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‘An illustrative note on Oppression and Mismanagement

The provisions relating to Oppression and Mismanagement have been dealt under Chapter X of the Companies Act 2013 viz. Section 241 to 244 and the Companies (Prevention of Oppression and Mismanagement)Rules, 2016. These have to be read in conjunction with the NCLT Rules 2016.

Following is an illustrative note on the major provisions relating to Oppression and Management.

Who can apply?

I. Member

II. Central Government

III. Member

Reasons for application

i. the affairs of the company have been or are being conducted in a manner prejudicial to public interest.

ii. the affairs of the company have been or are being conducted in a manner prejudicial or oppressive to his interests or the interests of any other member(s).

iii. the affairs of the company have been or are being conducted prejudicial to the interests of the company.

iv. A material change has taken place as a result of which the interests of the members, any class of them or the company would be prejudiced. The material change may be –

A) by change in the constitution of the board of directors or change in the manager of the company.

B) By change in the ownership of shares of the company.

C) By change in the membership of the company (where it has no share capital).

Note: The material change in the company shall not give a right to prefer an application for oppression if it is advantageous to any of the creditors or debenture holders.

Criteria for application

The following members can prefer an application u/s 241(1).

i. In case of company having a share capital-

a. At least 100 members or at least 1/10th of the members whichever is less or,

b. Any member(s) holding not less than 1/10th of the issued share capital of the company.

Note: To be eligible for making an application, the member(s) shall have paid all calls and other sums due on his or their shares.

ii. In case of a company not having a share capital, not less than 1/5th of the total number of members.

The NCLT may on an application made to it in this respect, waive off the conditions stated in i. or ii. Above.

Form of application

1. The application shall be filed in form NCLT 1.

2. In case the application is filed on behalf of the members, by any one or more of them, the letter of consent signed by the rest of the members authorising the applicant to present the petition on their behalf, shall be annexed to the Application, and the names and addresses of all the members on whose behalf the Application is presented shall be set out in a schedule to the Application. Where the company has a share capital, the Application shall state whether the applicants have paid all calls and other sums due on their respective shares.

3. A copy of every Application shall be served on the company, other respondents and all such persons as the NCLT may direct.

4. The fees for the application shall be Rs. 10,000/-.

Withdrawal of application

i. An Application shall not be withdrawn without the leave of the NCLT.

ii. Where the applicant withdraws an, Application he may be liable for such costs as the NCLT may award and such withdrawal may also be subject to such conditions as the NCLT may impose.

iii. The application for withdrawal must be filed in form NCLT 9.

Where the applicant withdraws an Application under this rule, he may be liable for such costs as the Tribunal may award and such withdrawal may also be subject to such conditions as the Tribunal may impose.

II Central Government

If the Central government is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may prefer an application to the NCLT.

Powers of Tribunal

The tribunal may on receipt of an application u/s 241 for oppression and mismanagement pass such order which it deems fit if it is of the opinion that-

i. The affairs of the company are being conducted in a manner prejudicial to

a) The interests of any member(s),

b) The company or,

c) Public interest.

ii. to wind up the company would unfairly prejudice such member(s), 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 order of the NCLT may provide for any of the following-

(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;

(d) restrictions on the transfer or allotment of the shares of the company;

(e) the termination, setting aside or modification, of any agreement, howsoever arrived at, between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion of the NCLT, be just and equitable in the circumstances of the case;

(f) the termination, setting aside or modification of any agreement between the company and any person other than those referred to in clause (e). However, no such agreement shall be terminated, set aside or modified except after due notice and after obtaining the consent of the party concerned;

(g) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference;

(h) removal of the managing director, manager or any of the directors 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 NCLT to report to the NCLT on such matters as the NCLT may direct;

(l) imposition of costs as may be deemed fit by the NCLT;

(m) any other matter for which, in the opinion of the NCLT, it is just and equitable that provision should be made.

Other Important Points

1. A certified copy of the order of the NCLT shall be filed with the ROC within 30 days of the order in form INC 27.

2. The NCLT may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company’s affairs upon such terms and conditions as appear to it to be just and equitable.

3. If the order of the NCLT mandates some alteration in the Memorandum or Articles, the company shall not have the power to make any alteration in the Memorandum or Articles which is inconsistent with the order: except with the leave of the NCLT. In case of contravention of this provision, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.

4. The alterations made by the order in the memorandum or articles of a company shall, in all respects, have the same effect as if they had been duly made by the company under the provisions of the Companies Act 2013.

5. A certified copy of every order altering, or giving leave to alter, a company’s memorandum or articles, shall within thirty days after the making of the order,, be filed by the company with the ROC in form INC 27 who shall register the same.

Categories: Company Law
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