{"id":27162,"date":"2019-12-10T17:30:50","date_gmt":"2019-12-10T12:00:50","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=27162"},"modified":"2019-12-10T14:55:33","modified_gmt":"2019-12-10T09:25:33","slug":"provisions-for-oppression-and-mismanagement-under-companies-act-2013","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/provisions-for-oppression-and-mismanagement-under-companies-act-2013\/","title":{"rendered":"Provisions for Oppression and Mismanagement Mentioned in the Companies Act 2013"},"content":{"rendered":"<p class=\"has-drop-cap\">The concept of <strong>Oppression and mismanagement<\/strong> helps corporate democracy find its roots. The term &lsquo;oppression&rsquo; is not clearly defined by the <strong><a href=\"http:\/\/www.mca.gov.in\/MinistryV2\/companiesact2013.html\">Companies Act,2013<\/a><\/strong>. In the rule of&nbsp;<strong>Foss v Harbottle,<\/strong> The principle of majority originates which provide that the minority shareholders have no cause of action in law for any wrongdoing by the company and the action brought about in respect of such losses shall be brought either by the company itself or through a derivative action.<\/p>\n\n\n\n<p>While majority rule, often\novershadows minority rights. The objective is to maintain a balance between the\ninterest of the small shareholders and the effective control of the company. To\nsafeguard minority rights, the Indian Companies Act, 2013 has put in place\nsections 241 to 246 of the Companies, Act 2013.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Defining Oppression and Mismanagement<\/h2>\n\n\n\n<p>Oppression and\nMismanagement are not defined in the Companies Act. The meaning of these words,\nthe purpose of Company law should be used in a broad sense and not in any\nstrictly literal sense. However, <strong>Mismanagement refers to gross negligence<\/strong>.\nMere misconduct of business cannot be considered as Mismanagement. Oppression\nmust be a continuous process and refers to an act of the majority, which is\nharsh and burdensome on the minority.<\/p>\n\n\n\n<p>&nbsp;Any member of the company having a complains\nthat the affairs of the company are being conducted in a manner which is\noppressive in nature or any material change has taken place which is not in the\nvirtue of its members then he has a right to apply to the tribunal, Such an\napplication can also be made by the Central Government to the tribunal. <\/p>\n\n\n\n<p>Further, If the tribunal\nis of the view that the company&rsquo;s affairs are being conducted in a manner\nprejudicial to the interest of the public, members or company then the tribunal\nshall make such orders as he may deem fit on whether the company should be\nwound up or not.<\/p>\n\n\n\n<p><strong>What are the Rights of the\nShareholders Against the Oppression and Mismanagement?<\/strong><\/p>\n\n\n\n<ul><li>The concept of shareholders&rsquo; democracy in the present-day corporate world denotes the shareholders&rsquo; supremacy in the governance of the business and the affairs of the company either directly or through their elected representatives. <strong>The concept is termed as &ldquo;Majority Powers and Minority Rights&rdquo;.<\/strong><\/li><\/ul>\n\n\n\n<ul><li><strong>Majority Powers-<\/strong>The\nmajority of members are entitled to exercise the powers of the company and are\nused generally to control the affairs of the company. The resolution passed\nthrough majority at a duly convened general meeting upon any agenda with which\nthe company is legally competent to deal, is incumbent upon the minority\nshareholders and as well as on the Company.<\/li><\/ul>\n\n\n\n<ul><li><strong>The Rule in Foss V. Harbottle<\/strong>-Usually, the competent court will not intervene at the instance\nof the shareholders in the matters of internal affairs and will not interfere\nwith the management of a company by its directors as long as they are acting\nwithin the powers confided on them under the articles of the Company. <\/li><\/ul>\n\n\n\n<p><strong>Facts of the Foss V.\nHarbottle-<\/strong><\/p>\n\n\n\n<ul><li>2 shareholders instituted\na suit against the directors.<\/li><li>The Allegation by the\nshareholders that the directors had affected various fraudulent practices and\nillegal transactions acting on behalf of the company. Additionally, the\ndirectors had misapplied and wasted the <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Property&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;Property refers to the legal designation of ownership over valuable items or assets held by an individual or a business. This ownership grants the holder certain legal rights to use, consume,(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/property\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>property<\/a> of the Company.