CHAPTER XIX

PREVENTION OF OPPRESSION AND

MISMANAGEMENT
MEANING OF OPPRESSION AND MISMANAGEMENT

The words "oppression" and "mismanagement" are not defined in the Act. These words carry
more than one meaning. The meaning of these words s or the purpo se of , company law should
be used not in strict literal sense but in a broad generic sen se. 1;4 Copper in Elder v. Elder &
Watson Ltd.' has attributed meaning to the word "oppression.. "The essence of the matter seems
to be that the conduct complained of should at the lowest involve a visible departure from
the standards of fair dealing, and a violation of the _conditions of fair play on which every
shareholder is entitled to rely."2
( It is a situation in which the majority shareholders by an abuse of their voting pow, treat the
company and its affairs as their own property to the detriment of the minority shareholders. In
other words, it means that the complaining shareholder is under an unbearable burden due to
unjust, harsh or tyrannical treatment of the majority shareholders.
It is essential in the caseoppression that the alleged oppressor is oppressing with a
6Th
view to pecuniary benefit.5 e denial of voting right to a shareholder or taking away the
right of partaking in iv idends is an example of oppression.4 Mismanagement in the affairs of a
company occurs when the company is managed in a manner prejudicial to the ublic interest
or to the interests of the company.
When members are aggrieved by oppression or mismanagement of a company, two
alternative courses are open to them. They may invoke either the powers of the court or the
powers of the Central Government for prevention of oppression and mismanagement of the
company. The relevant sections dealing with this subject are sections 397-409 of the Act.
In Virendra Singh Motilalji Bhandari v. Nandlal & Sons Pvt. Ltd., 1978 MPLJ 834, it was held that
the powers conferred on the court under sections 398 and 402 of the Companies Act, 1956 are
intended to exercise for prevention of oppression and mismanagement in the company and
not for setting aside any transactions with third parties except they fall within the purview of
section 402(f) of the Act. Stating the object and scope of sections 397 and 398 of the
Companies Act, 1956 the Madras High Court in T.P. Sokkalal Ram Sait Factory (P.) Ltd. (in re:),
(1978) 48 Comp Cas 503 has held that these sections are intended to relieve the shareholders
against the oppression and mismanagement of the affairs of the company. These provisions
cannot be utilised to set at naught the provisions of another statute. Likewise, section 402 of
the Act cannot be invoked for the purpose of agitating disputes about liabilities or for staying
tax liabilities of the company.
In V.S. Krishnan v. Westfort Hi-Tech Hospital Ltd., (2008) 3 SCC 363: (2008) 142 Comp Cas 253 (SC)
two points have been conclusively decided by the Supreme Court. (i) The claim of "legitimate
expectation" of permanent directorship cannot be given to any
* Provisions of Chapter XVI containing sections 241-246 under the title of "Prevention of
Oppression and Mismanagement" have not yet come into force.
1. (1952) SC 49: (1952) SLT 112.
2. Adopted by the Supreme Court in Shanti Prasad Jain v. Kalinga Tubes Ltd., (1965) 1 Comp LI
193: AIR 1965 SC 1535: (1965) 2 SCR 720.
3. H.R. Harmer Ltd. (in re:), (1959) 1 WLR 62: (1958) 3 All ER 689: 109 LT 147.
4. Cf. Mohan 1111 Chandumall v. Punjab Company Ltd., Bhatinda, AIR 1961 Punj 485: ILR
(1962) 2 Punj 762: (1962) 32 Comp Cas 937 (Punj).

when the mandate of the statute is that one-third of directors shall have to wire a year by
rotation. (ii) Mere unfairness does not constitute oppression. When repinellants were given the
right to subscribe to the rights issue along with all others,
par- ePjudice was caused to them.
n POWERS OF THE COURT - TRIBUNAL: COMPANY LAW BOARD (CLB)

Any members of the company may make application to the court Tribunal for relief on any one of
the following grounds:1
(a) That the affairs of the company are being conducted in a manner prejudicial to
public interest
(b) That the affairs of the company are being conducted in a manner oppressive to any
member or members.
The (court) Tribunal (now Company Law Board) may grant such relief as it considers fit provided it
is of the opinion (1) that the grounds stated in (a) or (b) above are true, and (2) that to wind up
the company will unfairly prejudice the members.
The object of the above provisions is to put an end to acts of oppression and
mismanagement promptly and speedily rather than allow the parties and the company to be
involved in a costly and protracted litigation.2 Since the purpose and object of the above
provision is to suppress mischief and advance remedy in the interest of the public and the
members, it is expected that the court will liberally interpret these provisions.
In Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd., AIR 1981 SC
1298: (1981) 3 SCC 333: (1981) 51 Corn Cas 743 the Supreme Court has held that on a true
construction of section 397, an unwise, inefficient or careless conduct of a director cannot give
rise to a claim for relief under that section. The person complaining of oppression must show
that he has been constrained to submit to a conduct which lacks in probity, is unfair and causes
prejudice to his rights as shareholder. The Supreme Court seems to be in agreement to the
suggestion of the Jenkins Committee on (English) Company Law Reform for substitution of the word
"oppression" by the words 'unfairly prejudicial'. Technicalities cannot also defeat the exercise
of equitable jurisdiction conferred by section 241 of the 2013 Act.
The provisions of this section will apply to all classes of shareholders, and the oppression
will not be limited to such as is designed to obtain pecuniary advantage as distinct from such as
expressed an overweening desire for power.3
In dealing with relief for oppression or mismanagement in the affairs of a company registered
under section 25 of the Companies Act, 1956, the Delhi High Court in B.R. Kundra v. Motion
Pictures Association, Delhi, (1978) 48 Comp Cas 536 has laid down certain imperatives. First, the
court is required to maintain the democratic right of the majority of the members to manage
the affairs of the company within the limits laid down by law and the articles of association.
Secondly, there is need to protect the minority from any possible onslaught from the majority.
Thirdly, the court should mould the relief in such a Way that the company which has been doing
useful work is not unnecessarily denigrated or be subjected to unnecessary judicial
interference. Lastly, it is necessary to ensure that the necessary protection to the minority
against any oppressive acts of the majority should not be allowed to be misused to the
detriment of the company or its members.
Any members of a company may also apply to the court for relief in cases of
_Inanagement. The members may complain in the application any of the following vnarges,
(a) That the affairs of the company are being conducted in a manner prejudicial to
public interest or in a manner prejudicial to the interest of the company.
(b) That a material change has taken place in the management or control of the
company by an alteration in its board of directors or of its managerial

1. sectio 241 of the 2013 Act [corresponding to section 397(1) of 1956 Act].

2. Sindhrin Iron Foundry (P) Ltd, (in re:), 68 OWN 118. 11.R. farmer Ltd. (in re:), (1959) 1 WLR 62:
(1958) 3 All ER 689: 109 LT 147.

