PREVENTION OF OPPRESSION AND MISMANGEMENT IN A COMPANY

INTRODUCTION

In normal course of operation of a company whatever mandate majority of stakeholder’s favours or votes upon in annual general meeting is followed by the director of the company to ensure smooth operation of the business enterprise. However, it is possible for majority of shareholder to abuse their powers to the detriment of minority shareholders. To prevent such act from hindering with the interest of minority shareholders and growth prospectus of the company the companies act 2013 provide for several safeguard to prevent oppression of the minority shareholders which controls mismanagement.

PROVISION FOR OPPRESSION UNDER COMPANIES ACT

The term oppression has not been defined anywhere in the companies act but it has to be construed in the generic sense so as to broaden the ambit of the term to provide protection against any kind of mismanagement.

Prior to enactment of the Act of 2013, companies act provided for the winding up of the company as the absolute remedy for any situation of mismanagement as per s. 433 under the act of 1956. However, the remedy provided was severe in nature as against the offence of oppression. Later the power was given to Company law board (now tribunal) to decide upon the matter of oppression and pass remedy which it deems fit on situation to situation basis. An aggrieved shareholder can approach the tribunal under s.241 of the act of 2013 if they believe winding up of the company is not adequate solution for his problems.

In re Hindustan Co-operative Insurance Ltd[1] it was held that even when the acts of the companies are well within the powers of the company those acts should not be arbitrary to the interest of the minority stakeholders and should not promote the oppression of any particular individual because in such cases the tribunals have the power to interfere in the matter and provide relief to the aggrieved party as per the s241 of the companies act without taking the ultimate recourse of winding up the company.

Kanika Mukherjee v. Rameshwar Dayal Dubey[2], it was held that an effective & efficient management decides the growth prospects of any company if a management of company is overriding the interest of majority stake holders and at the same time engaging the company in plethora of litigation it can be easily construed that such management is acting against the interest of company. Hence roles of tribunal in such cases is of preventive nature they intend to remove all those acts of companies which are oppressive and prejudicial to the interest of different categories of shareholders.

However, it must be kept in mind that oppression from the part of majority shareholders has to be proved with the precision that is to imply it must signify a persistent unjust conduct on their part only then a petition will be maintainable under s.241 of the act.[3]

It has to be also duly noted that central govt under sub section (3) of s.241can apply before the tribunal provided that it believes following circumstances exist:

• The person concerned with the management of the company has defaulted with the law in carrying out his/her obligation & has been caught in connection of fraud, misfeasance etc.
• The person concerned with the management of the company has not been carrying out the venture inconsonance with sound business principles.
• The company is being managed is such a way that it is likely to cause harm to the interest of trade, industry or business which company intends to pursue.
• The business is being carried out with the intention to defraud the investors or cause harm to the public interest.

Once the case is initiated by the central govt it is upto the tribunal to decide upon the fact whether the respondent is eligible, or competent enough to hold the office or not.

Kilpest (p) ltd. v. Shekhar Mehra[4], it was held by the court to file the petition under s.241 of the companies Act, 2013 the consent of shareholders must be clearly expressed and at the same time they should at the same time claim for the remedy under petition however, it must be kept in mind a claim for remedy under s.241 cannot be converted into petition for winding up under s.271 of the act.

In Ramdas motor transport ltd. v. T.A. Reddy[5] it was held by the supreme court that under s241 of the act adequate remedies has been given to the aggrieved party/shareholders hence high court should not entertain petition for such matters under article 226 unless there is a prudent reason to seek recourse through writ jurisdiction.

So a important question arose before the court that is whether these remedies are available only to the minority shareholders or it can also be used by the majority shareholders which was later settled in the case of Ram Shanker Prasad v. Sindri iron foundry(p) ltd.[6] were the Calcutta High Court observed that companies act of India does not uses any phraseology to signify that this recourse is only available to the minority shareholders unlike the English counterpart which specifically mention the term ‘minorities’ under s 210 of English Companies act, 1948. Hence the section 241 should be interpreted in the widest amplitude.

ROLE OF TRIBUNALS

Tribunals have very vital role to play in providing the remedy to the problems for which application has been made thereof, as per s 242 of companies act 2013 it confers wide range of powers upon the tribunals in respect of complain made to them under s241 of the act. They can do the following things as mentioned under s242:

• They can regulate the conduct of companies in future.
• They can terminate set aside any agreement between the company and the directors.
• They can look into matter which is just and equitable in nature.
• They can also approve reduction in share capital of the company.
• They also can set aside or terminate any agreement with any person provided that due notice has been given to that person.
• It can also set aside any transaction which has been done against the interest of the company.

CONCLUSION

Prior to enactment of companies act 2013, preceding companies act of 1956 provided for both oppression and mismanagement in different section i.e. 397 & 398 but later when act of 2013 came into force remedy for both were provided under s241 of the act of 2013. It has been made abundantly clear that for any venture to flourish it must have a harmonious consensus among the stakeholders of that enterprise, both oppression and mismanagement divest the precious resources of the company to unnecessary litigation which later impedes the growth prospect. Hence the aggrieved party can approach the tribunal for both oppression and mismanagement and can seek remedy for same under s241 before the tribunal.

[1] (1961) 31 Comp. Cas.193

[2] (1966) 1 Comp. LJ. 65

[3]  In Re Sindri Iron Foundry (p) ltd. (1964) 24 Comp. Cas 510

[4]  (1987) 62 Comp Cas 717 (MP)

[5]  AIR 1997 SC 2189.

[6]  AIR 1966 Cal 512