Prevention of Oppression and Mismanagement under Companies Act,2013 by Samidha Hegde@Lexcliq  

Introduction-

For effective running of a Company it is important to steer clear of Oppression and Mismanagement. Oppression means using your powers immorally intended to cause prejudicial and unfair treatment towards other members of the Company. Mismanagement may occur due to negligence, incompetency and inept management.

Instances which can be termed as mismanagement

  1. Preventing directors from functioning
  2. Violations of statutory provisions
  3. Violations of provisions of MOA & AOA of the company
  4. Misuse of funds etc

Sec 241 of Chapter XVI of the Companies Act, 2013 deals with the “Prevention of Mismanagement”.

 

Qualification to file an application of oppression:

In order to maintain an application filed on the grounds of oppression and mismanagement, the applicant should hold either 10% or more shares of the issued capital or should constitute 1/5th or more of the members of the company or the application shall be filed by at least one hundred members of the company. However, the Tribunal has been vested with a discretionary power to waive all or any of the afore-mentioned requirements so as to enable the members to apply. However, it is pertinent to note that a member whose calls or other sums due on their shares have not been paid or a mere share warrant holder does not qualify to file an application on grounds of oppression and mismanagement

Further, the Central Government has been vested with the right to initiate a case against such person and refer the same to the Tribunal with a request that the Tribunal may inquire into the case and record a decision as to whether or not such person is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.

Application to tribunal to seek relief

Section 241and 242 of the Act provides for relief in cases of oppression which is done by making application to the tribunal. The Act provides that under section 241 of the Act an application can be made to the tribunal in case one of the following conditions is fulfilled:

  • If a member complains that affairs of the company are being conducted in manner prejudicial to public interest or interests of a particular member of the country.
  • There is a material change in interests of creditors, debentures, or any shareholders of the company by action of board of directors which is likely to be arbitrary and prejudiced. One of the landmark cases which expanded the scope of rights of shareholders who are oppressed by other shareholders was Vikram Bakshi and Ors. Vs. Connaught Plaza Restaurants Limited and Ors.it was one of the major cases involving oppression and mismanagement in companies.
  • The central government believes that the interest of general public is thwarted by the conduct of company.

These conditions are necessary to be fulfilled to prove oppression and mismanagement.

 

Conclusion-

Oppression and mismanagement are part and parcel of business. During the course of business, oppression of small/minority shareholders takes place by the majority shareholders who are in control of the company. Similarly, mismanagement of business is not uncommon. When we talk of mismanagement we mean mismanagement of resources. Mismanagement could mean siphoning of funds, causing losses due to rash decision, not maintaining proper records, not calling requisite meetings. Finer version of mismanagement could arise where the management does not act/react to a business situation leading to downfall of business.

In order to check all these discrepancies the need was felt to have any measure to prevent the Oppression and mismanagement and thus under Chapter 6th of Part 6th of Companies Act , 1956 provides for the judicial as well as administrative remedies to check Oppression and mismanagement. It is a powerful tool which provides such power that even a single member can approach Company Law Board if any of his right has been infringed or in order to prevent the Oppression and mismanagement in the company.

 

References-

https://taxguru.in/company-law/oppression-mismanagement-companies-act-2013.html

http://www.legalservicesindia.com/article/482/Prevention-of-oppression-&-mismanagement.html

https://www.legalbites.in/prevention-oppression-mismanagement/

https://lawtimesjournal.in/protection-of-oppression-and-mismanagement-under-company-law/

https://samistilegal.in/oppression-and-mismanagement-under-companies-act-2013/

 

 

 

 

 

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