Prevention-of-Oppression-and-Mismanagement

Prevention of Oppression and Mismanagement

Prevention of Oppression and Mismanagement

Oppression and Mismanagement of a company portray the affairs that are biased towards the minority shareholders. The affairs include the prejudicial behaviour on the public or any member of the company. Chapter XVI of The Companies Act, 2013 states that if any misconduct happens in the company, then any member can apply to the Tribunal appealing for the prevention of oppression and mismanagement of the company. Such an application is for a petition of relief. This article deals with the procedure for the minority to deal with the prevention of oppression and mismanagement in a company.

Application to the Tribunal

For the prevention of oppression and mismanagement, a person must apply to the Tribunal. The application to the Tribunal must require the following:

  • The company conducts the affairs in a manner causing damages to the public or the members of the company
  • The fact which justifies the order of compulsory winding-up stating that it is equitable and just to close the company
  • Winding-up of the company would create unfair prejudice on the petitioners

The Company Board of Law takes necessary actions for the following complaints mentioned above.

Powers of Tribunal

The Tribunal, after receiving the complaint regarding the prevention of oppression and mismanagement, will make the necessary decisions and lay down orders for the following:

  • For regulating the conduct of the company’s affairs in future
  • Purchase of interests and shares by the members of the company or by the company
  • Reduction in the share capital as a consequence of the purchase of shares and interests
  • Restrictions on the allotment or transfer of the company’s shares
  • Termination or modification of any agreement between the company and the managing director, manager or any other director
  • Removal of the managing director, any of the directors or manager of the company
  • Setting aside any transfer, payment, execution, delivery of goods or other act relating to property which is laid by or against the company within three months before the date of the application. If such an act is laid by or against an individual, the individual will be deemed in insolvency to be fraudulent
  • Recovering of the undue gains, this is by the managing director, manager or any director of the company within the period of appointment
  • The manner in which the appointment or the removal of the managing director or manager of the company

Filing of the Order

The company should file a certified copy of the order of the Tribunal. Moreover, the company should file the order with the Registrar within 30 days.

Moreover, the Tribunal can make an interim order if they receive an application from any party to the party. The Tribunal will set the order which is just and equitable for the affairs of the company. If the Tribunal sets changes in the Memorandum of Association (MoA), then the company will not have power unless the order provides it. However, the changes in the order of the MoA will have the same effect as that of the actual MoA of the company. The company should file the certified copy of the order regarding the changes in the MoA to the Registration. However, such filing should take place within 30 days of the order.

Penalty

If a company does not oblige to the changes in the MoA, then they have to pay an amount of Rs.1 lakh. This may extend up to Rs.25 lakhs. Every officer may be punishable with imprisonment, which may extend up to 6 months. As an alternative, they might have to pay an amount of Rs.25,000 which may extend up to Rs.1 lakh. Sometimes the officer has to oblige to both the punishments.

Consequences of termination or modification

The consequences for the modification or the termination of the agreement are the following:

  • Any person cannot claim for the damages or the compensation of the loss of the company. They also do not have the claim to pursue the agreement
  • If a managing director or the directors are restricted or set aside, then they cannot be appointed for 5 years from receiving such order. If a managing director or the directors act according to their position even after the order, then they will have to face imprisonment for 6 months or a fine of Rs.5 lakhs or with both

Class Action

The members of the depositors of a company can apply to the Tribunal. The application will be regarding the prejudicial manners of the management and affairs of the company. They can apply to seek the order for the following:

  • Restrain the company from committing an ultra virus act
  • Restrain the company from committing a breach in the provisions of MoA or AoA
  • Declare the resolution changing the MoA or AoA as void, if the resolution is made by the misstatement of members or depositors or by suppression of facts. Restrain the directors and the company from the resolution
  • Restrain the company from performing something contrary to the provisions of the Companies Act
  • Prevent the company from taking action that is contradicting the resolution passed by the members
  • Claim for any compensation or damages or demand action against or from the company or its directors, the auditors which include the audit firm and from any advisor, expert or consultant. An action against the company or its director will be for an unlawful, wrongful or fraudulent act. The action against the auditor and the audit firm will be for a misleading or improper statement in the auditor’s report.  In the case of any action against the audit firm, the firm, as well as the partners, will be liable. The action against the advisor, expert or consultant for the misleading and incorrect statement.

Requisite Number of Members or Depositors

Members

The requisite number of members shall be according to certain provisions to apply to the Tribunal. In the case where the share capital of the company is not less than 100 members of the company or not less than that of a certain percentage of the total number of members, whichever seems to be less. The members who are not holding lesser than the certain percentage of the share capital. in cases where the company does not have share capital less than one-fifth of the total members

Depositors

The requisite number of depositors shall be according to certain provisions to apply to the Tribunal. In the case where the share capital of the company is not less than 100 depositors of the company or not less than that of a certain percentage of the total number of depositors, whichever seems to be less. The depositors to whom the company owes a certain percentage of the total company deposits.

Consideration of the Application

The Tribunal considers the application only after taking into consideration certain things. Tribunal checks on the good faith of the members and also of the depositors. Any evidence about the involvement of the company. Verify the cause of action for the member or depositor to pursue the rights to apply. Evidence pertaining that the members or the depositors do not have a direct, indirect or personal interest in the matters they are applying. The cause of action which relates to the act or omission which is yet to occur. The act or omission can have authorisation or ratification by the company before its occurrence.

Duties of Tribunal

After receiving the application, the Tribunal should give public notice. This should be regarding the admission of the application, and it should be sent to the members and also the depositors. Consolidate all the similar applications into a single application. The members and the depositors have the liberty to choose the lead applicant, and the Tribunal appoints him. However, it does not allow the application of two class action on the same cause of action. The company or the member committing the oppressive act is responsible for the application of the class action. The order of the company is bound to all the members, depositors, consultant, advisor, expert, auditor including the auditing firm or any other person relating to it.

Any company failing to oblige to the order will have to pay a fine of Rs.5 lakhs which extends up to Rs.25 lakhs. Every officer may be punishable with imprisonment, which may extend up to 3 years and also with an amount of Rs.25,000 which may extend up to Rs.1 lakh. The Tribunal has the power to reject the application based on a vexatious and frivolous manner. However, the Tribunal records it in writing. Moreover, the applicant will have to pay an amount of Rs.1 lakh as a fine to the opponent party.

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