The concept and overview of ‘Oppression’ & ‘Mismanagement’ is defined u/s. 241 of Companies Act 2013, and can be r/w Section 397(1) of Companies Act of 1956.
The words, ‘Oppression’ and ‘Mismanagement’ are not defined under any provisions of Companies Act, 2013, but through the various decided case laws from the year 1956 till now, the Hon’ble Supreme Court or the High Court have tried to rationalize and define their various aspects.
1. Shanti Prasad Jain vs. Kalinga Tubes Ltd. (1965): Hon’ble S.C. held that the same needs to be left on the courts to decide as per facts and circumstances of each case, but what needs to be understood is that the affairs of the company must be oppressive or against the interests of minority shareholders, and mere tussle between majority as well as minority shareholders is not enough to justify the case of oppression.
2. Needle Industries Ltd. vs. Needle Industries (India) Ltd. (1981): Most important and cited case as here the foreign majority shareholders claimed ‘oppression’ by Indian minority shareholders by appointing certain additional directors and doing other acts, and it was ultimately decided in favour of minority shareholders but then also the Supreme Court ensured that substantial justice is given to majority shareholders of foreign that incurred huge losses because of such acts, and it was this first case where the judges tried to define what oppression can be and its ingredients thereon.
3. Maharashtra Power Development Corp. Ltd. vs. Dabhol Power Company (2004): Held that a single act of oppression might not be enough to file case for such mismanagement/ oppression under Sec. 397 of 1956 Act (Old Act), but if it’s shown that such single act are of wrongful nature and have a continuous bearing on such minority shareholders, then such petition is allowed to be filed.
4. Jaladhar Chakraborty & Ors. vs. Power Tools and Appliances Corp. Ltd. (1994): Held that non-declaring dividend during a particular financial year won’t prima facie lead to oppression, and same was upheld in VP Hanji & Ors. vs. Ashok Ironworks Pvt. Ltd. as decided in the year 2008.
5. Dale and Carrington Investment Ltd. vs. Prathapan & Ors. (2004): Held that if a director is trying to gain majority control of the company by issuing shares to himself, then such act would tantamount to oppression, as here the majority shareholders are being reduced to minority because of such oppressive action.
6. Chandra Krishan Gupta vs. Pannalal Girdharilal Pvt. Ltd. (1984): Again one of the most important cases for this purpose, as firstly it was clarified that non-maintenance of books of accounts, register of assets, etc. will lead to cases of mismanagement but can’t tantamount to oppression, secondly, not holding Board Meetings will also won’t attract oppression of minority shareholders as his individual rights are not being affected negatively, and thirdly that filing of unaudited financial statements though signify company’s inadequacy as well as lack of management oriented approach but it can’t single handedly be decided to be a case of oppression.
7. Hindu Coop Insurance Society Ltd. (1961) and in Mohan Lal Chandumall v Punjab Co. Ltd., , it was held that even an attempt of denying a right of membership to an eligible person is a case of oppression.
8.Rajkumar Devraj & Anr. vs. Jai Mahal Hotels Pvt. Ltd. (2006): Here the legal heirs of the dead shareholder were reduced to a minority as respondents willfully took the shareholder’s shares and allotted among themselves, and here was the case held that such legal heirs are entitled to file for O&M.
9. Bhagirath Agarwal vs. Tara Properties Pvt. Ltd. (2003): Here as per provisions of Old companies Act, the allotment was made to only one member and the allotment as per pro-rata basis were neglected by the company, and though this was a single act of issuing additional shares to a particular member, then also it was to have a continuous and moving effect on other shareholders, and that’s why the case was fit to move under ‘Oppression’.
10. Siddharth Gupta & Ors. vs. Getit Infoservices Pvt. Ltd. (2016): Herein held that a mere violation of Articles of Association won’t actually lead to O&M u/ provisions of Companies Act.
11. Tata-Mistry Case (2021): Here it was held that failed business decisions as well as removing a director from can’t be held prejudicial to minority’s interest, as just a mere act of removing an executive chairperson or director from the company won’t prima facie trigger the basis of ‘just and equitable grounds’ for winding up of the company, and therefore even though looking at the legality of removal of such person is one of the basis to decide a valid case of ‘oppression’ but the same has to amount to causing grave injustice to the minority shareholders of that company. Here reliance was placed on the findings in ‘Hanuman Prasad Bagri & Ors. vs. Bagri Cereals Pvt Ltd. (2001)’.
The above case-laws are some of the many important cases decided by our Indian courts, and therefore serves as various instances and a kind of certain acts of either the companies or directors/ shareholders, that either tantamount to Oppression and/or Mismanagement or the same held valid under eyes of law, but what we can get from reading such reasonings is that the judgment of whether deciding between the claim of independent directors/ Board of Directors and minority shareholders, the same needs to be decided on case-to-case basis and also by following the principle of Audi Altrem Partem (hear the other party).
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