The Companies Act, 2013 (“Act”) provides a statutory remedy to members against oppressive conduct and prejudicial management of the affairs of a company. Sections 241 to 246 of the Act, read with the National Company Law Tribunal Rules, 2016 (“NCLT Rules”), deal with proceedings relating to oppression and mismanagement.

The primary remedy is available before the National Company Law Tribunal (“NCLT” or “Tribunal”), which may pass appropriate orders with a view to bringing an end to the matters complained of.

1. Oppression

The remedy against oppression is provided under Section 241(1)(a) of the Act.

Oppression may broadly be understood as conduct of the affairs of a company in a manner that is prejudicial to public interest, prejudicial or oppressive to any member or members, or prejudicial to the interests of the company.

The expression “oppression” has not been exhaustively defined under the Act. Courts have therefore considered the nature, circumstances and overall effect of the conduct complained of. Conduct which is burdensome, harsh and wrongful may, depending upon the facts and circumstances, constitute oppression.

2. Mismanagement

The remedy against mismanagement is primarily available under Section 241(1)(a) where the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members.

Further, Section 241(1)(b) specifically covers a situation where a material change has taken place in the management or control of the company, whether by alteration in the Board of Directors, manager, ownership of shares, membership or otherwise, and such change is likely to result in the affairs of the company being conducted in a manner prejudicial to the interests of the company, its members or any class of members.

3. Who Can Apply under Section 241?

An application under Section 241(1) may be made by a member who satisfies the eligibility requirements prescribed under Section 244.

A member may approach the Tribunal where:

• the affairs of the company are being conducted in a manner prejudicial to public interest, prejudicial to the interests of the company, or oppressive to the member(s); or
• a material change has taken place in the management or control of the company and such change is likely to result in prejudicial conduct of the company’s affairs.

Application by the Central Government

Under Section 241(2), the Central Government may itself apply to the Tribunal where it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to the public interest.

Further, under Section 241(3), the Central Government may initiate proceedings before the Tribunal where a person concerned in the management of a company is suspected of fraud, misfeasance, persistent negligence, breach of trust, imprudent business practices or fraudulent/unlawful conduct, to determine whether such person is a fit and proper person to hold office as a director or any other office connected with the management of the company

4. Eligibility to Apply – Section 244

Section 244 prescribes the eligibility requirements for members seeking to make an application under Section 241.

Waiver by Tribunal

The Tribunal has the power to waive all or any of the eligibility requirements specified under Section 244(1), thereby enabling members who otherwise do not satisfy the prescribed threshold to make an application under Section 241.

Where shares are held jointly by two or more persons, such joint holders are counted as one member for determining the requisite number of members.

5. Filing of Application before NCLT

An application for relief against oppression and mismanagement is filed before the appropriate Bench of the NCLT in Form NCLT-1, in accordance with the applicable NCLT Rules.

Where an application is presented on behalf of multiple eligible members by one or more of them, the prescribed letter of consent from the other members authorising the applicant(s) is required to be annexed.

The application should contain the relevant facts, grounds on which relief is sought, supporting documents and the specific reliefs requested from the Tribunal.

The prescribed form and filing requirements are governed by the NCLT Rules, 2016. Form NCLT-1 is prescribed for applications, including applications under Section 241.

6. Powers of the Tribunal – Section 242

Section 242 provides the principal remedial powers of the Tribunal.

The Tribunal may grant relief where, on an application under Section 241, it is of the opinion that:

1. the company’s affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members, prejudicial to public interest or prejudicial to the interests of the company; and
2. winding up the company would unfairly prejudice such member or members, but otherwise the facts would justify the making of a winding-up order on the ground that it would be just and equitable to wind up the company.

If these conditions are satisfied, the Tribunal may make such order as it considers appropriate with a view to bringing an end to the matters complained of.

Orders that may be passed by the Tribunal

Without prejudice to its general powers, the Tribunal may, among other things, provide for:

• regulation of the conduct of the company’s affairs in future;
• purchase of shares or interests of any members by other members or by the company;
• consequent reduction of share capital where shares are purchased by the company;
• restrictions on the transfer or allotment of shares;
• termination, setting aside or modification of agreements between the company and its managing director, director or manager;
• termination, setting aside or modification of agreements between the company and any other person;
• setting aside of certain transactions involving transfer, delivery, payment or other acts relating to the company’s property, assets or shares;
• removal of the managing director, manager or any director, where considered appropriate; and
• recovery of undue gains made by a managing director, manager or director and other consequential directions permitted under the Act.

7. Important Judicial Precedents

1. Needle Industries (India) Ltd. v Needle Industries Newey (India) Holding Ltd (1981) — Supreme Court decision.

• Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd., (2021 SCC OnLine SC 272)

• S.P. Jain v. Kalinga Tubes Ltd (AIR 1965 SC 1535)

8. Key Takeaways

The provisions relating to oppression and mismanagement are intended to protect members and safeguard the interests of the company against conduct falling within the scope of Section 241.

The remedy under Sections 241 and 242 is equitable and preventive in nature and is intended to bring an end to the matters complained of rather than merely compensate for an isolated wrong.

Accordingly:

• every commercial disagreement does not constitute oppression or mismanagement;
• every procedural irregularity or technical violation does not automatically justify relief under Section 241;
• the overall conduct of the company’s affairs and the circumstances of the case are relevant;
• the applicant must satisfy the statutory requirements or obtain waiver of the applicable requirements under Section 244; and
• the Tribunal’s relief under Section 242 is directed towards bringing an end to the matters complained of and may include wide-ranging remedial directions.