Meaning of oppression. -The grounds on which an application can be made under Section 241 are:
- 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;
- 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.
Section 241-246 of the Companies Act, 2013 lays down the provisions to effectively deal with oppressing and mismanagement in a company.
Who can file the complaint for Oppression & Mismanagement?
- Any member of the company who has a complaint that the company’s operations are running in an oppressive manner or that any major change has occurred that is not in the best interests of its members has the right to apply to the Tribunal.
- Notably, the right to apply to the Tribunal is available also to the Central Government, if the Central Government is of the opinion that the affairs of the company are conducted in a manner prejudicial to the public interest.
- If the Tribunal believes that the company’s affairs are as per the manner is detrimental to the public, members, or the firm, the Tribunal may issue such orders as he deems appropriate on whether the business can be wind up or not.
Power of Central Government
If the Central Government believes that:
- Any Person Concerned In The Management Of The Company Is Guilty Of Fraud, Misfeasance, Persistent Negligence, Default In Carrying His Obligations, Breach Of Trust
- Sound Business Practices Have Not Been Used
- The Company Has Been Managed By A Person Who Is Likely To Cause Damage To The Interest Of Trade And Business To Which The Company Pertains
- The Company Has Been Managed By A Person Who Intends To Defraud The Creditors, Members, Or Another Person For A Fraudulent Or Unlawful Purpose Or In A Manner Prejudicial To The Public Interest
- The Central Government may initiate a case against such person and refer him to the Tribunal and request the Tribunal to enquire into the case. The Tribunal will inquire and record its decision as to whether such person is fit and proper to manage the company or not. Section 241(4) provides that the person against whom the case is filed becomes a respondent to the application. Section 241(5)(a) states that the application filed by the Central Government must contain concise statements of circumstances and materials necessary for an inquiry. Section 241(5)(b) states that the application shall be signed and verified in the manner provided under the Code of Civil procedure, 1908.
Right to apply under section 241
The members who have a right to apply under section 241 are:
When a company has a share capital the following members can apply under section 241:
The requisite number of members who must sign the application is given under section 244 as follows:
- Not Less Than One Hundred Members Or Not Less Than One-Tenth Of The Total Number Of Its Members, Whichever Is Less
- Any Member Or Members Holding Not Less Than One-Tenth Of The Issued Share Capital
The applicant or applicants must have paid all call money and other sums due on them before applying. When a company does not have a share capital at least one-fifth of the total number of its members shall apply under section 241. In addition, the Tribunal may waive any of the requirements under section 244 to enable members to apply under section 241.
It has been held by the Supreme Court in Rajahmundry Electric Supply Corpn Ltd v A Nageshwara Rao that if some of the consenting members have, subsequent to the presentation of the application, withdrawn their consent, it would not affect the right of the applicant to proceed with the application.
Prevention o Mismanagement
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.
A very clear illustration of mismanagement contemplated by the section is Rajahmundry Electric Supply Corpn Ltd v A Nageshwara Rao.1956
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 “a powerful local junta was ruling the roost” 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.
Powers of Tribunal [S. 242]
Powers of the Tribunal under Sections 241 and 242 are fairly wide.152 “In fact, the Tribunal may make any order for the regulation of the conduct of
he company’s affairs upon such terms and conditions as it may think fit. 153
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.