If the Tribunal (court) is satisfied as to the charges stated above, it may grant such
relief as it thinks fit.
The (court) Tribunal (now Comp any Law Board) does not generally grant relief for
a single wrongful act which is not productive of a continuous course of oppression.'
In Suresh Chandra Marwaha v. La Is Private Ltd., (1978) 48 Comp Cas 110 . (P&H), it was held
that where a company is financially hard-presse , ay save itself by arranging with its creditors
to become shareholders and directors in lieu of remaining creditors for the whole or part of the
amount ue to themn, anmdesmucbheraucnhdaenrgeseoccficounrrtg8 in the management will not afford a
cause of d action to a y
of the Act.
An application under sections 397 and 398 must contain full particulars of any
allegation of fraud, mismanagement, misappropriation of funds, or improper conduct of
company's affairs; and the allegation must not be vague.' There is no standard with regard to
the period of oppression after which a party can come to the court. If a singlelviagful act has
the effect of a continuous course of oppression, the court may interfere.'
The expression "affairs of a company" includes its goodwill, its profits and losses, contracts and
assets including all its investment or other property interest and its control of a subsidiary
company; and transactions of a receiver and manager are also the affairs of a company.'
Illustrations
(a) In Jalpaiguri Cinema Co. Ltd. v. Promotha Nath Mukherjee, (1978) 48 Comp Cas 131, it
was held that an order that the original petitioners to a company petition under sections 397
and 398 be transposed to the category of respondents is not a 'judgment' within the meaning of
clause 15 of the Letters Patent of High Court and as such no appeal lies from such an order of
the company court.
(b) In deciding the application of Article 123 of the Limitation Act, 1963 for setting aside an ex
parte order passed in proceedings under section 397 or section 398 of the Companies Act,
1956, the Delhi High Court in A.S. Bhatty v. K.L. Gambhir, (1979) 49 Comp Cas 312 has held that
the prescribed period of 30 days does not apply to such an order. The court can act in the
interest of justice under section 151 of the Code of Civil Procedure, 1980.
Scope and applicability of section 397: Section 397 gives a right to members of a company who
comply with the conditions of section 399 to apply to the court (Company Law Board) for relief
under section 402 of the Act or such other relief as may be suitable in the circumstances of the
case, if the affairs of the company are being conducted in a manner oppressive to any
member or members including any one or more of those applying. The Court (Company Law
Board) then has power to make such orders under section 397 read with section 402 as it thinks
fit, if it comes to the conclusion that the affairs of the company are being conducted in a
manner oppressive to any member or members and that to wind up the company would
unfairly prejudice such member or members, but that otherwise the facts might justify the
making of a winding up order on the ground that it was just and equitable that the company
should be wound up. The law, however, has not defined what is oppression for the purpose
of this section. It is left to Court (Company Law Board) to decide on the facts of each case
whether there is such oppression as calls for action under this section. Mere lack of confidence
between the majority shareholders and the minority shareholders would not be enough unless
the lack of confidence springs from oppression of a minority by a majority in the management
of the company's affairs and such oppression must involve at least an element of lack of probity
or fair dealing to a member in the matter of his proprietary rights as a shareholder; Shanti
Prasad Jain v. Kalinga Tubes Ltd., (1965) 1 Comp LJ 193:

1. Clive Mills Co. Ltd. (in re:), 68 CWN 884.

2. Sindhri Iron Foundry (P.) Ltd. (in re:), 68 CWN 118.
R. v. Board of Trade, Ex. P. St. Martin (or St. Martins) Preserving Co. Ltd., (1965) 1 QB 603:
(1964) 2 All ER 561: (1964) 3 WLR 262.

sc 1535: (1965) 2 SCR 720. See also Mohta Bros. (I') Ltd. v. Calcutta Landing and Aat, o. Ltd.,
(1979) 40 Comp Cas 119 (Cal): 73 CWN 425.
petition under sections 397 and 398 and arbitration clause in the articles: There was eh'"; n
clause in the articles of association of the company to refer all disputes an a -ntrathtle
company and its membersa.sAsZapp location was moved under section 34 of A tion Act for
staying a petition under sections 397 and 398 of the Companies t h e rbil"
Act which was pending in that court. It was held that such arbitration clause could not ,
invoked for the purpose of staying proceedings under sections 397 and 398 of the ,L's nit, -
Act. The provisions of these sections and section 434 give exclusive jurisdiction (":".ther anicoesurt
and the matters dealt with thereby cannot be referred to arbitration; O.P. Gupta v. Shiv
General Finance (P) Ltd., (1977) 47 Comp Cas 279 (Del); Surendra Kumar rojawan v. R. Vir, (1977)
47 Comp Cas 276 (Del) followed in Manavendra Chitnis v. Leela Challis Studios, (1985) 58 Comp
Cas 113 (Born). See Gurnir Singh Gill v. Saz International prt. Ltd., (1987) 62 Comp Cas 197
(Del).
(e) Criminal complaint against directors: The Court (Company Law Board) will not make an
order under sections 397 and 398 on the ground that a criminal complaint has been made
against the directors or an investigation is being made into the affairs of the company or
even on the ground that the directors had been convicted of a criminal offence; Bengal Laxmi
Cotton Mills (in re:), 69 Cal CWN 137: (1965) 35 Comp Cas 187 (Cal).
(0 Amendment of petition; Where a petition under sections 397 and 398 was at the initial
stages of hearing, the court (Company Law Board) would generally allow amendments when
these would not cause prejudice to the other side and the amendments would enable the
determination of all questions in controversy; Gurnir Singh Gill v. So: International P. Ltd.,
(1987) 62 Comp Cas 197 (Del); Khimji M. Shah v. Ratilal Damodardas Moth, (1990) 67 Comp
Cas 185 (Bom). (Amendment to incorporate subsequent events is no bar).
(g) Petition under sections 397 and 398 not to be converted into winding up petition: A petition
fled under sections 397 and 398 cannot be converted into a winding up petition under section
433(f) of the Act, because there are many distinguishable features between the two. Even a
composite petition under the said sections cannot be filed; Kilpest Pvt. Ltd. v. Shekhar Mehra,
(1987) 62 Comp Cas 717 (MP).
(h) Concurrent jurisdiction of civil court: Suits by minority shareholders against oppression
and mismanagement have been a time-honoured exception to the rule in Foss v. Harbottle,
(1843) 2 Hare 461: 67 ER 189 and in the absence of words expressly or dearly barring them, it
cannot be said that sections 397, 398 and 408 of the Companies Act exclude the jurisdiction
of the ordinary courts; Marikar (Motors) v. M.I. Ravikumar, (1982) 52 Comp Cas 362 (Ker).
(if Subsequent events pending petition: Events subsequent to the presentation of petition in
order to support the prayer for winding up cannot be entertained by the court; C.P.
Gnanasambandam v. Tamilnadu Transport Pvt. Ltd., (1971) 41 Comp C. 26 (Mad). But see

r:,.ungerford Investment Trust Ltd. (in re;), ILR (1972) 1 Cal 286 (Events subsequent to the 'unIg
of the petition can be considered); Khimiji M. Shah v. Regard Damodardas Modi, (1990) 67
Comp Cas 185 (Born).
(i) Restriction on power: The Court (Company Law Board) cannot direct for holding
itze annual general meeting in granting relief on a petition under sections 397 and 398 of
member 4 .1 . Nor can it in granting relief to ensure fair and legal elections provide th at a
flo has been tn . the executive committee for two consecutive years would not be entitled

contest without a gap of one year. Nor can it direct that a partner of a firm which I to
:matinemboet rd, direct a director or employee of a company cannot stand for election. Similar y,
wed that one person can vote only once; Dinekar Rai D. Desai v. R.P. Bhasin,
60 Comp Cas 14 (Del). See Gover Rustom Irani v. Property Co. (P.) Ltd., 1976 Tax LR

ex.._ pe on
-i4 (Cal). (In a titi under sections 397 and 398, no order can be passed for calling iraordmary

general meeting).

07,ressnni. when vol when not:

(11 Directors appointed by majority shareholders: in absence of any agreement appointment
of dire, tors by the majority shareholders cannot be said to an act of oppression; V.M. Rao
v. R. Ramakrislinan, (1987) 61 Comp Cas 20 (Mad).
(ii) Inefficient management will not amount to oppression; Kanika Mukherji v. Rattiest: war
Dayal Dubey, (1966) I Comp LJ 65: 70 CWN 236.
(iii) Where a minority shareholder oust the majority shareholder by force or other wrongful
act, it amounts to oppression; Ramashankar Prosad v. Sindri Iron Foundry (P1 Ltd., (1966) 1
Comp 1..) 310: AIR 1966 Cal 512: 70 Cal WN 520.
(iv) Mere loss of confidence or pure deadlock does not amount to oppression; H.R. Harmer
Ltd. (in re:), (1959) 1 WLR 62: (1958) 3 All ER 689: 109 LT 147.
(v) if the majority of the board override the minority directors, there is no oppression;
Bellador Silk Ltd. (in re:), (1956) 1 All ER 667.
(vi) Mere isolated illegal acts do not amount to oppression; C.K. Gupta v. Pannalal Girdhari Lal
Pvt. Ltd., (1984) 55 Comp Cas 702 (Del).
(vii) Denial of access to or inspection of books of account and declaring of dividend below the
actual profit earned by the company cannot be acts of oppression; Maharani Lalita Rajya
Lakshmi M.P. v. Indian Motor Co. (Hazaribagh) Ltd., 66 CWN 63: AIR 1962 Cal 127: (1962) 32
Comp Cas 207 followed in Hungerford Irstinent Trust Ltd. v. Turner Morrison & Comp. Ltd., ILR
(1972) 1 Cal 286. See Gover Rustom Irani v. Property Co. (P) Ltd., 1976 Tax LR 1682 (Cal).
(viii) Acquisition of large blocks of share by majority shareholders to acquire control of the
company on an illegal resolution passed at a meeting does not constitute oppression;
Nagavarapu Krishna Prasad v. Andhra Bank Ltd., (1983) 53 Comp Cas 73 (AP).
(ix) Exclusion of a shareholder from management does not constitute oppression; R.
Ramanathan Chettiar v. A. & F. Harvey Ltd., (1967) 37 Comp Cas 212 (Del).
(x) In case of genuine deadlock between T and B, two shareholders of the company, there
was no oppression; Modern Furnishers (Interior Designers) P. Ltd. (in re:), (1985) 58 Comp Cas
858 (Cal). But see Krishan Lal Ahuja v. Suresh Kumar Ahuja, (1983) 53 Comp Cas 60 (Del).
(Where the parties had irretrievably fallen from each other, a group should be given option
to buy out the shares of other if a fair price is ensured); Mohan Lal Chandumall v. Punjab
Company Ltd., Bhatinda, AIR 1961 Punj 485: ILR (1962) 2 Punj 762: (1962) 32 Comp Cas 937
(Punj).
(xi) Where a company had been suffering losses, but salary was regularly drawn by

