Prevention of Oppression

and Mismanagement
By –
Puru Aggarwal (2K20/BBA/125)
Tanishq Kashyap (2K20/BBA/163)
Oppression and Mismanagement:
 
An unjust or excessive exercise of power: as
A : Unlawful, Wrongful, or Corrupt Exercise of
authority by a public official acting under
color of authority that causes a person harm;

B : Dishonest, Unfair, Wrongful, or

Burdensome Conduct by corporate directors or
majority shareholders that entitles minority
shareholders to compel involuntary dissolution
of the corporation.

The term mismanagement refers to the process

or practise of managing ineptly, incompetently,
or dishonestly.
Prevention of Oppression and
Mismanagement:
According to the Companies Act, any member of a company who
complains that the affair of the company are being conducted in a
manner prejudicial to public interest or in a manner oppressive to any
member or members may apply to the Tribunal for an order thus to
protect his /her statutory rights.

The present Company Act does provide the definition of the

expression ‘mismanagement’. When the affairs of the company are
being conducted in a manner prejudicial to the interest of the
company or its members or against the public interest, it amounts to
mismanagement

Ex:- Dale and Carrington Investment Pvt Ltd. v P. K. Prathapan

241: Application to Tribunal for
relief in cases of Oppression, etc.
Section 241 (1) of the 2013 version of the Act states that –

1. 2.
Any member of a company who The Centre, if it feels the
complains that the affairs of the complaint is genuine, may
company have been or are being itself apply to the Tribunal for
conducted in a manner prejudicial an order.
(damaging) to the interests of the
company, its members or the public at
large may apply to the Tribunal for an
order.
242: Powers of Tribunal.
The tribunal is the special adjudicatory body
brought about to deal with the matters pertaining
to the Companies Act in order to get efficient and
immediate relief. Section 242 deals with the
powers of the tribunal.

Ex:- Union of India Applicant/petitioner v. Unitech Limited

> Took large advancements from 19000 home buyers but construction did
not commence.

> Took deposits totaling about ₹723 crore from 51,000 depositors but
diverted the funds.

> Violation of various provisions of Companies Act.

> Delhi Police arrested Promoter; Supreme Court order removal of

Directors.
 243: Consequences of Termination or
Modification of Certain Agreements.
1.
Where an order made under section 242 terminates,
sets aside or modifies an agreement such as is
referred to in subsection (2) of that section -
(a) such order shall not give rise to any claims
whatever against the company by any person for
damages,
(b) no managing director or other director or
manager whose agreement is so terminated or set
aside shall, for a period of five years from the date
of the order terminating or setting aside the
agreement;
Provided that the Tribunal shall not grant leave
under this clause unless notice of the intention to
apply for leave has been served on the Central
Government and that Government has been given a
reasonable opportunity of being heard in the
matter.
2.
Any person who knowingly acts as a managing
director or other director or manager of a company
in contravention of clause (b) of sub-section (1),
and every other director of the company who is
knowingly a party to such contravention, shall be
punishable with imprisonment for a term which may
extend to six months or with fine which may extend
to five lakh rupees, or with both.
244: Right to Apply under section 241.
1.
The following members of a company shall have
the right to apply to the Tribunal u/s 241 (a) in
the case of a company having a share capital,
(i) not less than one hundred members of the
company or
(ii) not less than one-tenth of the total number
of its members, whichever is less, or (iii) 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 has or have paid all calls
and other sums due on his or 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:
Cyrus Investments Private Limited & Anr., v. TATA Sons Limited &
Ors.
Provided that the Tribunal may, on an
application made to it in this behalf, waive all or
any of the requirements specified in clause (a)
or clause (b) so as to enable the members to
apply under section 241.
2.
Where any members of a company are entitled
to make an application under subsection (1), any
one or more of them having obtained the
consent in writing of the rest, may make the
application on behalf and for the benefit of all
of them.
245: Class Action.
When 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, a suit may be filed on behalf of the class of
members/ depositors aggrieved by such action.

Position Condition
1) Members- Not less than 100 members OR Not less than such
a) Company percentage of the total number of its members as may
having share be prescribed, Whichever is less
Who can capital.
b) Company not
OR
Any member/members holding not less than such
apply for a having share
capital.
percentage of the issued share capital of the company
as the case may be prescribed
Class Action:
2) Depositors Not less than 100 depositors OR Not less than such
percentage of the total number of depositors as may be
prescribed Whichever is less
OR
Any depositor/depositors to whom the company owes
such percentage of total deposits of the company as
may be prescribed.
Correlation of Section 245 and Federal
Rules of Civil Procedure, Rule 23
Since the concept of ‘class action’ has evolved from the laws of the United States, it
may be assistive to examine the procedure prescribed under their laws viz., the
Federal Rules of Civil Procedure (“FRCP”), under Rule 23, which covers class action
and outlines a process including:
a) complaint filed by a plaintiff on behalf of a putative (or proposed) class,
(b) such class be certified by the court,
(c) appointing of class representatives and class counsel, to represent the class, (d)
issue of public notice to all members of the class, with an option to opt-out, and
(e) final judgment from either a trial or settlement which will bind all class members
who have not opted out of the class action.

Eg; Dismissal of Class Action against Mahindra & Mahindra by the US Court
Punishment as per Section 245
regarding Class Action:
Any company which fails to comply with an order passed by the
Tribunal under this section shall be punishable with fine which shall not
be less than five lakh rupees but which may extend to twenty-five lakh
rupees

Section 246: Application of certain

provisions to proceedings under Section 241
and Section 245.
If any numbers of members or depositors or any of them is of opinion
that the affairs of the company being conducted in a manner
prejudicial to the interest of the company, or its members, or its
depositors, they file an application to the NCLT on behalf of members,
or depositors.
THANK YOU