Prevention of Oppression & Mismanagement

Meaning of Oppression:
• The term Oppression has not been defined in the Act.
• According to the dictionary meaning of word, it is any
act exercised in a manner burdensome, harsh &
wrongful.
Explanation to the above:
• The complaining member must show that he is
suffering from oppression in his capacity as a member
and not in any other capacity.
• But oppression, does not include mere domestic
disputes between directors and members or lack of
confidence between one set of members and others
In Shanti Prasad Vs Kalinga Tubes Ltd. Case, it
was held that any person claiming relief on the
ground of oppression has to prove on the part of
majority, the following:
• lack of probity
• unfair conduct
• prejudice to him in the exercise of legal and
proprietory rights as a shareholder
Acts / circumstances which were held to be
Oppressive, according to the different cases and
judgment:
1) Denial to shareholder of his right to vote and
receive dividend
2) Appointment of a director at an EOGM of
which no notice was offered to the minority.
3) An attempt to force new and more risky
objects upon an unwilling minority
4) Exclusion of minority from profit participation
Acts / circumstances which were not held to be
Oppressive, according to the different cases and
judgment:
1) Failure to declare dividend
2) Refusal to declare more than moderate rate of
dividend even if the profits earned could justify a
higher rate of dividend
3) Denial of right of inspection to books of accounts
4) Failure to comply with formalities required in the
matter of giving notice of general meeting
5) Drawing of salary by the director for his services
rendered, even though the company is suffering losses
Meaning of mismanagement:
• Mismanagement is the situation when there is
gross misconduct and deviation from
company’s original course of action which
leads to substantial failures of company / loss
to public / to company
Acts / circumstances which were held to be
mismanagement, according to the different cases and
judgment:

1) Preventing directors from complying with their responsibilities and

duties
2) Absence of company’s records causing prejudice to company’s
business
3) Sale of assets at a low price and without compliance with the act
4) Non filing of documents with the Registrar of Companies
5) Violation of provisions of memorandum and articles of the company
6) Erosion of companies substratum due to irregularities in conduct of
affairs
7) Misuse of funds
8) Continuation in office even after expiry of term of managing director
9) In fighting among the directors resulting in serious prejudice to the
company
Acts / circumstances which were not held to be
Mismanagement, according to the different cases and
judgment:
1) Change in control and management of the company
and the appointment of new directors which is not
ultra vires to the company
2) Directors’ bona fide decision not to declare dividend
and to accumulate available profits into reserves
3) Where directors of a company in financial
difficulties arranged with the company’s creditors that
the creditors may become shareholders and directors
instead of being creditors