directors, it did not amount to oppression; Chennabasappa Kothambari v. Multiplast Industries

Pvt. Ltd., (1985) 57 Comp Cas 541 (Kant).
(xii) Non-declaration of dividend, transfer of shares, building up of reserve cannot be
characterised as oppression; V.J. Thomas Vettom v. Kuttanad Rubber Co. Ltd., (1984) 56 Comp
Cas 284 (Ker).
(xiii) Failure to maintain statutory records and proper documents would attract appointment
of administrator; Bhajirao G. Ghatke v. Bombay Docking Co. Pvt. Ltd., (1984) 56 Comp Cas 428
(Bom).
(xiv) Where the Swedish group of the company got the transfer of shares registered without
complying with the articles in order to oust the Indian group from the management, there
was a prima facie case for oppr on; Bhubaneshwar Singh v. Kanthal India Ltd., (1986) 59 Comp
Cas 46 (Cal).
(1) Mismanagement, when and when not:
(i) Deadlock in the affairs of the company due to lack of faith between two factions in
family and the continuation in office by the managing directors in violation of the
provisions of law would amount to mismanagement;
Sash!, Ranjan Dutta v. Bitola Nath loddar, 1981 Tax LR (NOC) 152: (1983) 53 Comp Cas 883 (Cal).
But see Suresh Kumar Sanghi v. Supreme Motors Ltd., (1983) 54 Comp Cas 235 (Del). (Both groups
had equal shares in the company. The petitioner's group was completely excluded and there was
lack of probity. There were persistent contraventions of the provisions of the company law by the
respondent's group. It was held that sections 397 and 398 were not attracted). See also Subir Kumar
Basu v. New Central Group Engineering P. Ltd., (1986) 59 Comp Cas 222 (Cal). (Valuer was appointed
to value shares for the purpose of sale of shares of the petitioner).
(ii) Where financially hard pressed company made arrangement with its creditors to become
shareholders and directors for the whole or part of the amount due to them in order to save the
company, there was no mismanagement or oppression; Suresh Chandra Martvaha v. LauIs Pvt. Ltd.,
(1978) 48 Comp Cas 110 (P&H).
(iii) The Managing Director of a company during the pendency of proceedings under sections 397
and 398 purported to sell his shares to the respondent no. 3 and authorised him to look after the
affairs of the company. This resulted in the change of control of the company. Such act was held to be
mismanagement in the affairs of the company. Thus, the Court (Company Law Board) ordered for
purchase of the shares of one group by the other; C.K. Gupta v. Pannalal Girdhari 1.111 P. Ltd.,
(1984) 55 Comp Cas 702 (Del).
(iv) There is no mismanagement if a person tries to purchase shares which have been sold and if
the transfer of shares is not below par and is not a one way traffic; V.I. Thomas Vettom v. Kuttanad
Rubber Company Ltd., (1984) 56 Comp Cas 284 (Ker).
(v) Where the new directors did not take over charge and conducted the affairs of the company,
there was no mismanagement; Rai Saheb Vishwamitra v. Amar Nath Mehrotra, (1986) 59 Comp Cas
854 (All).
(m) Application of Civil Procedure Code: By reason of rule 6 of the Companies (Court) Rules, 1959,
Order XXIII, rule 1, C.P.C. can be applied to all proceedings under the Companies Act. The fact that
specific provision is made in rule 88(2) of the Companies (Court) Rules prohibiting the withdrawal of a
petition under sections 397, 398 without the leave of the court does not mean that the petition so
withdrawn without the leave to file a fresh petition on the same cause of action is not a defect arising
out of the withdrawal without leave as required under Order XXIII, C.P.C., Jacob Cherian v. K.N.
Cherian, (1973) 43 Comp Cas 235 (Mad).
(n) Winding up petition subsequent to petition under section 397: It is not necessary that every time
a petitioner moves an application under sections 397/398, he must also ask for the relief of winding
up and the fact that he has not done so would not debar him from moving a petition for winding up
of the company subsequently; Eastern Linkers Pvt. Ltd. v. Dina Nath Sodhi, 1982 Tax LR 2513: (1984)
55 Comp Cas 462 (Del).
(0) Relief under sections 397 and 398 as alternative to winding up: Th" contributories made
petition for winding up of the company on the basis of just and equitable clause alleging inter alia
gross mismanagement in the affairs of the company. The petition was dismissed because the
petitioners had effective alternative remedy under sections 397 and 398 of the Act; Jose I. Kadavil
v. Malabar Industrial Co. Ltd., (1986) 59 Comp Cas 969
) See also Bhaskar Stoneware Pipes P. Ltd. v. R.N. Bhaskar, (1988) 63 Comp Cas 184 ''''',J). (The
court will not pass order for winding up a company merely because it is just .rd equitable to do so,
particularly where the occasion for winding up is mutual distrust and lack of understanding between
groups of shareholders if some way could be found .t the company as a running concern after
removing the misunderstanding " setting right the oppressive acts. Thus, in all such cases the
court has to consider ....._...er short of winding up, it is possible for the company's affairs to be
remedied under
_ s 397 and 398. But in breach of understanding a group disturbed the balance of "..metioldings with
the intention to control to the detriment of other groups, there was