<\/li><\/ul>\n\n\n\n<div class=\"shadow1\"><strong>NOTE-<\/strong>The decision held by the tribunal was the suit was dismissed, and the reason for dismissing the case is as follows-<\/div>\n\n\n\n<ul><li><strong>Recognition of Majority\nRule.<\/strong><\/li><li><strong>Avoiding Multiplicity of\ncases and unproductive litigations.<\/strong><\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Difference Between Oppression and Mismanagement-<\/h2>\n\n\n\n<p><strong>Oppression-<\/strong>Oppression refers to exercising power in a burdensome, unjust\nand inequitable manner.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What acts held as Oppressive?<\/h3>\n\n\n\n<p>The below-mentioned acts\namount to Oppression and are summarized as under-<\/p>\n\n\n\n<ul><li>By not conducting a\ngeneral meeting and keeping shareholders uninformed.<\/li><li>Lack of maintenance of\nstatutory records and not regulating the affairs of the company in accordance\nwith the Companies Act.<\/li><li>Divesting a member of the\nright to a dividend.<\/li><li>By not registering the\ntransmission under will.<\/li><li>Benefiting a section of\nshareholders, by issuing further shares.<\/li><li>Failure in distributing\nthe amount of compensation received on nationalization of business of company\namong members, where it was obligatory to distribute.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Acts which are not covered as Oppression-<\/h3>\n\n\n\n<ul><li>Impudent, incompetent or\ncareless conduct of director.<\/li><li>Not conducting the\nmeeting of the directors.<\/li><li>When a company is making\nlosses, Non-declaration of dividends.<\/li><li>Refusal by the company to\ninspect the Books of Accounts to the <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Shareholder&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;A shareholder is an individual or entity that owns at least one share of a company&amp;#039;s stock, granting them partial ownership of the company. This status allows them certain rights, including(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/shareholder\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>shareholder<\/a>.<\/li><li>Absence of proper details\nin the notice of a meeting.<\/li><li>Non-maintenance and filing\nof records.<\/li><li>Manipulation by\nincreasing the voting rights of the shares held by the management.<\/li><\/ul>\n\n\n\n<p><strong>Mismanagement<\/strong>-Mismanagement refers to the situation where the affairs of the\ncompany have been conducted in such a way detrimental to the interests of the\ncompany.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Acts held as Mismanagement-<\/h3>\n\n\n\n<ul><li>Where there is serious\ninfighting between directors.<\/li><li>Where the illegality of\nthe Board of Directors is being continued.<\/li><li>Access of bank account(s)\nby the unauthorized person.<\/li><li>No serious action has\nbeen taken by the directors to recover amounts misused.<\/li><li>Even after the expiry of\nthe term of directors, the director continued the office.<\/li><li>Sale of assets without\ncompliance with the Act at a low price. <\/li><li>Contravention of\nMemorandum.<\/li><li>Infringement of statutory\nprovisions and those of Articles.<\/li><li>Company reprobates to\ntrade unprofitably.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Acts which are not covered as Mismanagement<\/h3>\n\n\n\n<ul><li>Building up of reserves or non-declaration of dividends, especially when it does not result in the devaluation of shares.<\/li><li>Mismanagement can&rsquo;t be suspect, merely because the company incurs a loss,<\/li><li>Framing-up with the creditors in the company&rsquo;s beneficial interest.<\/li><li>Removal of the director.<\/li><\/ul>\n\n\n\n<p><strong>Eligibility\nfile the Application to the Tribunal for Relief in Case of Oppression and\nMismanagement-<\/strong><\/p>\n\n\n\n<p>Application\nto the tribunal-<strong>In case of Oppression and Mismanagement<\/strong>, the first\nremedy available to a minority is to apply to the Tribunal when the members of\nthe company apply that the affairs of a company are being conducted in a manner\ndetrimental to the public interest or such a manner oppressive to any member or\nmembers.<\/p>\n\n\n\n<p><strong>Who is Eligible to Apply?<\/strong><\/p>\n\n\n\n<p>When the members of a company complain that the affairs of the company are being conducted in a manner oppressive to any member or members may apply to the Court for an order, provided such members have a right to apply. The provisions come into existence when the aggrieved member can exhibits that he suffered an inequity in his capacity as a <strong><a href=\"https:\/\/enterslice.com\/shareholders-agreement\">shareholder<\/a><\/strong> and not in any other capacity.