1416.
E In re, Bengal Luxmi Cotton Mls Ltd., (1965) 1 Comp. LJ.
35.
 Prevention of Oppression and Mismanagement 377

In a case' the Supreme Court has made it clear that the limitation of
directorship would not entitle such person to ask for winding up on just and
equitable grounds inasmuch as there is an appropriate remedy by way of company
suit which can give him full relief if action of the company is bound to have been
taken on inadequate ground.
Mhen a petition for relief in cases of mismanagement may be
presented (S. 398)
S. 398 enables a member to present a petition to prevent mismanagement of
the company. A petition for this purpose may be presented if: (i) the affairs of the
to public interest
company are being conducted in a manner which prejudicial
is
or the company's interest, or (ii) by reason of a material change in the
to be
likely
management or control of the company, the affairs of the company
are
conducted in a manner prejudicial to public interest or the interest of the
directors is required to be prejudicial to
company. For this purpose the action of
this Section
the interest of the public or of the company and the remedy under
to the interest
Ci.e., S. 398) will not be allowed if the director's action is prejudicial
of the shareholders but it is not prejudicial to the interest of the company or of the
public. On such petition the Tribunal may, with a view to prevent the
mismanagement, make such order as it thinks fit." Mismanagement must be
the mismanagement must be in existence at the date
present and continuous,*ie.,
ofthe petition.
Mismanagement in past but not in existence at the time of petition cannot
of petition. Inefficient management may be taken as
be a ground
mismanagement.° Fo grant relief under this section the Tribunal is not required
to find cause for winding up of the company.'
In Rajamundry Electric Supply Corpn. Ltd. v. A. Nageshwar Rao,* a
petition was brought for an order of the Court for the winding up of the company
on the ground of mismanagement of the affairs of the company and
misappropriation of the funds of the company.by-the directors. The Court found
that the Vice-Chairman grossly mismanaged the affairs of the company and
m1sappropriated the funds of the company and the shareholders outside the
group of the Chairman were powerless to set matters right and therefore the Court
appointed two administrators for the management of the company for a period of
6 months and vested the powers of the directors in them. The plea of the
petitioner that the appointment of administrators was in interference with its
internal management was rejected and the appointment was upheld.
In Sishu Ranjan Dutta v. Bhola Nath Paper House Ltd.," the Managing

1. Hanuman Prasad Bagri v. Bagress Cereals Put. Ltd., AIR 2001 SC 1416.
2. Chaturgun Ram Maurya v. Buildwares Put. Ltd., 1985 Tax. L.R. 2030 (All.).
3. Tbid.
4. See also Suresh Kumar Sanghi v. Supreme Motors Ltd., 1982 Tax. L.R. 2412 (Del.).
5. R.S. Mathur v. H.S. Mathur, (1970) 1 Comp. L.J. 35.
6. Kanika Mukherji v. Rameshwar Dayal Dubey, (1966) 1 Comp. LJ. 65.
7. See Mathew J. Kust, Foreign Enterprise in India, p. 294.
8. A.I.R. 1956 S.C. 213; See also Richardson and Cruddas Ltd. v. Haridas Mundra, (1959)
Comp. Cas. 547.
9. 1981 Tax. L.R. NOC 152 (Cal.).
 378 Company Law

Directors ofa public limited company who were also directors of the company
carried
on as Managing Directors after expiry of their term without securing
approval of the Central Government under Section 269 for reappointment. The
Court held that on expiry of their term, Managing Directors as well as ordinary
directors and therefore company was without a valid Board which was illegality
and amounted to mismanagement and act prejudicial to public interest within the
purview of Ss. 397 and 398.
In the case of Suresh Kurmar Sanghi v. Supreme Motors Ltd,' the Court has
held that infighting amongst the directors of the company causing serious
prejudice to the company will attract the provision of S. 398.
In R.S. Offshore Inter Law Services Ltd. v. Bombay Offshore Suppliers and
Service Ltd.," the Court has held that in a petition under Ss. 397 and 398 of the
Companies Act, all material facts must be set out in the petition and allegation of
fraud, coercion, mala fides must be supported by particulars and the grounds of
challenge not found in the petition but evolved during the course of arguments
will not be considered.
Who may petition for Prevention of Oppression and
Mismanagement.-The number of members who may apply to the Tribunal
for such relief is as
follows-
(1) inthe case of a
company having a share capital
() not less than 10o members or not less than one-tenth (10%)
of the totaBmumber of members, whichever is less, or
(ii) any member or members holding not less than one-tenth of
the issued share capital of the company on which
Sums due have already been paid.
all calls and other
(2) In the case of a company not having a share capital, not less than
one-fifth ofthe total number of its members.
Where any share or shares are held by two or more persons jointly, they will
be counted as one member.
In Dale& Carrington Invest
(P.) Ltd. v. P.K. Pradhan,5 the Court has held
that the shareholders of the company who are registered as shareholders on
the
date of filing of petition and held requisite number of shares in the
maintain petition under sections 397/398 of the Companies Act. company can