366 Company Law prima facie case for invoking the "just and equitable" clause under section
433 of the Act) following Ebrahim v. Westbourne Galleries Ltd., (1973) AC.. 360: (1972) 2 WLR
1289: (1972) 2 All ER 492 (HL) on the interpretation of just and equitable clause which was
endorsed by the Supreme Court in Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunihunwalla,
(1976) 46 Comp Cas 91: AIR 1976 SC 565: (1976) 3 SCC 259. (p) Form of application: Rule of the
Companies (Court). Rules, 1959 enumerates the applications which have to be made by
petition. Applications under sections 397 and 398 of the Act are mentioned at serial Nos. 12
and 13 in the said rule. The manner in which a petition has to be verified is indicated in rule 21
of the said Rules, 1959. Such applications need not be verified as required by Order VI, rule 15
of the Code of Civil Procedure. Form 43 of the said Rules, 1959 prescribes the Form for filing a
petition under sections 397 and 398 of the Act. It requires a schedule to be attached to the
petition wherein the names and addresses of the members who have given their consent to the
petition being presented on their behalf have to be incorporated. The necessity of attaching
such a schedule arises only in such cases where the petitioners claim that they are filing the
petition with the consent of some other members of the company who are not themselves
joining the petition as petitioners. Where the petition is presented on behalf of the members
set out in the schedule, the letter of consent given by them should be annexed to the petition.
But where the petitioners who have joined in filing the petition directly have alone filed the
petition, no such schedule need be attached; Narinder Singh v. Randhawa Transport Co. Pvt.
Ltd., (1973) 43 Comp Cas 341 (P&H). See V.K. Mathur v. K.C. Sharma, (1986) 2 Comp LI 25 (Del).
(q) Composite petition under sections 397, 398 and 433(f) of the Act: A composite petition
under sections 397, 398 and 433(f) of the Act for relief against oppression is maintainable. The
averments which a petitioner would have to make to invoke the jurisdiction of sections 397 and
398 of the Act are not destructive of the averments which are required to be made in a case for
winding up under section 433(f) on the just and equitable ground; World Wide Agencies Pvt.
Ltd. v. Margarat T. Desor, AIR 1990 SC 737: (1990) 67 Comp Cas 607 (SC). (r) Right of inspection:
In a petition under sections 397 and 398, the right of inspection of documents and books of a
company is not limited for the board of directors under section 209(iv) of the Companies Act,
but also to the shareholders of the company; Rajdhani Roller Flour Mills v. Mangilal Bagri,
(1991) 70 Comp Cas 788 (Del), dissented from Maharani Lalita Rajya Lakshmi M.P. v. Indian
Motor Co. (Hazaribagh) Ltd., 66 CWN 63: AIR 1962 Cal 127: (1962) 32 Com Cas 207. (s)
Oppression and mismanagement: Petitioner alleged that the M.D. got allotted a number of
equity shares to himself to become majority shareholder. It is the sole discretion of the Board
to allot shares. But, there was no proof of holding any Board Meeting for the purpose. Thus, it
was held in Dale and Carrington Invt. (P) Ltd. v. P.K. Prathapan, AIR 2005 SC 1624: 2004 AIR
SCW 5143: (2005) 1 SCC 212 that allotment of additional equity shares in favour of the M.D.
was wholly unauthorised and invalid and was set aside. (t) Oppression and mismanagement:
Ground of termination of directorship of the petitioner for relief under sections 397 and 398 of
the Companies Act, 1956, would not entitle such person to ask for winding up on just and
equitable grounds inasmuch as there is an appropriate remedy by way of company suit. Thus,
no relief was granted to the petitioner under sections 397, 398 of the Act; Hanuman Prasad
Bagri v. Bagress Cereals Pvt. Ltd., AIR 2001 SC 1416: 2001 AIR SCW 1359: 2001 (105) Comp Cas
493. (u) Oppression and mismanagement: In Manish Mohan Sharma v. Ram Bahadur Thakur
Ltd., AIR 2006 SC 1690: 2006 AIR SCW 1621: (2006) 131 Comp Cas 149 (SC), it has been laid
down by the Supreme Court: "The powers under section 402 are residuary in nature and in
addition to the powers available to the Company Law Board under section 397(2) and section
398(2) which permit the Company Law Board to make such order as it thinks fit with a view to
bringing to an end the matters complained of under section 397(1) and with a view to bringing
to an end or preventing the matters complained or apprehended under section 398(1).

nent and oppression, Sub-section (3) of section 399 of the Companies

'' ' "',"1:14.'s\p'elaks about "obtaining" of the consent. It does not speak of consent in ii.',.,::''or'
does it require any such writing to be annexed with the petition. Regulation .0-,-4n, Company
Law Board Regulations, 1991 also does not contain the requirement IV:Ming the consent
letters. Requirement of consent given by supporting shareholder is - Or d to - /T. Srivastava
& Sons Pvt. Ltd. V. Givalior Sugar Co. Ltd., AIR 2005 SC 83:
..,unan a ,Y,
AIR SCW 6298: 2004 (122) Corn Cas 696.
3 , AIR
(w) Petition by shareholders of company: A petition filed by shareholders of a company aid that
a collaboration arrangement embarked upon by the company was illegal and ....atect as
oppression of minority shareholders. Interlocutory order of Company Law Lid that the
company should not proceed further in matter of collaboration would not iiam on the
respondent-company to take all such antecedents, preliminary and prefatory "pc short of
issuing shares to collaborator; Rajinder Kumar Malhotra v. Company law , , (1996) 85 Comp
Cas 176 (SC).
, 00 Oppression and mismanagement: Memorandum of family arrangement for settlement: and B
were related to each other having equal share-holding in a Company. Disputes
between A group and B group of shareholders. B group of share-holders filed a lion under
sections 397 and 398 of the Companies Act, 1956 before the Company
Board alleging oppression and mismanagement by A group of share-holders. The
r was settled by the efforts of a retired judge who was appointed by the CLB as the Chairman
of the Company. The terms of settlement were set out in a Memorandum of Family
Arrangement (MFA). The Board (CLB) recorded the MFA in the order. The A Group of
shareholders being dissatisfied filed application for recalling of the order. In the meantime B
group also filed an application challenging the validity of notice under section 634A of the
Companies Act, 1956. Both the applications were dismissed by the Board. The B group of
shareholders preferred an appeal under section 1OF of the Act to the High Court and the
appeal was dismissed. On appeal to the Supreme Court, the Supreme Court remanded the
case to the Board for implementation of the Clauses of the MFA as contained in its order
which was affirmed by the High Court. In dismissing the appeal the Supreme Court held that
the orders passed by the High Court and the CLB were in pursuance of the order passed by the
court on the earlier appeal. Thus, no iderference was called for. Ram Bahadur Thakur Ltd. v.
Manish Mohan Sharma, (2009) 148 Comp Cas 1: 2008 AIR SCW 1949: (2008) 1 SCALE 658 (SC).
(y) Oppression and mismanagement: Power of Company Law Board: The provisions of sections
397 and 398 of the Companies Act, 1956 vis-a-vis the jurisdiction of the Company La, Board are
to be interpreted having regard to the complex situations which may arise in the cases before
it. There cannot be any doubt that acts of omission and commission
on the part of a member of a company should be qua the management of the company, but

the just and equitable test, which is applicable in a case for winding-up, is not totally outside
the purview of section 397 of the said Act. The function of the Company Law Board in such
cases is first to see how the interests of the company vis-a-vis its shareholders can be
safeguarded. The Company Law Board must also make an endeavour to find out whether an
order of winding-up will serve the interests of the company or subvert them. Further, if an
application is filed under section 433 of the Act or section 397 skI/or section 398 thereof, an
order of winding-up may be passed, but the Company Law !Gard in a winding-up application
may refuse to do so, if any other remedy is available. The Company Law Board may not shut its
own doors only on a sheer technicality even if it is found as of fact that unless the jurisdiction
under section 402 of the Act is exercised, ttre will be a complete mismanagement in regard to
the affairs of the company. Sections "" and 398 of the Act empower the Company Law Board
to remove oppression and ,...tnismanagement. Where a case of oppression is made a ground
for the purpose of '. ...,_-1".king the jurisdiction of the Company Law Board, a finding of fact to
that effect is "ssary. But the Company Law Board is not powerless to pass any other or
further order,_ i
in the interest of the company. M.S.D.C. Radharamanan v. M.S.D. Chandrasekara Raja, 4.8 SC
1738: 2008 AIR SCW 2402: (2008) 143 Comp C. 97 (SC).

368 Company Law (z) Relief against oppression and mismanagement. Arbitration Clause:
Proceedings under sections 397 and 398 of the Companies Act, 1956 always relate to the affairs
of the Company. The provisions of sections 397 and 398 of the Companies Act, 1956 can be
invoked only if the disputes, even amongst share-holders or allegations against each other
relate to the affairs of the Company. An appeal against any order of the Company Law Board
including an order passed refusing reference to arbitration shall lie to the High Court within the
jurisdiction of which the registered office of the company is situated. That is the reason section
50 of the Arbitration and Conciliation Act, 1996 purposively uses the expression "authorised by
law to hear the appeal". An appeal is a statutory remedy and it can lie only to the specified
forum. The appellate forum cannot be decided on the basis of cause of action as applicable to
original proceedings such as suit which could be filed in a court where past cause of action
arises. An appeal under section 50 of the Arbitration and Conciliation Act, 1996 from the order
passed by the Company Law Board concerning a company whose registered office was in
Punjab was maintainable in the Punjab and Haryana High Court and not in the Delhi High Court.
Sumitomo Corporation v. C.D.C. Financial Services (Mauritius) Ltd., AIR 2008 SC 1594: 2008 AIR
SCW 1766: (2008) 142 Comp Cas 114 (SC).
Members Entitled to Apply
Not every person is entitled to apply to the Tribunal (court) (now CLB) for relief. The following
members of a company have the right to apply to the Court Tribunal for relief in case of
oppression or mismanagement:1 (a) In the case of a company having a share capital, not less
than one hundred members of the company or not less than one-tenth of the total member of
its members whichever is less, or any member or members holding not less than one-tenth of
the issued share capital of the company, proved that the applicant or applicants have paid all
calls and other sums due on the shares. In the case of a company not having a share capital, not
less than one-tenth of the total number of its members. Where any share or shares is or are
held by two or more persons jointly, they shall be counted only as one member. If one member
has obtained the concurrence in writing of the requisite number of members, he may apply on
behalf ,nd for the benefit of all of them. The Central Government has power to grant relaxation
on just and equitable ground with respect to requisite number of members to apply to the
Tribunal (Court). The Central Government has also discretion to direct the applicants to give
security for costs.