<\/p>\n\n\n\n<p><strong>Other than members\nfollowing other people can also apply for an application to the tribunal-<\/strong><\/p>\n\n\n\n<ul><li>Central Government or any person authorized by the Central\nGovernment has a right to file a petition and any person authorized by the\nCentral Government <\/li><li>In the case of Deceased member its legal representative, on whom\ntitle to the share&rsquo;s delegates by operation of law.<\/li><\/ul>\n\n\n\n<p><strong>Who Cannot File the Application-<\/strong><\/p>\n\n\n\n<ul><li>A shareholder whose calls\nor other amounts due on their shares have not been paid.<\/li><li>A holder of a letter of\n<a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Allotment&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;An allotment is the systematic distribution of business resources, often pertaining to the distribution of shares during initial public offerings (IPOs) to underwriting firms or to new and(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/allotment\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>allotment<\/a> of a partly paid share.<\/li><li>Share warrant holder.<\/li><li>In case of transfer of\nshares, A transferee of shares who has not lodged the shares to the company.<\/li><\/ul>\n\n\n\n<p><strong>The Signing of the\nApplication<\/strong>&ndash;<\/p>\n\n\n\n<p>The requisite number of\nmembers must sign the application. The requirement differs from the fact as to\nwhether the company has a share capital or not.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" loading=\"lazy\" width=\"540\" height=\"300\" src=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/12\/Signing-of-the-Application.jpg\" alt=\"Signing of the Application\" class=\"wp-image-27164\" srcset=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/12\/Signing-of-the-Application.jpg 540w, https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/12\/Signing-of-the-Application-300x167.jpg 300w\" sizes=\"(max-width: 540px) 100vw, 540px\"\/><figcaption> <strong>The Signing of the Application<\/strong>&ndash; <\/figcaption><\/figure>\n\n\n\n<p><strong>Conclusion<\/strong>-The Act was taken into consideration to strike a balance\nbetween the Right of Minority and the protection of the interest of Minority\nshareholders by preventing the Oppression and Mismanagement. Solitary Acts of\nOppression or mismanagement will not give rise to an action.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The concept of Oppression and mismanagement helps corporate democracy find its roots. The term &lsquo;oppression&rsquo; is not clearly defined by the Companies Act,2013. In the rule of&nbsp;Foss v Harbottle, The principle of majority originates which provide that the minority shareholders have no cause of action in law for any wrongdoing by the company and the [&hellip;]<\/p>\n","protected":false},"author":25,"featured_media":27165,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1383,1322,2611],"tags":[2833],"acf":{"service_id":"1"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.6.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Provisions for Oppression and Mismanagement Under Companies Act<\/title>\n<meta name=\"description\" content=\"The provisions for oppression and mismanagement defined in the companies act 2013 aims to safeguard the rights and interests of minority shareholders.\" \/>\n<meta name=\"robots\" content=\"index, follow\" \/>\n<meta name=\"googlebot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta name=\"bingbot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/enterslice.com\/learning\/provisions-for-oppression-and-mismanagement-under-companies-act-2013\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Provisions for Oppression and Mismanagement Under Companies Act\" \/>\n<meta property=\"og:description\" content=\"The provisions for oppression and mismanagement defined in the companies act 2013 aims to safeguard the rights and interests of minority shareholders.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/enterslice.com\/learning\/provisions-for-oppression-and-mismanagement-under-companies-act-2013\/\" \/>\n<meta property=\"og:site_name\" content=\"Enterslice\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/enterslice\" \/>\n<meta property=\"article:published_time\" content=\"2019-12-10T12:00:50+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2019-12-10T09:25:33+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/12\/oppression-and-mismanagement.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"630\" \/>\n<meta name=\"twitter:card\" content=\"summary\" \/>\n<meta name=\"twitter:creator\" content=\"@enterslice\" \/>\n<meta name=\"twitter:site\" content=\"@enterslice\" \/>\n<!-- \/ Yoast SEO plugin. -->","authorName":"Priyanka Bajpayee","authorImageUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/09\/81216.jpg","authorDescription":"Priyanka Bajpayee has done Masters in International Business Law and well versed in content writing covering the area of legal and finance. 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