Oppression And Mismanagement under Companies Act, 2013

Oppression means a lack of morality and fair dealings in the affairs of the company which may be prejudicial to some members of the company. The term mismanagement refers to the process or practice of managing ineptly, incompetently, or dishonestly. 

A company is a distinct entity separate from the owners of the company where management and ownership are separated by a thin line of roles and responsibilities bestowed upon themselves. In a broad sense, it is a group of persons who have come together or who have contributed money for some common purpose and have incorporated themselves into a distinct legal entity. The whole scheme of the Companies Act is to ensure proper conduct of the affairs of the company in public interest and preservation of the image of the country in the public interest.

As India is a democratic country, the companies being a legal citizens also bestows in itself the power of democracy. Corporate democracy is more vulnerable to it because it is reckoned with the number of shares and not with the number of individuals involved. The rule of the majority has been made applicable to the management of the affairs of the company. The members pass a resolution on various subjects either by the simple or three-fourth majority. Once resolution is passed by the majority it is binding on all members. As a result, the court will not ordinarily intervene to protect the minority interest affected by the resolution. However, there are exceptions to this rule- Prevention of Oppression and mismanagement being one such ground.

Hence, it is to be noted that this section can be invoked whenever there is the oppression of the minority or there is mismanagement of the affairs of a company that is prejudicial to the public interest or the interest of the company and its members. Thus, where a director is oppressed he does not have a remedy under this section unless he is also a shareholder of the company. This section also specifies the circumstances in which an application may be made to the Tribunal by a member of a company or by the central Government for relief in cases of oppression and mismanagement.

Any member of the company who has complains that the affairs of the company are being conducted oppressively or any material change has taken place which is not in the interest of its members then has a right to apply to the tribunal. Such an application can also be made by the Central Government to the tribunal. If the tribunal believes that the company’s affairs are being conducted in a manner prejudicial to the interest of the public, members or company then the tribunal shall make such orders as he may deem fit on whether the company should be wound up or not.

Thus the new companies act 2013 in many ways ensures that the rights of the minority shareholders are protected in every possible manner. The stake held by them in a company is not in any manner subservient to the majority and it is the duty of the law to protect their interests from any odious activity of the latter. The Act and the Courts try to strike a fine balance between the rights of the majority to rule and the protection of interests of the minority shareholders through the prevention of Oppression and Mismanagement.

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