Form Every application under section 399(4) shall comply with the provisions of rule 13 of the
Companies (Central Government's) General Rules and Forms, 19%. The form of application shall
be in Form 23D of the said Rules and Forms, 1956. Illustrations (a) In Sri Krishna Tiles and
Potteries (Madras) Pvt. Ltd. v. Company Law Board, (1978) 48 Comp Cas 728, it is laid down that
the functions of the Central Government or the Company Law Board as its delegate postulated
by section 399(4) are administrative functions and the formation of the opinion postulated by
section 399(4) is a subjective process. All that is required is that the circumstances must exist
which make it just and equitable to give the authorisation. Once the circumstances are shown
to exist, then whether in the opinion of the Central Government or the Company Law Board it is
just and equitable to grant the authorisation is not open to challenge. (b) In M.C. Duraiswami v.
Sakthi Sugars Ltd., (1980) 50 Comp Cas 154, the Delhi High Court has construed the expression
'consent in writing' appearing in section 399(3) of the Companies Act, 1956. This expression
does not mean a blanket consent like a certain
1. Section 244 of the 2013 Act (corresponding to section 399 of the 1956 Act).

embers consenting to some other member filing a petition under section pr---..:bree,"tir
members
398 or under both. The members giving the consent should have applied 3W flin . ds to the
question before them which necessarily implies that the application
ie mind was to the particular relief sought to be prayed and the ground on which
ofte

j . f was sought to be prayed.

that rojgight to apply: Under .the En. glish Act, a. single member irrespective of share-
as a right to complain against oppression and mismanagement but under the Or;
7.,Zhompanies Act, some qualifications have been laid down for entitlement to apply; 'Puna s-
hankar Prosad v. Sindri Iron Foundry (P) Ltd., (1966) 1 Comp LJ 310: AIR 1966 Cal gar 70 Cal WN
520.
51 (d) Right of secretary: The requirement of an affidavit of competency in company

npti
tion under rules 21, 70 and 80 of the Companies (Court) Rules, 1959 read with Forms
3, 43 and 44 makes it clear that a secretary verifying a petition under sections 397 and 398
must also file an affidavit that he has been duly authorised by the company; Mohan Lal
Mittal v. Universal Wires Ltd., (1983) 53 Comp Cas 36 (Cal).
(e) Right of transferees to apply: The transferees applied to the company for registering their
names as holders of shares but the company refused to register those shares and there
were pending proceedings in respect of the refusal to register the shares. The question
arose whether they could file a petition through the transferors under sections 397 and 398
of the Act. It was held that the transferees of shares should be construed as members for the
purpose of sections 397 and 398 of the Act, because they are the persons who have "real"
interest in the shares. Similarly, the legal representatives of deceased members whose
names might not have been brought on the register of members but to whom the shares
have been transmitted on the death of a member would also be persons who have a real
interest in the shares and who would be similarly entitled to apply under sections 397 and
398 of the Act; Killick Nixon Ltd. v. Bank of India, 1982 Tax LR 2547: (1985) 57 Comp Cas 831
(Bom) relying on Llewellyn v. Kusintoe Rubber Estate Ltd., (1914) 2 Ch 670: 112 LT 676: (1914-
15) All ER Rep 558 (CA); Bayswater Trading Co. Ltd. (in re:), (1970) 1 All ER 608: (1970) 1 WLR
343 (Ch D); Stadmed Pvt. Ltd. v. Kshetra Mohan Shah, (1%9) 39 Comp Cas 741 (Cal); Jermyn
Street Turkish Baths Ltd. (in re:), (1970) 1 WLR 1194: (1970) 3 All ER 57 (Ch D) reversed in
appeal on other points, see Jermyn Street Turkish Baths Ltd. (in re:), (1971) 3 All ER 184:
(1971) 1 WLR 1042 (CA). See World Wide Agencies Pvt. Ltd. v. Margarat T. Desor, (1990) 67
Comp Cas 589 (Del) affirmed by the Supreme Court, (1990) 67 Comp Cas 607 (SC).
(f) Consent given by general power of attorney-holder on behalf of shareholders; The
appellant No. 1 was empowered by R, a shareholder of the respondent company, who lived
abroad, by a deed of general power of attorney to manage and otherwise administer her
movable and immovable properties including her shares and stocks. An application under
section 397/398 was filed against the respondent company by three appellants. The aPPellant
No. 1 gave consent in writing for and on behalf or R as holder of general power of attorney.
The respondents raised a preliminary objection as to the maintainability of Lpetition that the
consent of R was not valid under section 399(3) of the Act. It was kid that the consent was
valid and the petition maintainable; P. Punnaiah v. Jeypore Sugar Co. Ltd., AIR 1994 SC 2258:
1994 AIR SCW 2128: (1994) 81 Comp Cas 1 (SC).
(g) Validity of Companies (Amendment) Act, 1988: The constitution of Company
"." Board by amendments made by sections 4, 5, 16, 21 and 27 of the Companies (me d
en "
valid .msen.t) Act, 1988 conferring the power on the Board under section 397 of the Act
, wish Chandra v. Union of India, (1994) 81 Comp Cas 482 (SC): AIR 1995 SC 138: rn (4) Com LJ
SC 1.
s,.22.) Oppression and mismanagement: Maintainability of Petition: The appellants in I.P.
14.6:74v. and Sons (Rampur) Pvt. Ltd. v. H.K. Srivastava, AIR 2009 SC (Supp) 116: (2008) .4,1771p
Cas 327 (SC) filed a petition before the Company Law Board under sections 397 , by the of
the Companies Act, 1956 alleging that the company was being mismanaged th e rival
group. The Company Law Board considering the issues on merits dismissed
Petition on the ground of maintainability. The High Court on appeal affirmed the
decision of the Company Law Board on the question of maintainability. The appellant preferred
appeal to the Supreme Court. On earlier occasion the SuprrreiremeddelthyCeohuerilrtgdht;odft
the petition was not maintainable. Section 399(3) of the Act had section 399(3) of the Act. It
had specifically held that the Boctardahasdupinpcoo upset only the later part of the order
pertaining to the maintainability of theispioe:tiftitohonef under sections 397 and 398 of the
Companies Act, 1956 in view of the provisions the third appellant who had the necessary
authority to file the appeal behalf trust she as well as the trust had more than 10 per cent of
the share capital. Thus, the order a rder of the Company Law Board was held to be erroneous
only on the question of maintainability. No other aspect or finding in that order was touched by
the court. The Board had given findings on all the applications as also the objections raised
thereto by the appellants. The matter was to be referred back to the Judge for deciding all the
three appeals filed by the respective parties within the time-frame. The High Court would also
consider the tenability of the appeals filed by the respondents group. The prerequisite of a
person to become an applicant under the foregoing provisions is to be a registered member
and payment of all dues on the shares. If the name of an applicant does not appear in the
register either rightly or wrongly, his first duty is to get the register rectified before the action.
A person whose application for rectification of the register has already been dismissed by the
court, cannot unless he files a suit to establish his right, seek the same relief under the guise of
an application under section 397 or 398 of the Act.' Notice of Application' The Central
Government is entitled to the notice of application made to the Tribunal (formerly Court) under
section 241 of the 2013 Act. It is the duty of the Tribunal (formerly Court) to serve this notice on
the Central Government. The object is to take into consideration the representations, if any,
made to it by the Government before passing a final order on the application. The notice is to
be served in Form No. 21 of the Companies (Central Government's) General Rules and Forms,
1956. The cases in respect of which notices under section 400 of the 1956 Act are served on the
Central Government generally fall under two categories: (1) Cases which involve larger interests
of society, complicated issues of social and economic policy, apart from simple adjudication of
legal rights between the contending parties; and (2) Cases which relate to small-sized public or
private companies not involving public interest to any great extent or cases which do not
involve any complicated technical points but which arise generally as a result of fights between
two groups of directors or shareholders. In the cases of the former category, the Central
Government makes effective representation to the C.L.B. (Court) under section 400 of the Act
by placing before them material information available in the Department. But in the cases of
the latter category, no representation is generally made by the Central Government. (Vide
Chapter VII, Third Annual Report). In Cosmosteels Pvt. Ltd. v. Jairam Das Gupta, (1978) 48 Comp
Cas 312: (1978) 2 SCR 422: AIR 1978 SC 375, the Supreme Court has held that when a petition is
made to the court under sections 397 and 398, it is obligatory upon the court to give notice of
the petition to the Central Government. But section 400 does not envisage a fresh notice to be
issued at the appellate stage. Right of Central Government3 Under section 401 of the 1956 Act,
the Central Government may itself apply to the Tribunal (Court) (now Company Law Board) for
an order in case of oppression or 1. Ved Parkash v. Iron Traders (Pvt.) Ltd., AIR 1960 Punj 427:
62 Punj LR 553: (1%1) 31 Corn Cas 122. 2. Section 400 (No provision under the 2013 Act). 3.
Section 241 of the 2013 Act (corresponding to section 401 of the 1956 Act).
 g Ment under section 397 or section 398 or cause an application to be made to
(0.--41' a' eat (Court) for such an order by any person authorised by it in this behalf. the Tribal'
f (Court) Tribunal (now Company Law Board)
?owe-- of the Tribunal (Court) (now CompanyBoard) to prevent oppression
(e)
The powers o
ment in a company are of plenary character. These powers subject to the
imposed by the Act cannot be abridged or curtailed by any other statute. The
,
toitati
bona! (Court) (now Company Law Board) in exercise of its omnibus powers under
t4".- n 397 or 398 may provide in any order, for the following:
(a) The regulation of the conduct of the company's affairs in future.'
(b) The purchase of the shares or interest of any members of the company by other members
or by the company.2
(c) In the case of purchase of the shares by the company in accordance with (b), the
consequent reduction of its share capital.
(d) The termination, setting aside, modification of any agreement between the company and
any managerial personnel upon such terms and conditions as the court considers just and
equitable.
The termination, setting aside or moaification of any agreement between the company and any
person not referred to (d) provided that no such change shall be made (i) except after due
notice, and (ii) except after obtaining the consent of the party.
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.
Any other matter for which in the opinion of the Tribunal (Court) it is just and equitable.'
The expression "just and equitable" in sections 397 and 402 of the Act is to
be interpreted in the light of judicial decisions. In the case of winding up, the court thinks it
just and equitable io order for winding up when (i) the substratum of a company fails,' (ii) there
is a deadlock in the management,' (iii) there is unjustifiable exclusion of a working director, 6
(iv) the company is formed to carry out a fraud or to carry on an illegal business,' (v) there is a
mismanagement by directors who hold majority voting power.' Though the prevention of
oppression and mismanagement is an alternative remedy to save the life of a company from
being wound up, the court should consider whether this altemative remedy will at all work
and rescue the company from mischief. Where any of the above situations arises, it seems
that the court would make order for winding up the company instead of any other order
saving the company temporarily for commission of further mischief.
(h) The Tribunal (Court) is empowered to make interim order which it considers fit for
regulating the company's affairs upon such terms and conditions as appear to it to be just and
equitable.9
(i) The Tribunal (Court) has further power to make order for alteration of the
memorandum and the articles of a company notwithstanding any other 1. Life Insurance
Corporation of India v. Hondas Mundra, 63 CWN 439. In that case, a special officer with an
advisory board was appointed by the court for regulation of the conduct of
2 Mohanaffairs.
21..Chandumall v. Punjab Company Ltd., Bhatinda, AIR 1961 Punj 485: ILR (1962) 2 Punj
1 7: ( 1962) 32 Comp Cas 937 (Punj).
3.
c jar .
4.
Bleriobtai V. Patti: Transport (P) Ltd., (1965) 2 Comp LI 234.
5.
y. Aircraft Co. (in re:), (1916) 32 TLR 253.
, entelle Tobacco Co. Ltd. (in re:), (1916) 2 Ch 426: 86 LJ Ch 1 (CA). Lundie Brothers Ltd. (in re:),
(1965) 2 All ER 692
Loch Edward Brin smeal Sr Sons (in re:), (1897) 1 Ch 406.
9.Blackwood Ltd., (1924) AC 783: 93 LJPC 257: 131 LT 719 (PC).
Sectsn242 of the 2013 Act (corresponding to section 403 of the 1956 Ad).

