Section 241-246 of the Companies Act, 2013 lays down the provisions to effectively deal with oppressing and mismanagement in a company.
Corporate democracy finds its roots in the concept of majority rule. The principle of majority originated in the rule of Foss v Harbottle which provided that the individual shareholders have no cause of action in law for any wrongdoing by the corporation and the action brought about in respect of such losses shall be brought either by the corporation itself or through a derivative action.
While majority rule is the common norm, it often overshadows minority rights. The objective is to strike a balance between the interest of the small/individual shareholders and the effective control of the company. Therefore, the Indian company law, 2013 has put in place section 241 to 246 to safeguard minority rights.
The term ‘oppression’ is not clearly defined by Company Law 2013, the court of law defines is conduct that involves a visible departure from the standards of fair dealing and a violation of conditions that require fair – especially with regard to the right of shareholders.
The term mismanagement does not find a clear meaning in the act but can be described as conducting company affairs in a prejudicial, dishonest or inept manner. Section No 241 to 246 provides for remedies to the members when they face oppression and the company is being mismanaged:
Any member of the company who has a complains that the affairs of the company are being conducted in an oppressive manner or any material change has taken place which is not in the interest of its members then he 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 is of the opinion 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.
–Removal of MD/Director/Manager of the company and the manner of appointment subsequent to the order.
–Recovery of undue gain from the MD/Director/Manager and utilisation of the funds by transferring to investor education and protection fund or repayment to the victims who can be identified.
–Appointment of directors who are required to report to the tribunal. The imposition of cost and such other order which in the opinion is just and equitable.
|Class of company||No. of members to apply|
|Company with a share capital||–Not less than 100 members OR Not less than 1/10th of the total number of its members Whichever is less OR –Any member or members holding not less than 1/10th of the issued share capital of the company Note: The applicant should have paid all the calls and other sums due on his/her shares
|Company with no share capital||Not less than 1/5th of the total number of its members
Class action laws can be filed by a large group of people against a defendant who has caused common harm to the entire group.
Who can apply?
|Head 1||Head 2|
|1) Members a) Company having share capital b) Company not having share capital||--Not less than 100 members OR Not less than such percentage of the total number of its members as may be prescribed Whichever is less OR --Any member/members holding not less than such percentage of the issued share capital of the company as the case may be prescribed Note: The applicant should have paid all the calls and other sums due on his/her shares Not less than 1/5th of the total number of its members|
|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.|
If any member/depositor/any class of them as mentioned above is of the opinion that the management of the company is being conducted in a manner that is prejudicial to the interest of the company, then an application shall be filed with the tribunal
The Tribunal shall look into the following matters before considering the application
After the application is admitted the following aspects are worthy of note:
|Section No and Description||Penalty|
|Sec 242- Alteration of the MOA/AOA in contravention of the order of the tribunal||Company Fine-Min: Rs 1 Lakh Max: Rs 25 Lakh Officer in default Fine-Min: Rs 25,000 Max: Rs 1 Lakh Imprisonment-Max:6 months Or Both|
|Sec 243- Any person who knowingly acts as a Director/Manager/managing director before the expiry of 5 years, whose agreement is terminated||Imprisonment Max: 6 months Fine-Max: Rs 5 Lakh Or Both
|Sec 245- Company fails to comply with the order of the tribunal Sec 245-Application filed before the tribunal is frivolous||Company Fine-Min: Rs 5 Lakh Max: Rs 25 Lakh
Officer in default Fine-Min: Rs 25,000 Max: Rs 1 Lakh Imprisonment-Max:3 years Rs 1 Lakh paid by the applicant to the opposite party