In case of application
complaining mismanagement or oppression consent of
the sharesholders supporting the application is not required to be in writing.
In J.P. Srivastava & Sons Ltd. v. Gwalior Sugar Co. Ltd.," the Court has
held that sub-section (3) of section 399 only speaks of obtaining of the consent. It
is not provided that consent must be in writing. It also does not
require such
1. 1982 Tax. L.R. 2412 (Del.).
2. (1992) 75 Comp. Cas. 583 (Bom.).
3. S. 399.
4. See O.P. Gupta v. Shi General Finance P Lid, (1977) 47 Comp. Cas. 297 where the
Court has held that this is a statutory right and therefore cannot be taken away by
in the articles.
contrary provision
S.C. 1624.
5. A.LR. 2005
6, JP. Srivastava & Sons (P) Ltd. v. Guaior Sugar Co. Ltd, AIR 2005 8.C. 83.

7. AIR 2005
S.C. 83.
 Prevention of Oppression and Mismnanagement 379

writing to be annexed with the petition the court has held that merely because
shares held by trust has already been devolved on beneficiary of trust does not
render the owner of shares who is registered member incompetent to file petition.
interest
Equitable or beneficial interest in shares does not make the owner of the
a member of the company member. Trust can give complaint of
consent to the
mismanagement/oppression even if interest has devolved on beneficiary of trust.
The Court has further observed that object of prescribing a qualifying
their supporters to file petition under
percentage of sharers in petitioners and is not indulged in
sections 397 and 398 is clearly to ensure that frivolous litigation
by persons who have no real stake in the company." exist to make
The Central Government may, if in its opinion circumstances
any member or members
of the company
it just and equitable as to do, authorise
the Tribunal even though their number is less than the requisite
to apply to
number.
to the Tribunal or cause an
The Central Government may itself apply
authorised by it to do so on
application to be made to the Tribunal by any person
its behalf.
under Ss. 397 and 398 for
Members who have right to file a petition
can delegate their right to an agent
prevention of oppression and mismanagement
In P. Punnaiah v. Jaypore Sugar Co.,3
the
who can exercise right on their behalf.
clear that consent can be given by his general power
Supreme Court has made it to a person
shareholder gives general power of attorney
of attorney holder. If a
of attorney gives consent for filing
and the person holding the general power
it will be valid and he can give such consent.
application under S. 397 or S. 398,
and S. 398 to indicate that any special person
There is nothing in S. 397 a member
of a member is required to be used when
shall, judgment or quality or S. 398.
exercises his right under S. 397
After obtaining the consent of
the requisite number of members the
be presented by one or some of them
application or petition for this purpose may
on behalf of all of them.
they are the time of its
validity of the petition is judged on the facts as at
The
to the presentation will not
presentation and even the happening subsequent
affect the right of the applicant to proceed with the application.
number of
Thus, where a petition is presented for this purpose the requisite
members must consent to it. Where at the time of the presentation of the petition,
the consent of the requisite number of members is available but subsequently
after the
some of them withdraw their consent, such withdrawal of consent
with
presentation of the petition cannot affect the right of the applicant proceed
to

the application."
Even the transfer of the shares by some of the consenting members resulting
in the cesser of their membership will not affect the right of the applicant
to

proceed with the petition.

1. Ibid.
2. Killick Nixon Ltd. v. Bank of India, 1982 Tax. L.R. 2547 (Bom.).
3. A.I.R. 1994 S.C. 2258.
4. Rajamundry Electrical Supply CorporationA. Nageshwara Rao, A.I.R. 1956 S.C. 213.
v.

