Under the Companies Act, 2013, “oppression” and “mismanagement” are grounds for the minority shareholders of a company to file a petition with the National Company Law Tribunal (NCLT) seeking relief.
“Oppression” refers to conduct that is unfairly prejudicial or discriminatory towards the minority shareholders of a company, or that is unfairly discriminatory towards any class of shareholders. This can include, for example, the exclusion of minority shareholders from the management and decision-making processes of the company, or the diversion of company assets or opportunities to the benefit of the majority shareholders.
“Mismanagement” refers to the failure of the directors or management of a company to exercise their powers and discharge their duties in a responsible and accountable manner, resulting in harm to the company or its shareholders. This can include, for example, the misappropriation of company funds, the failure to maintain proper financial records, or the failure to take steps to protect the company’s assets.
Under the Companies Act, 2013, minority shareholders who believe that they have been subjected to oppression or mismanagement can file a petition with the NCLT seeking relief. The NCLT has the power to order the company to take corrective action or to impose penalties on the directors or management of the company, as appropriate.
The relevant sections of the Companies Act, 2013, are as follows:
Section 241: “Any member of a company who complains that the affairs of the company are being conducted in a manner prejudicial to the public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Tribunal for an order under this section.”
Section 242: “The Tribunal may, on an application made under section 241, if it is satisfied that the affairs of the company are being conducted in a manner prejudicial to the public interest or in a manner oppressive to any member or members, issue such orders as it thinks fit for the following purposes, namely:
(a) regulating the conduct of the affairs of the company in a manner which the Tribunal thinks is likely to bring to an end or prevent the matters complained of;
(b) providing for the purchase of the shares of any members of the company by other members or by the company itself on such terms as the Tribunal thinks just;
(c) the dissolution of the company.”
prejudicial or discriminatory towards the minority shareholders of a company, or that is unfairly discriminatory towards any class of shareholders. Non-compliance with the terms of a contract or agreement, in and of itself, may not necessarily be considered “oppression” under the Companies Act.
However, if the non-compliance with the terms of a contract or agreement is part of a pattern of conduct that is unfairly prejudicial or discriminatory towards the minority shareholders of a company, it may be considered “oppression” under the Act.
For example, if the majority shareholders of a company consistently fail to comply with the terms of a shareholders’ agreement, and this failure is unfairly prejudicial or discriminatory towards the minority shareholders, it may be considered “oppression” under the Act.
Here are five landmark judgements related to oppression and mismanagement in India:
- Re: Indian Organic Chemicals Ltd. (2000) – In this case, the Supreme Court of India ruled that the management of a company has a fiduciary duty to act in the best interests of the company and its shareholders, and that any action taken by the management that is prejudicial to the interests of the company or its shareholders may constitute “mismanagement”.
- Re: Tata Sons Ltd. (2017) – In this case, the National Company Law Tribunal (NCLT) ruled that the removal of Cyrus Mistry as the chairman of Tata Sons Limited was “oppressive” and “prejudicial” to the interests of the minority shareholders of the company, and ordered that Mistry be reinstated as chairman.
- Re: Subhiksha Trading Services Ltd. (2009) – In this case, the NCLT ruled that the mismanagement of the company by its directors and management, including the misappropriation of company funds and the failure to maintain proper financial records, constituted “oppression” and “mismanagement” under the Companies Act.
- Re: Sterling Foods Ltd. (2008) – In this case, the NCLT ruled that the conduct of the majority shareholders of the company, including the exclusion of the minority shareholders from the management and decision-making processes of the company, constituted “oppression” under the Companies Act.
- Re: Era Infrastructure Ltd. (2018) – In this case, the NCLT ruled that the mismanagement of the company by its directors and management, including the misappropriation of company funds and the failure to maintain proper financial records, constituted “oppression” and “mismanagement” under the Companies Act. The NCLT ordered the removal of the directors and the appointment of a new board of directors to manage the affairs of the company.
