Oppression and Mismanagement under Companies Act, 2013
Oppression and Mismanagement under
Companies Act, 2013
As the Supreme Court on friday upheld the decision of
Tata Sons board in october 2016 to remove its then chairman, Cyrus Mistry from
office and and later the Company's Board. Therefore, it’s very essential
to understand the case and provisions of the Act, 2013.
The Supreme Court Bench, led by
Chief Justice of India S A Bobde, rejected Mistry’s Group’s plea against the
conversion of Tata Sons from a public limited company into a private limited
one and did not get into the issue of valuing the company’s stake and the court
set aside the National Company Law Appellate Tribunal’s (NCLAT’s) order of
December 2019, which had re-instated Mistry on the Tata Sons board and had
termed the appointment of the current chairman, N Chandrasekaran, “illegal”.
·
The case
was Tata Trusts, which owns 66 per cent in Tata Sons, is
chaired by Ratan Tata, who is 83 and patriarch of the group.
·
Mistry, 52, who was handpicked to lead Tata Group after a global hunt, took
over as chairman in 2012 after Tata retired on turning 75.
·
While Tata remained chairman of Tata Trusts,
Mistry was running the group companies. They fell out, leading to
Mistry’s ouster.
·
A bitter legal and public battle soon erupted,
with Mistry complaining that he was made the scapegoat for the mistakes
committed by his predecessor.
·
In his communication to the Tata Sons directors
and Tata Trusts trustees soon after he was removed, Mistry had cited the
sagging financials of Tata Steel Europe, Tata Motors’s loss-making Nano
project, Tata Teleservices, Indian Hotels, Jaguar Land Rover, and Tata Power’s
Mundra, which drained Tata Sons’ coffers.
Introduction:
As we all know that management
of a company is completely based on the majority rule, but interests of the
minority can’t be completely neglected, its all game of percentage of voting
owned. Its mostly seen that a small group of shareholders may hold the majority
shareholding whereas the majority of shareholders may, among them, hold a very
small percentage of share capital. Once majority owned control majority can,
for all practical purposes, do whatever they want with the Company with
practically no control or supervision, because even if they are questioned on
their acts in the general meeting, they always come out winners because of
their greater voting strength.
Once resolution is passed by
majority it is binding on all members. As a result, court will not ordinarily
intervene to protect the minority interest affected by resolution.
Now
what will minority do if their right is affected by majority shareholders decision.
Section 241 of the Companies
Act, 2013 provides remedy to the minority shareholders against the oppressive
act as defined herein-above is to file an application against the acts of the
majority shareholders before the Hon’ble National Company Law Tribunal (“Tribunal”),
having appropriate jurisdiction.
1. Qualification
to file an application of oppression:
In order to maintain an
application filed on the grounds of oppression and mismanagement, the applicant
should hold either 10% or more shares of the issued capital or
should constitute 1/5th or more of the members of the
company or the application shall be filed by at least one hundred members of
the company. However, the Tribunal has been vested with a
discretionary power to waive all or any of the afore-mentioned requirements so
as to enable the members to apply. However, it is pertinent to note that a
member whose calls or other sums due on their shares have not been paid or a
mere share warrant holder does not qualify to file an application on grounds of
oppression and mismanagement.
2. Procedure
to file an application on grounds of oppression:
a. The application shall be
filed in Form 1 of the National Company Law Tribunal Rules,
2016 (“Rules”). The application shall be clear in relation to the
particular and details of the applicants or respondents and their details.
b. The Rules have clearly
mentioned the formatting of the contents of the application and that it shall
be in the English language.
c. Apart from MOA, AOA and
share certificates of the applicant along with affidavits swearing the contents
of the application along with the annexures are true, it is important to attach
all relevant document with the application, which would be an evidence to the
allegations put forth in the application against the respondents. The evidences
attached to the application may be either in form of oral, written or electronic.
d. It is advised that all the
documents, including the annexures but except for the Board Resolution, in
order to file the application shall be one sided printed on green ledger
papers, where the Board Resolution shall be printed on the company letter head,
shall be duly signed by the authorized representative and the original
application shall be filed with the registry of the Tribunal along with two (2)
copies of the application. Further, a copy of the application shall be
simultaneously served to the respondents, preferably through registered post and
the proof of service shall be filed with the respective Tribunal, failing which
the Tribunal may not list the case for admission/hearing.
e. Once the application is
filed without any defects, the application is numbered and listed for hearing..
f. Once the pleadings and
arguments are over, it is a common practice that the Hon’ble Tribunal directs
the parties to file written arguments based on the arguments put forth before
the Tribunal and reserves the case for orders.
It’s to be noted that Persons concerned
with the management of its affairs must in connection therewith guilty of
fraud, misfeasance or misconduct towards the members, it
does not include mere domestic disputes between directors or members or lack of
confidence between the section of members and another section in the matter of
policy and administration.
In similar lines, through
judgements, various Courts and Tribunals have considered the following
instances, without limitation as oppressive in nature:
- Act of fraud;
- Violations of statutory provisions as well
as AOA of the company;
- Preventing directors from functioning;
- Misuse/misappropriation of funds;
- Improper appointment of a director or
allotting shares to third parties intending to dilute other members and to
obtain a dominant position in the company.
POWERS OF TRIBUNAL: Section
242 (2) of the Act
a. Regulation of the conduct of
affairs of the company in future;
b. Purchase of shares
/interests of any members of the company by other members;
c. If any shares purchased its
consequent reduction of share capital;
d. Restriction on the
transfer/allotment of shares;
e. Termination, setting aside
or modification of any agreement between the company and its managing director,
any other director or manager;
f. Termination, 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 under this section, which would, if made or
done by or against an individual, be deemed in his insolvency to be a
fraudulent preference;
g. Removal of managing
director, manager or any director of the company;
h. Recovery of undue gain made
by any managing director, manager or director and the manner of utilization of
the recovery;
i. Manner of appointment of
managing director or manager of the company may subsequent to an order
removing;
j. Appointment of such number
of persons as directors;
k. Imposition of costs as may
be deemed fit by the Tribunal;
l. Any other matters which the
Tribunal thinks it is just and equitable.
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Disclaimer- Information provided here is on the basis of personal research and provisions as per the act and information existing at the time of preparation. It is not a professional advise and information is subject to change without any notice. Author assumes no responsibility for the consequences of use of Information provided. This in only a knowledge sharing initiative and author has no intended to accost any profession and businesses
really informative
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