5. S.C. Mehra v. The New Indian Embroidery Mills, (1964) 1 Comp. LJ. 291.
 380 Company Law

petition under Ss. 397 and 398 is validly presented, it is open to a

Once a
shareholder to ask for substitution and prosecute the proceedings even though
such a shareholder by himself could not have presented a petition under S. 397 for
want of the required share qualification.' The requirement as to share
qualification is relevant and material only at the time of the institution of
proceeding and once there is a valid petition and a shareholder seeks to substitute
himself in order to merely continue such a valid petition, such a shareholder need
not hold i0% of the share capital
In Ward Wide Agencies Ltd. v. Margarath,3 T. Desor, the Supreme Court
has held that the legal representative of the deceased member whose name is still
on the register of members are entitled to petition under Ss. 397 and 398. Thus,
after the death of a member whose name is still in the register of members, his
legal representatives are entitled to maintain a petition under Ss. 397 and 3998
even though they are not registered as members. In this case the Court has made
it clear that a composite petition under Ss. 397, 398 and 433 (b) is maintainable.
The Court has also held that a member may be a holder of shares but not the vice
versa.

It is to be noted that if the name of a person is struck off the register of

mbers, he cannot apply for such reliefunless he first gets the register rectified
so as to incude his name. Once petition for this purpose is presented, it cannot
be withdrawn without the sanetion of the Court (now the Tribunal).5

Power of the Tribunal.6

The Tribunal may make any order which is just and
equitable in its opinion
in the circumstances of the case.' However,
S. 402 attempts to define the powers
of the Tribunal. Under this section, without prejudice to the generality of the
power of the Tribunal, the Tribunal has the power to provide for
(a) the regulation of the conduct of the affairs of the company in
future;°
(b)
the purchase of the shares or interests of any member of the
company by other members thereof or by the company;
(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
between the company and the Managing Director or
any other director or
the manager upon such terms and conditions as
may, in the opinion of the
Tribunal, be just and equitable;
1. L.R.M.K. Narayanan v. Pudhuthotam Estates Ltd., (1992) 74 Comp. Cas.
31 (Mad.).
2. Ibid.
3. (1990) 1 S.C.C. 536.
4. Gulabrai Kalidas Naik v. Laxmidas Patel, (1977) 47 Comp. Cas. 151.
5. Jacob Cherian v. K.N. Charian, (1973) 43 Comp. Cas. 235.
6. S. 402 as amended by the Companies (Second Amendment) Act, 2002.
7 See Lord Krishan Sugar Mills Lta.
V.
Abhinashi
Kaur, (1974) 44 Comp. Cas. 210;
Gokulchand D. Murarka v. C.L.B, (1974) 44 Comp. Cas. 173; G. Kasturi v. N. Murali
(1992)74 Comp. Cas. 661 (Mad.).
8. For example, see Life Insurance Corporaton of India v. Haridas Mundra, A.l.R. 1059
Cal. 695; Bennet Coleman & Co. V. Union of ndia, (1977) 47 Comp. Cas. 92 (Bom.).
 Prevention of Oppression and Mismanagement 381

(e) the termination, setting aside or modification of any agreement

between the company and any third person provided due notice has been
given to him and his consent has been obtained;
( the setting aside of any fraudulent preference made within 3
months betfore the date of the application;
(g)any other matter for which in the opinion of the Tribunal it is just
and equitable that provision should be made.
Prevention of Oppression or Mismanagement by the Central
Government.-The powers of the Central Government in this respect may be
summed up-

1. To appoint directors.2
According to S. 408, notwithstanding anything contained in this Act, the
Central Government may appoint such number of persons as the Tribunal may, by
order in wTiting, specify as being necessary to effectively safeguard the interests of
the Company, or its shareholders or the public interests to hold office as directors
thereof for such period, not exceeding three years on anyone occasion, as it may
on a reference made to it by the Central
Government or
think fit if the Tribunal,
or of the
on an application of not less than one hundred members of the company
members of the company holding not less than one-tenth of the total voting power
therein, is satisfied, after such inquiry as it deems fit to make, that it is necessary
to make the appointment or appointments in order to prevent
the affairs of the
company being conducted
either in a manner which is oppressive to any members
of the company or in a manner which is prejudicial to the interests of the company
or to public interest." However,
in lieu of passing an order as aforesaid, the
to it under
Tribunal may, if the company has not availed itself of the option given
the manner provided in
Section 265, direct the company to amend its articles in
that section and make fresh appointments of directors in pursuance
of the articles
as so amended, within such time
as may be specified in that behalf by the Tribunal
and in case the Tribunal passes such order or direction, it may, if it thinks fit,
direct that until new directors are appointed in pursuance of the order aforesaid,
such number of persons as the Tribunal may, by orders, specify as being necessary
to effectively safeguard the interests of the company, or its shareholders or the
public interest, shall hold office as additional directors of the company and on
such directions, the Central Government shall appoint such additional directors.
After the appointment of such directors, no change in the Board of Directors
can be made without the approval of the Tribunal.
The appointment of such directors may be made for a period not exceeding
3 years at a time. Any director so appointed shall not be required to hold any
qualification shares nor he shall be liable to retire by rotation but any such
director may be removed by the Central Government from his office at any time
and another person may be appointed by that Government in his place.
Where any person is appointed by the Central Government to hold office as

