Ch 6 - Prevention of oppression and Mismanagement Flashcards
What are the cases or scenarios where the rule of majority can be looked beyond by the courts? that is to say generally courts will not interfere in matters where majority of the members can ratify the act on behalf of the company, but these cases are considered to be exceptions to the above rule?
However, the said rule has 4 exceptions, which are as follows –
• Ultra-vires or illegal acts;
• Transactions requiring special majorities;
• Personal Rights; and
• The “fraud on the minority” - This exception is the main focus of discussion in this chapter
How the act has explained the act of oppression and mismanagement - That is what are the acts that can be considered to be as oppression and mismanagement in this context?
The Act defines that
(i) If affairs of a company have been or are been conducted prejudicial to public interest or in a manner prejudicial or oppressive to any member or prejudicial to the interest of company, there is a case of oppression.
(ii) Any material change that has taken place in management or control of a company and that by reason of such change it is likely that the affairs of a company will be conducted prejudicial to interest of its member or company, that would also be considered as mismanagement.
What is the right of a member to application to the tribunal for relief in cases of oppression etc as per section 241? Point out the eligibility requirements accordingly?
What are some important decided case laws regarding oppression and mismanagement with the name of the case laws?
- In an application filed to the Tribunal, claiming oppression, a shareholder who is also the director of the company cannot claim compensation by way of salary paid to other directors. Shareholders can share the dividend of the company, if it is declared but cannot seek directions to be compensated. The payment of salary is a question that concerns the Board of Directors and not the Tribunal.
- Failure to declare dividend does not amount to oppression. (Thomas Veddon V.J. (v) Kuttanad Robber Co. Ltd).
- A legal heir of a deceased shareholder filed a petition. Such legal heir was in the position of a minority shareholder. Can the application filed by the legal heir to the Tribunal, be maintainable in court?
Here, the legal heir of the deceased shareholder with minority status is entitled to file the petition even his name is not on the register of members of the company.- While obtaining relief from Tribunal, continuous losses cannot be regarded as oppression by itself (Ashok Betelnut Co. P. Ltd. vs. M.K. Chandrakanth).
What is the right to apply under section 241 - as per section 244 of the act? - Most important section of the chapter? Who are the members having the right to apply as per this act?
The section is linked to section 241 of the Act, and it provides for the eligibility of members who hold the right to file the application under section 241 for oppression and mismanagement with the Tribunal.
These qualification as provided in section 244 ensure that only the persons with sufficient interest in the affairs of the company, can file the petition under section 241 of the Act.
Can the tribunal waive all or any of the requirements specified in previous clauses (a) or (b) to enable even where the aforesaid minimum threshold requirements are not met accordingly?
The Tribunal may waive all or any of the requirements specified in clause (a) or clause (b) to enable the members to apply under The section 241.
Explanation—For the purposes of this sub-section, where any share or shares are held by two or more persons jointly, they shall be counted only as one member
Whether any one or more members may make an application under section 241(1) to tribunal on behalf of all the members?
Any one or more members may make an application under subsection (1) to the tribunal on behalf of all the members by obtaining the written consent of other member.
What happens when after applying as per section 244, the consent given by the shareholder applying is withdrawn later during the course of proceedings? - Cite with the case law
The consent to be given by a shareholder is reckoned at the beginning of the proceedings. The withdrawal of consent by any shareholder during the course of proceedings shall not affect the maintainability of the petition [Rajamundhry Electric Corporation Vs. V. Nageswar Rao A.I.R. (1956) Sc. 2013.]
What are the nature of orders that can be passed by the tribunal as per section 242 - powers of the tribunal? - Also see the relevance of orders that may be appealed under section 421 and 423 of the companies act, 2013 - See NCLT chapter for this purpose
(h) removal of the managing director, manager or any of the director of the company;
(i) recovery of undue gains made by any managing director, manager or director during the period of his appointment as such and the manner of utilisation of the recovery including transfer to Investor Education and Protection Fund or repayment to identifiable victims;
(j) the manner in which the managing director or manager of the company may be appointed subsequent to an order removing the existing managing director or manager of the company made under clause (h);
(k) appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal on such matters as the Tribunal may direct;
(l) imposition of cost as may be deemed fit by the Tribunal;
(m) any other matter for which, in the opinion of the Tribunal, it is just and equitable that provision should be made.
What are the consequences of termination or modification of certain agreements as per section 243?
- *Consequence of termination or modifications of certain agreements by an order passed by the Tribunal: Where an order made under section 242 terminates, sets aside or modifies an agreement such as is referred to in sub-section (2) of that section,—
(a) such order shall not give rise to any claims whatever against the company by any person for damages or for compensation for loss of office or in any other respect either in pursuance of the agreement or otherwise;
(b) no managing director or other director or manager whose agreement is so terminated or set aside shall, for a period of five years** from the date of the order terminating or setting aside the agreement, without the leave of the Tribunal, be appointed, or act, as the managing director or other director or manager of the company:
Provided that the Tribunal shall not grant leave under this clause unless notice of the intention to apply for leave has been served on the Central Government and that Government has been given a reasonable opportunity of being heard in the matter.
What are the consequences of termination or modification of certain agreements as per section 243? - What is the penal provisions when there a contravention to the above provisions?
Penalty :Any person who knowingly acts as a managing director or other director or manager of a company in contravention of clause (b) of sub-section (1)or 6sub-section (1A)], and every other director of the company who is knowingly a party to such contravention, shall be punishable 7with fine which may extend to five lakh rupees.
What are the class action provisions based on the provisions of section 245? - what are the orders that can be passed once class action is passed? - Also see section 432 of the companies act as well
Filing of application before the Tribunal on behalf of the members or depositors: Such number of member or members, depositor or depositors or any class of them, as the case may be, as are indicated in sub-section (2) may, if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors, file an application before the Tribunal on behalf of the members or depositors for seeking all or any of the following orders, namely
What are the class action provisions based on the provisions of section 245? - what are the required number of members to apply - This includes depositors and members as well?
- *The requisite number of members provided in sub-section (1) shall be as under**:—
(a) in the case of a company having a share capital, not less than one hundred members of the company or not less than such percentage of the total number of its members as may be prescribed, whichever is less, or any member or members holding not less than such percentage of the issued share capital of the company as may be prescribed, subject to the condition that the applicant or applicants has or have paid all calls and other sums due on his or their shares;
In case of a company having a share capital, the requisite number of member or members to file an application under section 245(1) shall be as given
hereunder
Also see the provisions of section 227, in the context of oppression and mismanagement provisions?
