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Legal Aspects of Oppression and Mismanagement

Oppression and mismanagement refer to actions harming minority shareholders or misusing company resources. Learn the legal implications of oppression and mismanagement in this blog.

Chandni 31 Jan, 2025

Legal aspects of oppression and mismanagement deal with the provisions mentioned in the Companies Act of 2013, which finds roots in strengthening and protecting the stakeholders' interests in a corporate entity.

The primary objective of these legal provisions is to maintain a balance between the interests of the minority shareholders and the effective management of the company. This article will explain how the legal aspects of oppression and mismanagement in company operations safeguard minority rights in corporate democracy.

What Are Legal Aspects of Oppression and Mismanagement?

Section 241-246 under Chapter XVI of the Companies Act 2013 deals with the subject of oppression and mismanagement regarding company affairs. The laws aim to address the issues faced by the minority group of shareholders and members of the company as a result of the oppressive actions and mismanagement by the majority members. Sections 241(A) and 241(B) of the Companies Act are related to oppression and mismanagement, while Section 242 of the Companies Act 2013 lays out the relevant provisions that give power to a company member to complain and seek justice against the oppressive conduct being carried out by the majority of members.

Defining Oppression and Mismanagement

Oppression refers to the conduct committed by the majority shareholders utilizing their majority power to suppress the interests of minority shareholders. The act involves a deviation from the standards and a violation of conditions that affect the rights of shareholders. Oppression leads to a situation where primacy is given to a larger group over a small group of members in such a way that it becomes difficult for the smaller group to express their opinions. The acts of mismanagement are relatively wide and can be described as conducting the company affairs in a prejudicial and dishonest manner. It involves changes and strategy implementation taking place in the management or control of the company that doesn't consider shareholders' interests and objectives of the company. It also encompasses fraudulent activities against the public at large.

Application Under Section 241 of the Companies Act, 2013

The Companies Act of 2013 has given the right to apply against the oppression and mismanagement of a company. It gives stakeholders the power to seek legal help to protect their rights and interests within the company's governance structure. As per provisions under Section 241 of the Companies Act, 2013, company members or shareholders can apply to the National Company Law Tribunal (NCLT) if they believe the company oppresses their interests and conducts operations unfairly. A shareholder can, individually or on behalf of other members, apply when the company affairs seem oppressive and against the member making the complaint or any other members. The member may also use it to complain against the improper change in the company's management or control, which is prejudicial and harms the company's and the public's interests.

Remedies Under Section 242 of the Companies Act, 2013

Section 242 outlines the power of the tribunal in handling the complaints against oppression and management. Suppose the tribunal thinks the company's affairs are being conducted in a manner prejudicial to the public's interest, members, or company. In that case, orders are passed to rectify the situation. These remedial recommendations and actions aim at establishing fairness, transparency, and proper management within the company. To address the oppression and mismanagement issues, the NCLT might issue orders in respect of the following:

Purchase of shares/interest of the members by other company members.
Reduction in share capital or reinforce restriction on transfer of shares.
Terminate or modify the agreement between the company and the management or between the company and any other person.
Remove the Managing Director, Director, and Managers and appoint a new management team as the tribunal thinks appropriate.
Recovery of undue gains made by such officials and utilization of the funds to repay the victims.
Setting aside any transfer, delivery, payment, or execution related to property made by the company within 3 months before the date of the application.
In some instances, the tribunal might appoint a person who will report to the NCLT about any activities of oppression and mismanagement.

The tribunal sends a copy of the order to the registrar of the concerned company within 30 days of the issuance of the order. Suppose the order requires a change in the MOA (Memorandum of Association) or AOA (Article of Association). In that case, such alteration must be done per the altered order given by the Tribunal to the registrar.

Who Can File a Complaint Against Oppression and Mismanagement?

Under Section 244 of the Companies Act, members can file a complaint if a company’s actions harm their interests or those of depositors. The eligibility criteria depend on the company type:

For companies with share capital: At least 100 members or one-tenth of the total members, whichever is lower, can file a complaint. Alternatively, any member holding at least one-tenth of the issued share capital can apply.

For companies without share capital: At least one-fifth of the total members must come together to file a complaint.

The company's management follows the rule of the majority, but at the same time, the interests of the minority shareholders can't be overlooked. Company law empowers shareholders to seek justice against management's unfair use of power and authority through oppression and mismanagement.

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Legal Aspects of Oppression and Mismanagement FAQs

Who can apply under section 241?

Shareholders, debenture holders, or any group can apply with the National Company Law Tribunal.

What is the precondition for one person to apply on behalf of others?

The precondition is that the person applying on behalf of others must have written consent from others for doing so.

Can an appeal be made against the orders of the Tribunal?

The order made by the National Company Law Tribunal (NCLT) may be appealed with the National Company Law Appellate Tribunal (NCLAT) under Section 421 of the Companies Act, 2013.

How are the decisions of the NCLT enforced? Ans.

Decisions by the NCLT are enforced with the help of the Ministry of Corporate Affairs.

Can the central government file a complaint against the oppression and mismanagement of a company?

The central government can file a complaint against a company if it finds its affairs prejudicial.

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What Are Legal Aspects of Oppression and Mismanagement?

Defining Oppression and Mismanagement

Application Under Section 241 of the Companies Act, 2013

Remedies Under Section 242 of the Companies Act, 2013

Purchase of shares/interest of the members by other company members.
Reduction in share capital or reinforce restriction on transfer of shares.
Terminate or modify the agreement between the company and the management or between the company and any other person.
Remove the Managing Director, Director, and Managers and appoint a new management team as the tribunal thinks appropriate.
Recovery of undue gains made by such officials and utilization of the funds to repay the victims.
Setting aside any transfer, delivery, payment, or execution related to property made by the company within 3 months before the date of the application.
In some instances, the tribunal might appoint a person who will report to the NCLT about any activities of oppression and mismanagement.

Who Can File a Complaint Against Oppression and Mismanagement?

Under Section 244 of the Companies Act, members can file a complaint if a company’s actions harm their interests or those of depositors. The eligibility criteria depend on the company type:

For companies without share capital: At least one-fifth of the total members must come together to file a complaint.

CS Related Links
CSEET	CS Executive Direct Entry Scheme
CS Executive Registration June 2025	CSEET Syllabus
CSEET Exam Pattern	CS Professional Syllabus
CS Professional Eligibility Criteria	CSEET Preparation
CSEET Eligibility Criteria	CS Professional Exam Pattern