1. See Ss. 408, 409, 388-B to 388-E.

2. S. 408. As amended by the Companies (Second Amendment) Act, 2002.
3. Ibid.
4. Tbid.
 Company Law
382
of the aforesaid
director additional director of a conmpany in pursuance
or
issue such directions to
provisions of this section, the Central Government may
in regard to its affairs.
the company as it may consider necessary or appropriate
Such direction may include directions to remove an auditor already
appointed and
to appoint another auditor in his place or to alter the
articles of the company, andd
removal or alteration, as the
upon such direction being given, the appointment,
case may be, shall be deemed to have come
into effect as if the provisions of this
further act or
Act in this behalf have been complied with without requiring any
thing to be done.
as directors or
The Central Government may require the persons appointed
Government from
additional directors under this section to report to the Central
time to time with regard to the affairs of the company.
the Board of Directors likely to affect
2. To prevent change in
company prejudicially."
If a director or manager of the company complains to the Tribunal
that as a
result of a change in ownership of any share, a change in the Board of Directors
of the company is likely to take place which (if allowed) would affect prejudicialy
the affairs of the company, then Tribunal may, if satisfied after such inquiry
as
it thinks fit, order that no change in the Board of Directors or membership of the
company can be made without its prior approval. These provisions do not apply
to a private company which is not a subsidiary of a public company.

3. To remove maFagerial personnel.

Under Ss288-B \to388-E, the Central Government has power to remove
managerial pèrsonel from gffice on the recommendation of the Tribunal.
Where in the øpinion of the Central Government there are circumstances
suggesting/
(a that any person concerned in the conduct and management of the
affairs of a company is or has been in connection therewith guilty of fraud,
misfeasance, persistent negligence or default in carrying out his obligations
and functions under the law or breach of trust; or
(that the business of a company is not or has not been conducted
and managed by such person in accordance with sound business principles
or product commercial practices; or

c) that a company is or has been conducted and managed by such

person in a manner which is likely to cause or has caused injury or damage
to the interest of the trade, industry or business to which such company
pertains; or
(d) that the business of a company is or has been conducted and
managed by such person with intent to defraud its creditors, members or
any other person or otherwise for a fraudulent or unlawful purpose or in a
manner prejudicial to public interest.
The Central Government may state a case against the person aforesaid and
refer the same to the Tribunal with a request that the Tribunal may inquire into

1. S. 409.
2. Ss. 388-B to 388-E.
3. S. 388-B.
 Prevention of Oppression and Mismanagement 383
the case and record a decision as to whether or not such person is a fit and proper
Derson to hold the office of the director or any office connected with the conduct
and management of any company.
In the case of Alok Prakash Jain v. Union of India,' the Court has held that
the Central Government is under duty to make such reference and remove a
person from oftice if the Court (now Tribunal) found him guilty.
person

Every case shall be stated in the form of an application which shall be

presented to the Tribunal or such officer thereof as it may appoint in this behalf.
Every such application shall contain a concise statement of such circumstances
and materials as the Central Government may consider necessary for the purpose
of the inquiry and shall be signed and verified in the manner laid down in the
Code of Civil Procedure for the signature and verification of a plaint in a suit by
the Central Government."
The Central Government shall by order remove from office any director or
any other person concerned in the conduct and management of the affairs of a
company against whom there is a decision of the Tribunal on such reference.3 The
not hold the
person against whom such order of removal from office is made shall
office of a director or any other office connected with the conduct and
the
management of the affairs of any company during a period offive years from
date of the order of removal.*
may, with the previous of
However, the Central Government concurrence

the Tribunal permit such person to hold any office before the said period of five
years.5 On the removal of a person from office of a director or any other office
connected with the conduct and management of the affairs of the company that
for the loss of
person shall not be entitled to or be paid any compensation
termination of office.° On the removal of a person from the office of a director or
conduct and management of the affairs of the
any other office connected with the
the previous approval of the Central
company, the company may, with
Government, appoint another person to that office in accordance with the
provisions of this Act.

1. (1973) 43 Comp. Cas. 68.

2. 3. 388-B.
3. S. 388-E.
4. Ibid.
5. Tbid.
6. Ibid.
7. Tbid.