PREVENTION OF OPPRESSION AND MISMANAGEMENT

The oppression of minority or mismanagement of a company by majority

therefore calls for some remedial action. In such a case, the minority

shareholders may apply to-

1. The tribunal for the winding up of the company on the ground that it is just

and equitable to do so ( this will be discussed in the chapter on ‘winding

up’)

2. The tribunal for appropriate relief (short of winding up):

3. The central government for appropriate relief.

PREVENTION OF OPPRESSION

Sec. 397 provides that a requisite number(as laid down in Sec. 399) of members

of a company that the affairs of the company are being conducted in a manner

prejudicial to the public interest or in a manner oppressive to any member or

members, may apply to the tribunal for appropriate relief.

There is oppression – if it justifies winding up. Oppression must be of such a

nature as will make it just and equitable for the tribunal to wind up the company,

but to order winding up would unfairly prejudice the interest of the oppressed

member or members, and the remedy of winding up to eliminate oppression may

be worse than the disease itself.

Relief by the tribunal. The tribunal may give relie if it is of opinion-

1. That the company’s affairs are being conducted

a. In a manner prejudicial to public interest, or

b. Ina manner oppressive to any member or members:

2. That the facts justify the compulsory winding up order on the ground that it

is just and equitable that the company should be wound up:

3. That to wind p the company would unfair prejudice the applicants

On being satisfied about the above requirement, the tribunal may pass such

order as it thinks fit with a view to bringing an end to the matters complained of.

This provision would help salvage an otherwise sound concern which would have

been, ut for this principle, forced to go into winding up.

Meaning of oppression. As regards meaning of the term oppression ( in the

contex of sec. 397) lard cooper observed in Elder v. Elder & Watson Ltd. (1952)

S.L.T. 112 : the essence of the matter seems to be that the conduct complained

of should at the lowest involve the condition of fair play on which every

shareholder who entrusts his money to the company is entitled to rely.

PREVENTION OF MISMANAGEMENT (SEC. 398)

Sec. 398 provides for relief against mismanagement.

Application to the Tribunal. A requisite number of members (as laid down in Sec.

399 of a company may apply to the tribunal for appropriate relief on the ground of

mismanagement of the company.

Relif by the tribunal. The tribunal may give relief if it is of opnion-

a. That the affairs of the company are being conducted in a manner

prejudicial to the public interest or in a manner prejudicial to the interests

of the company, or

b. That by reason of a material change in the management or control of the

company. The affairs of the company are likely to be conducted in a

manner prejudicial to the public intrest or in a manner prejudicial to the

interests of the company.

Order by the tribunal. On an application being made under sec. 398, end to the

matters complained of or apprehended.

WHO MAY APPLY FOR RELIF UNDER SECS. .397/398?( Sec.399)

The number of members who may apply to the tribunal for relief under sec. 397

or 398 is as follows :

1. In the case of a company having a share capital-

a. Not less than 100 members or not less than 1/10th of the total number

of members, whichever is less, or

b. A member or members holding not less than 1/10th of the issued share

capital of the company on which all calls and other sums due have

been paid, may apply for the appropriate relief.

2. In the case of a company not having a share capital, not less than 1/5 of

the total number of memvers, may apply to the tribunal for relief

Sec.399 does not limit the right to apply under sec. 397 or 398 to members

holding equity shares only; the preference shareholders may also apply for

the appropriate relief.

Joint owners to be treated as one member. Where any shares or shares

is/ are held by two or more persons jointly. They shall be counted only as one

member.

Consent in writing of other member. Where any members of a company are

entitled to make an application, any one or more of them may obtain the

consent in writing of the rest and may them make an application on behalf and

for the benefit of them.

Withdrawal of consent. Once the petition is presented, it cannot be withdrawn

without the sanction of the tribunal ( formerly court) [ Jacob cherian v. K.n.

cherian (1973) 43 comp. Cas. 235]. The validity of the application under sec.

399 must be judged on the facts as they were at the time of presentation of

the application. If the application is valid when presented, it does not cease to

be maintainable merely because some of the application has transferd their

shares and ceased to be the shareholders of the company (Jagdish chand

Mehra V. The New Indian Embroidery Mills Ltd.) (1964).