Prevention of Oppression and Mismanagement under the Companies Act, 2013

1. Reason of Oppression and Mismanagement

Any member of the Company who complaints that-

1. the affairs of the company has been or is being conducted in a manner prejudicial to the public interest;

2. the affairs of the company has been or being conducted in a manner prejudicial or oppressive to him or any other members or member;

3. the affairs of the company has been or being conducted in a manner prejudicial to interest of the company ; or

B. the material change taken place in the management or control of the company, and by reason of such change, the affair of the company will be conducted in a manner prejudicial to its interest or its members or any class of members

Material changes does not  include the followings changes which brought by or in the interest of the creditors, or in the interest of the debenture holder or in the interest of the shareholders,-

i. Alteration in the Board of Directors;

ii. Alteration in the manager;’

iii. Alteration in the management of the Company

iv. Alteration in the ownership of company’s share

v. Alteration in the membership of the company if it has no share capital.

2. Application us 241

In such cases has mentioned above, the members may make an application to the NCLT, provided such member has a right to apply under section 244

3. Right to make an application under Oppression and mismanagement  under 241

Section 244(1)

Eligible members to make an application of O&M;

a. In case of company having share capital

Min 100 Members of the company or

Min 1/10th of the total no. of its members;

Whichever is less, or

Any member or members holding not less than the 1/10th of the issued share capital of the company;

b. In case of company not having a share capital

Min- 1/5th of the total no. of its members.

4. Proviso to Section 244(1)

NCLT may, on application made to it in this behalf, waive all or any of the requirement specified in section 244(1) as to enable members make an application us 241.

5. Written Consent Section 244(2)

A written consent of rest of the members shall required, in case where any members of a company entitled to make an application us 244(1), by one or more members to make the application on behalf and for the benefit of all of them.

6. Application by CG us 244(2)

If in the of the CG that affairs of the company has been or is being conducted in a manner prejudicial to the public interest then CG itself may make an application to the NCLT.

7. Circumstances on the basis of which CG forms an Opinion and initiate case against such person

There are following circumstances;

a. any person related in the conduct and management of the affairs of a company is or has been in relation with-

i. Guilty of fraud;

ii. Misfeasance;

iii. persistent negligence; or

iv default in carrying out his obligations under law of breach of trust.

b. The operation and the business of the company has not been or is not conducted or managed by such person in the sound business practice/principles;

c. The operation and the business of the company has not been or is not conducted or managed by such person in a manner which likely to cause or has been caused serious injuries or damages to the interest of  the trade , industry, business to which such company relates;

d. The operation and the business of the company has not been or is not conducted or managed by such person with the intention to defraud its creditors, members or any other person or for fraudulent or unlawful purpose or in a manner prejudicial to public interest.

8. Annexure to the application under section 241(3)

a. A concise statements of the facts or circumstances or materials as the CG may consider relevant for the purpose of the inquiry.

b. Shall be signed and verification shall be made in accordance with the provision of CPC, 1908, for the signature and verification of a plaint in a suit by CG.

9. Powers of the NCLT Section 242(2)

If NCLT is of the opinion that-

1. Affairs of the company has been or is being conducted in a manner prejudicial or oppressive to any members or prejudicial to public interest, or to the interest of the company; and

2. To pass an order of wind up the company would unfair to such member or members, But that the facts would justify in making a winding up order on the ground that it was just an equitable ground to wind up the company.

The NCLT by considering the situation make such orders as it think fit;

a. regulation of conduct of affair of the company in future;

b. Purchase of shares or interest of any members of the company by the company or by anyother member of the company;

c. Reduction in the share capital, if the own shares purchase by the company;

d. Restriction on the allotment of any new shares or transfer of shares by the company;

e. cancellation or termination or setting aside or modification  of the agreement executed between the Company and its director or MD, or manger as may be, in opinion of NCLT it is an just an equitable ground to wind the company.

f. cancellation or termination or setting aside or modification  of the agreement executed between the Company and any person other than referred above clause.

For clause (e) and (f) prior consent the party shall be obtained after due notice.

g. Cancel or set aside of any delivery of goods, transfer, payment, execution, etc relating to property made or done by, or against the company within 3 months before the date of the application us 241, 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. Impostion of cost;

j. if any undue advantage made by the MD, Manager or director, the recovery of the same and manner of utilization of the recovery including the transfer to IEPF..

10. Filling of the copy of order to ROC Section 242(3)

A CTC of the copy of the order passed under section 242(2), passed by NCLT shall be filed within 30 days of receipt of the order to ROC in form INC-28

11. Interim Order by NCLT Section 242(4)

NCLT may on application of any person to the proceeding, make an interim order which it thinks relevant for regulating the conduct of the affairs of the company.

12. Final consideration by NCLT Section 242(4A)

At the end of the hearing in respect of section 242(3), NCLT shall record its decision which stating, whether or not the respondent as fit and proper person to hold the office of director or any other office connected with the conduct and management of any company

13. For making any alteration in MOA prior approval of the NCLT shall required Section 242(5)

If NCLT has passed order which makes any alteration in MOA & AOA  of the company then notwithstanding anything contained any other provision of the Act, the company shall not make, except the order in NCLT, without the approval of NCLT, Any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles.

14. Provision of altering MOA & AOA shall be deemed to be complied Section 242(6)

Where any order under section 242(2) regarding alteration in MOA & AOA has passed by the NCLT, have the same effect as if they had been duly made by the company in accordance with the provisions of this Act and the said provisions shall apply accordingly to the memorandum or articles so altered.

15. Form INC-28 to ROC Section 242(7)

A CTC of the order of NCLT for alteration in AOA or MOA shall be filled with ROC in form INC-28 within 30 days from the date of NCLT order.

16. Situation in case of contravention Section 242(8)

the company shall be punishable with

Min. fine 1,00,000 rupees;

Max. fine 25,00,000 lakh rupees and

every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 6 months or with

Min. fine which shall not be less than 25,000 rupees but which may extend to 1,00,000 rupees, or with both.

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