Company Law company's memorandum or articles must be filed with the Registrar within
provision ion of the Act. In such case a certified copy of the order amltearinanggerith: thirty
days after the order. (j) If the Tribunal (Court) is satisfied on the application of any personnel to
be added as a respondent to the application under section 397 or 398, it may direct for such
amendment. (k) Where an application is made to the court under section 397 or 398, Schedule
539 to 544 shall apply in the form set forth in Schedule XL' This containing sections 539 to 544
empowers the court to impose penalty and assess liability for certain acts, committed or
omitted by the officer and other managerial personnel of a company. Illustrations (a) In
Cosmosteels Private Limited v. Jairam Das Gupta, AIR 1978 SC 375: (1978) 48 Comp Cas 312:
(1978) 1 SCC 215, the Supreme Court has laid down that when minority shareholders complain
of oppression by majority and seek relief against oppression. from the court under sections 397
and 398 of the Companies Act and the court, in a petition of this nature, considers it fair and
just to direct the company to purchase the shares of the minority shareholders to relieve
oppression, if the procedure prescribed by sections 100 to 104 is required to be followed, the
resolution will have to be first adopted by the members of the company; but that would be well
neigh impossible because the very majority against whom relief is sought would be able to veto
it at the threshold and the power conferred on the court would be frustrated. That could never
have been the intention of the legislature. Therefore, it is not conceivable that when a direction
for purchase of shares is given by the court under section 402 and consequent reduction in
share capital is to be effected, the procedure prescribed for reduction of share capital in
sections 100 to 104 should be required to be followed in order to make the direction effective.
(b) Consideration for relief: In granting relief under sections 398 and 402 of the Act, not only is
the interest of the company to be kept in view but other equitable considerations have to be
taken into account; Suresh Kumar Sanghi v. Supreme Motors Ltd., (1983) 54 Comp Case 235
(Del). (c) Extent of power: Having regard to the object sought to be achieved by sections 397,
398 read with section 402 of the Act, the powers of the Court (Company Law Board) thereunder
cannot be read as subject to the provisions contained in other chapters which deal with normal
corporate management of a company. While acting under section 398 read with section 402,
the Court (Company Law Board) has ample jurisdiction and very wide powers to pass such
orders and give such directions as it thinks fit to achieve the object and there would be no
limitation or restriction on such power that the same should be exercised subject to the other
provisions of the Act dealing with normal corporate management or that such orders and
directions should be in accordance with such provisions of the Act; Pramod Kumar Mittal v.
Andhra Steel Corpn. Ltd., (1985) 58 Comp Cas 772 (Cal). See also V.K. Mathur v. K.C. Sharma,
(1987) 61 Comp Cas 143 (Del). [While the powers of the Central Government are somewhat
restricted, the Court (Company Law Board) under sections 402 and 403 has much wider
powers]. (d) Amendment of articles: The articles of a company could be amended in
proceedings under sections 397 and 398. Apart from the plenitude of power conferred by
sections 398 and 402, section 404 also recognises a power in the court to amend the articles in
proceedings under Chapter VI of the Act; Dr. V. Sebastian v. City Hospital P. Ltd., (1985) 57
Comp Cas 453 (Ker) following Bennett Coleman & Co. v. Union of India, (1977) 47 Comp Cas 92
(Bom). See also Motion Pictures Association (in re:), (1984) 55 Comp Cas 375 (Del). (Where it is
just and equitable and also in the interest of the company, amendment may be ordered.) (e)
Interest of public good to be kept in mind: Under section 402, the Court (Company Law Board)
shall always keep in mind the interest of public good and that the shareholders
1. Section 406 of the 19% Act.
-
wners of the company. But the concept of public interest will preponderate over are "
e '
tOnotny of a company and the management under the articles of the association th ., 'b.,
Within the confines of the provisions of the Act only if such evidence is available
1:: to" itthei .Court (Company Law Board). Stray cases of mismanagement or even a few 0 1
mismanagement without sufficient proof will not lead a Court (Company Law case' d)
entrust the powers of the management of a company in the interest of public
to strangers appointed by the Court (Company Law Board). The provisions of Ir Act'
specially Chapter VI are not meant to convert the company court into a super Structure
supervising all its activities and affairs; V.I. Thomas Vettom v. Kuttanad Rubber Co. Ltd., (1984)
56 Comp Cas 284 (Ker).
(f) Interim order, appealable: An order appointing a receiver to manage affairs of a company
under section 403 of the Act on an interim application is appealable under section 483 of
the Act; Rev. C.S. Joseph v. T.J. Thomas, (1987) 62 Comp Cas 504 (Ker) relying on Shah Babulal
Khimji v. Jayaben D. Kania, AIR 1981 SC 1786: 1981 Raj LR 624 (SO: (1981) 4 SCC 8.
(g) Separate proceeding under section 543, whether necessary: A separate proceeding for
assessment of damages against delinquent directors under section 543 would be necessary
and order cannot be passed on an application under sections 397 and 398 of the Act; see
Colaba Land & Mills Co. v. Vasant Corporation, (1963) 2 Comp LJ 89. But see Life Insurance
Corporation of India v. Haridas Mundra, (1966) 36 Comp Cas 371 (All). (No separate application
would be necessary to grant relief under section 543).
(h) Methodology for valuation of company's worth: When two groups that were working
together in a business for long time fell apart and sought separation, each group is
entitled to have a proportionate worth of business built up by their joint adventure. Sense
of justice and principles of equity demand that every one concerned should be placed on
par (proportionate to their interest in the business concern). The methodolo gy for valuation
of a company's worth should vary with the company's features. If it is a quasi-partnership
of recent origin, the company may not possess significant goodwill; on the other hand if it
is an old business establishment which, in the course of time, became a private limited
company, the advantage of goodwill should not be ignored while evaluating the company's
worth; otherwise it will result in ignoring commercial realities. The worth of a company as a
going concern would and should, normally include its tangible and intangible assets which
are being commercially exploited; Rakhra Sports Pvt. Ltd. v. Khraitilal Rakhra, (1993) 76 Comp
Cas 545 applying Bird Precision Bellous Ltd. (in re:), (1984) 30 All ER 444 affirmed on appeal
(1985) 3 All ER 523 (CA).
0) Transfer of shares: The shares of the first respondent were closely held by two groups of
shareholders. The appellants representing one group filed a petition before the Company Law
Board against the Company and the rival group for relief under sections 397 and 398 of the
Act. Consent terms were arrived at by the parties for valuation and purchase of shares of
one group by the company. Provision was made in the consent terms for payment in
instalments with interest. There was also a default clause. Valuation was made and payment
tendered. Valuation was questioned as fraudulent . There was a second valuation at a
higher figure. The company offered in court to pay interest and as such it was held that
the default clause was not attracted. There was a direction for purchase of shares by the
company in accordance with the consent terms; Yashraj Govindbhai Patel v. Patel Engineering
Co. Ltd., (1995) 84 Comp Cas 427 (SC).
(I) Consent to file company petition: Consent to file company petition need not be sha""ri.ting
by a member personally. It can be given by the Power-of-Attorney of such ap4e -holder. The
is' sue of consent must be decided on the basis of a broad consensus
oach in relation to avoidance and subsistence of the case. When the original petitioner
hweilthdclraws lus consent, petition does not become non-existent. Other consenting share-
can be transposed as petitioners.'
1
cGen45er5a/ Finance Investment Company Ltd., AIR 2013
BSC 1690 2D0131APIRSCPrWmt2e14L3td:(201P3e)"5les

