Although, a company has an existence independent from its members, its affairs are carried on by its management. Difficulty arises when the interests of shareholders vary. However, the management of companies depends upon the majority.
Although, a shareholder cannot bring action relating to the internal disputes between the shareholders as per the Foss v Harbottle Rule, there arise certain exceptions to this provision. This includes the cases of oppression and mismanagement in the affairs of the company.
The following acts constitute oppression:
- Company’s conduct is against the principles of fair dealing
- Imposition of new and risky objects which are being opposed by the other faction of the shareholders
- Depriving a member of his membership
- Exercise of undue/harsh burden on a member
- Acts of the company are against the provisions of the law
Acts of Mismanagement
The following acts constitute mismanagement:
- Differences between the directors
- Serving of the office by the director after the expiration of the term
- Neglect/ breach of duty by the director
- Improper appointment of the director
- Group in power intends to defraud
Remedy at law
The Companies Act, 2013 under Section 241 provides the right to any member of the company to apply to Tribunal for relief in case of: -
- Oppression - where the affairs of the company are being conducted in a manner prejudicial to the public interest or oppressive to member or prejudicial to the company’s interests. [Section 241 (1A)];
- Mismanagement - if it is established that the affairs of the company are being conducted in a manner prejudicial to the company or public interests or by reason of change of the control of the company [Section 241 (1B)]
Powers of the Tribunal
Under the provisions of Section 242 (2), the Tribunal may allow relief to the complaining shareholders in case of oppression or mismanagement, some of which include:
- Regulation of the company’s future affairs;
- Direction to purchase the company’s shares by other members;
- Restriction on transfer of allotment;
- Termination, setting aside, modification of any agreement between the company and its management;
- Termination, setting aside, modification of any agreement between the company and any third person;
- Setting aside of any transaction of transfer, delivery, payment, execution, etc.;
- Removal of any member of the management;
- Recovery of undue gains made by the management;
- Appointment of the members of the management;
- Imposition of costs.
The Indian legal system safeguards the interests of the shareholders who may suffer the impact of any oppression or mismanagement by providing recourse to appropriate remedy.