Can a sole/single member complain against the affairs of the company formed for charitable objects for the conducted in a manner prejudicial to public interest under section 241 of the companies act

The fundamental principle defining operation in democracy is that the rule of majority shall prevail. However, it is also necessary to ensure that this power of the majority is placed within reasonable bounds and does not result in oppression of the minority and mis-management of the company. Balance is to be struck between the rule of the majority and the rights of the minority The minority interests, therefore, have to be given a voice to make their opinions known at the decision making levels. And the Companies Act 1956 to 2013 till 2019 provide for such a mechanism. If necessary, in cases where minority has been unfairly treated in violation of the law, the avenue to approach an appropriate body for protecting their interests and those of the company had been provided for. The law must balance the need for effective decision making on corporate matters on the basis of consensus without permitting persons in control of the company, i.e., the majority, to stifle action for redressal arising out of their own wrong doing. Let us study in depth what the act have to say on this and have highlighted bold the main extract for better understanding.

Question comes to everyone minds, why at all this article? We need to question our in soul but in the midst of boundary as stated in law.

  • Are not we moving in chronic capitalist era?
  • Whether people sitting at top never vacate the post for others?
  • How come same set of people can do betterment of society/ company?
  • Hierarchical structure of management (Father, brothers and close relative, year after year )?
  • Denied membership to people concerned, so that few  can rule the dynasty management over years…?
  • Whether the voting rights were executed true and fair?
  • Whether only few people in management are more competent than other and keep on baking the breads?
  • Whether the people at helm of affairs have made money with the managements contacts?
  • Whether the sole objective of those people is get themselves clicked with politicians and big shots and keep on posting those pics on social media?

Let us first read the plain line stated in the Companies Act for formulation of companies with charitable objects, etc.—

(1) Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company—

(a) has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;

(b) intends to apply its profits, if any, or other income in promoting its objects; and

(c) intends to prohibit the payment of any dividend to its members, the Central Government may, by licence issued in such manner as may be prescribed, and on such conditions as it deems fit, allow that person or association of persons to be registered as a limited company under this section without the addition to its name of the word ―Limited‖, or as the case may be, the words ―Private Limited‖ , and thereupon the Registrar shall, on application, in the prescribed form, register such person or association of persons as a company under this section.

(2) The company registered under this section shall enjoy all the privileges and be subject to all the obligations of limited companies.

(3) A firm may be a member of the company registered under this section.

(4) (i) A company registered under this section shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government.

(ii) A company registered under this section may convert itself into company of any other kind only after complying with such conditions as may be prescribed. And this goes on

And CHAPTER XVI of the Companies Act 2019 i.e. “Prevention of Oppression And Mismanagement” read as follow:

Sec 241. Application to Tribunal for relief in cases of oppression, etc.—

(1) Any member of a company who complains that—

(a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or

(b) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company‘s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members, may apply to the Tribunal, provided such member has a right to apply under section 244, for an order under this Chapter.

(2) The Central Government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter.

242. Powers of Tribunal.—

(1) If, on any application made under section 241, the Tribunal is of the opinion—

(a) that the company‘s affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company; and

(b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.

(2) Without prejudice to the generality of the powers under sub-section (1), an order under that subsection may provide for—

(a) the regulation of conduct of affairs of the company in future;

(b) the purchase of shares or interests of any members of the company by other members thereof or by the company;

(c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital;

244. Right to apply under section 241.—

(1) The following members of a company shall have the right to apply under section 241, namely:—

(a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, subject to the condition that the applicant or applicants has or have paid all calls and other sums due on his or their shares;

(b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members:

Provided that the Tribunal may, on an application made to it in this behalf, waive all or any of the requirements specified in clause (a) or clause (b) so as to enable the members to apply under section .

245. Class action.—

(8) Where any application filed before the Tribunal is found to be frivolous or vexatious, it shall, for reasons to be recorded in writing, reject the application and make an order that the applicant shall pay to the opposite party such cost, not exceeding one lakh rupees, as may be specified in the order.

So the Minority stakeholder if you have raised the valid point on mismanagement, don’t worry. Sec 245(8) of the companies act empower you that unless the point raised by you are not frivolous/ vexatious or to bake your own bread, just chill. Believe on the law of land and power of minority. When can never know, when this minority become majority… Like BJP at country and AAP in state.

The view express above are opinion of writer/Author. 

CA Pawan Kumar Periwal

Author can be reached at pawan@danspark.co.in or 9771491501

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