(k) Oppression of minority, what constitutes: Conduct of majority share-holders must lack
probity and must be one causing prejudice to minority share-holders in exercise of their legal
and proprietary rights. Oppressive conduct should not be confined to one isolated incident but
must have to be continuous so as to be part of concerted action to cause prejudice to minority
share-holders.' (I) Balance-sheet duly filed with the Registrar become public documents; Shah
Pulp & Paper Mills v. P. Hirji Shah, (2013) 179 Comp Cas 36 (Born). (m) Petition for oppression
and mismanagement in representative company, not withdrawable unilaterally: In Bhagwati
Developers Private Ltd. v. Peerless General Finance Investment Co. Ltd., (2013) 178 Comp Cas 1:
AIR 2013 SC 1690: (2013) 5 SCC 455 (SC) a petition filed with the consent of other share-holders
in representative capacity for relief against oppression and mismanagement under sections 397
and 398 of the Companies Act, 1956. It has been held by the Supreme Court that withdrawal of
the original petitioner from the proceedings would not render the petition non-existent or non-
maintainable. Consenting share-holders are entitled to be transposed as petitioners. The Court
must not normally grant permission to withdraw unilaterally. Order of withdrawal without
consenting share-holders is to be made aware of it. Effects of Termination or Modification of
Certain Agreements2 Where an order is made under section 397 or 398 terminating or
modifying any agreement in relation to the company, the following effects will ensure: (a) The
order shall not give rise to any claims whatsoever against the company by any person for
damages or for compensation for loss of office. (b) Any managerial personnel whose agreement
is so terminated or set aside shall not be capable of serving the company for a period of five
years from the date of the order without the leave of the Tribunal (Court). The Tribunal (Court)
will not entertain an application for leave unless a notice in this regard has been served on the
Central Government and the Central Government is given an opportunity of being heard in the
matter. There is a penal provision for a managerial personnel who acts knowingly in
contravention of the order of the court. Rules and Forms Rules 88-91 of the Companies (Court)
Rules, 1959 lay down the rules and forms relating to relief in case of oppression or
mismanagement under sections 397 to 407 of the Companies Act. Form No. 43 of the said Rules
prescribes the form of petition by minority shareholders under section 397. Form No. 44 of the
said Rules sets out the form of petition under section 398 of the Act for relief against
mismanagement POWERS OF THE CENTRAL GOVERNMENT As an alternative forum for
prevention of oppression and mismanagement by the Tribunal (Court), the Central Government
is also vested with powers by the Act.3 The Central Government may under the order of the
Tribunal appoint persons as directors of a company for a period not exceeding three years on
the application of the prescribed number of members of a company. An application may be
made (a) by not less than one hundred members of company, or (b) by members holding not
less than one-tenth of the total voting power of the company. The Central Government makes
the reference for such appointment of directors on being satisfied that any of the following
situations has arisen in respect of the company: (1) The affairs of the company are being
conducted in a manner which is oppressive to some members of the company. The applicant is
also one of those oppressed members.
1. Chatterjee Petrochem (I) Pvt. Ltd. v. Haldia Petrochemicals Ltd., AIR 2012 SC 2753: 2012 AIR
SCW 2625: (2011) 10 SCC 466. 2. Section 243 of the 2013 Act (corresponding to section 407 of
1956 Act). 3. Sections 408 and 409 of the 1956 Ad.

(2) The affairs of the company is being conducted in a manner which is prejudicial to the
interests of the company or to the public interest.
where the order of the Tribunal directs the appointment of new directors, until such
e it may appoint persons as additional directors of the company. A director
ficarr(n)inatinddintitOnal director so appointed by the Central Government under the order of
iheaTriburial is exempted from certain provisions of the Act which apply ordinarily to company's
director.
(a) He shall not be required to hold any qualification shares.
(b) His period of office shall not be liable to determination by retirement of director by
rotation.
(c) He holds office during the pleasure of the Central Government. After the
appointment of a director or an additional director, no change in the Board can be made
without the sanction of the Tribunal.
It appears that a director or an additional director appointed by the Central Government
under the provisions of section 408 will have dual allegiance, one is to the Central Government
as its officer, and the other to the company as a director of the board. In case of any conflict
between dictate of the Central Government and the interest of the company, he may be
required to follow the former. But that will be a bad precedent. So, this matter requires
consideration.
Where the Central Government refuses to take measure under the above statutory provisions,
it may be compelled by a writ of mandamus to perform its obligations. In R. v. Board of Trade,'
it was held that the Board of Trade were bound to appoint an inspector to investigate the
affairs of a company, the order of mandamus was issued.
Illustration
(a) In Union of India v. Swadeshi Cotton Mills Co. Ltd., (1979) 49 Comp Cas 74: AIR 1978 SC
1818; 1978 U) (SC) 755, the Supreme Court in nullifying the interim order of stay granted by
the High Court on a writ petition challenging the order passed by the Company Law Board
(now) Tribunal, has held that when the Company Law Board (now Tribunal) had investigated a
matter and reached a definite conclusion and made consequential directions under section
408, it was entitled to prima facie respect unless , there were glaring circumstances to the
contrary.
(b) Concurrent jurisdiction: Suits by minority shareholders against oppression and
mismanagement have been a time-honoured exception to the rule in Foss v. Harbottle, (1843)
2 Hare 461: 67 ER 189 and in the absence of words expressly barring them cannot be said that
sections 397, 398 and 408 of the Companies Act exclude the jurisdiction of the ordinary
courts; Marikar (Motors) v. M.I. Ravikumar, (1982) 52 Comp Cas 362 (Ker).
(c) Power under section 408: The power under section 408 of the Act is not untrammeled and
does not give absolute discretion to the Central Government to appoint director only on its
subjective opinion. The power under this section is dependent on the establishment, in an
objective manner, of the requisite conditions. Though the opinion of the Central Government is
not reviewable under Article 226 of the Constitution, yet the power under section 408 has
grave consequence and must inevitably have a serious effect of treputation and credibility of
the management of the company. Thus, the power must exercised very sparingly and only
when the requisite conditions under section 408 are hilly complied with; South India Viscose
Ltd. v. Union of India, (1982) 5 Comp Cas 247 (Del).
(d) Power of preventive nature: The powers under sections 408 and 409 of the Act are Zeeventive
in nature. The powers are exercised in order to see that in future, the affairs of its Company are
not conducted in a prejudicial manner to the interests of the company, imembers or to the
public interest. An order under section 408 may not cure the past
gal Tors prejudicial acts, but it can prevent repetition of such acts in future by appointing 789 .',"s
of the company; Sakti Trading Co. P. Ltd. v. Union of India, (1985) 57 Comp Cas (del) following
Vinod Kumar v. Union of India, (1982) 52 Comp Cas 211 (Del).
1* R. v. Board of Trade, Ex. P. St. Martin (or St. Martins) Preserving Co. Ltd., (1965) 1 QB 603:

(1964) 2 All ER 561: (1964) 3 WLR 262.

(e) Tenure of office of director appointed by Government: An order was passed in

November 1973 by the Government of India appointing two persons as directors under section
408(1) of the Act for a period of three years. The order was stayed. The company thereafter, in
September 1981 held the annual *general meeting at which three directorsi were appointed. The
Government filed a petition seeking directions that the director appointed by the Government in
November 1973 would be allowed to complete their full terms of three years and the directors
appointed by the company would seek confirmation under section 408(5) of the Act. It was held
that the order of November, 1973 could not be implemented on the undertaking of the
company that it would call any meeting of the board of directors without the leave of the court.
Since the appointment of the Government directors subsisted, the change in the board of
directors could not have effect unless confirmed under section 408(5) of the Act; Union of India v.
Shri Changdeo Sugar Mills Ltd., (1984) 55 Comp Cas 42 (Born).
(f) Declaratory suit and petition under sections 408 and 409: Unless the issues in the company
application and in the suit are substantially the same, the suit cannot be stayed under section 10,
C.P.C. Besides, the scope of sections 408 and 409 is altogether different; Arora v. Ganga Ram
Agarwal, (1988) 63 Comp Cas 739 (Del).
Power to Change in the Board of Directors )
The Tribunal has power to prevent any proposed change in the board of directors of a
company on a complaint made by any managerial personnel of the company on the ground
that such change would affect prejudicially the affairs of the company. In such case, the
Tribunal on being satisfied after enquiry may pass order in the following te rms: (a) no
resolution passed, or no resolution that may be passed, or (b) no action taken or that
may be taken, will have any effect as to the change in the board of directors after the
date of the complaint unless confirmed by the Tribunal.
In case of any conflict of this order with any other provisions of the Act or of the
memorandum or the articles of the company or of any agreement or of a resolution
passed in general meeting or by the board of directors of the company, the order of the
Tribunal shall prevail over all of them. The Tribunal may pass an interim order before
making an inquiry when the allegation is proved prima facie.
The foregoing provisions shall not apply to a private company unless it is a subsidiary of a
public company.
Particulars of Application under Sections 408 and 409
Rule 13A of the Companies (Central Government's) General Rules and Forms, 1956 provides
that every application under sections 408 and 409 shall clearly indicate the eligibility of
the applicant to make such an application and shall be accompanied by an affidavit in
support of the statements made in the application. The form of application under
section 408 shall be in form No. 23D and the application under section 409 shall be in Form
No. 35B of the Companies (Central Government's) General Rules and Forms, 1956.
SPECIAL FEATURES OF PREVENTION OF OPPRESSION AND
MISMANAGEMENT UNDER THE 2013 ACT
Chapter XVI containing sections 241 to 246 deals with prevention of oppression and
mismanagement. Section 241 of the Companies Act, 2013 provides that any member of
a company who complains that (a) the affairs of the company are being conducted in a
manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any
other member or members of the company; or (b) the material change, not being a
change brought about by or in the interests of, any creditors, debenture -holders or any
class of share-holders and that by reason of such change, it is likely that the affairs of
the company will be conducted in a manner prejudicial to its interest or its members,
may apply to the Tribunal provided such member has a right to apply under section 244
of the Act. Section 242 of the Act confers powers on the Tribunal relating to application
under section 241 and to pass an order for - (a) the regulation of con uct of affairs of
the company;
the company; (b) the purchase of shares or interests of any members by

the consequent reduction of share capital in view of order (b) above; (d) restriction
( C )
or allotment of shares of the company; (e) the termination or modification
on the transfer
aPTnent . (0 the termination or modification of agreement other than the one in 4 agr,...---
,
`(e) a bove; (g) the setting aside any transfer, delivery of goods, payment by way of h.
udulent preference; (h) removal of managing director, manager or director of a company; (i)
recovery of undue goods; (0 the way in which managing director or manager -to he appointed
after removing under clause (h) above; (k) appointment of persons as director or manager; (1))
imposition of costs; (m) any other appropriate order. Section 243 relates to consequence of
termination or modification of certain agreements. Section 244 provides for the right to apply
under section 241 of the Act by members of a company. They are, namely: (a) in case of a
company having a share capital, not less than one hundred members of the company or not less
than one-tenth of the total number of its members, whichever is less, or any number or
members holding not less than one-tenth of issued share capital of the company; (b) in case of
a company having no share capital, not less than one-fifth of the total number of its members.
"Class action" under Sections 245 and 37 of the Companies Act, 2013
The principles underlying "class action" exist in procedural laws of India. In Order I, rule I of the
Code of Civil Procedure, 1908 there is provision for joinder of plaintiffs. Order I, rule 8 of the Code
of Civil Procedure, 1908 also provides for representative suit by a person for self and on behalf of
others having same interest. Under section 91 or the Code of Civil Procedure, 1908 a suit for public
nuisance and other wrongful acts affecting the public may be instituted with the leave of the
Court by two or more persons even though no special damage has been caused to such
persons. Under Articles 32 and 226 of the Constitution of India a writ for Public Interest
Litigation may be issued by the Supreme Court and the High Courts respectively on the basis of
application moved by public spirited citizens having faith in rule of law and rendering great
social and legal service by espousing causes of public nature.1
In the U.S.A. the concept of 'class action' was introduced in rule 23 by amendment of Federal
Rule of Civil Procedure in 1966.2 Subsequently, Class Action Fairness Act of 2005 was passed.
Under section 397 of the Companies Act, 1956 an application may be filed under section 397
or 398 of the Act by not less than one hundred members or not less than one-tenth of the
total number of members having share capital in the company. Each lucus standi of members
relates to the concept of class action.
Section 245(1) of the Companies Act, 2013 provides specifically for class action before the
Tribunal on behalf of the members or depositors for seeking all or any of the following orders: (a)
to restrain the company from committing an act of ultra vires the articles or memorandum of the
company; (b) to restrain the company from committing breach of any provision of the
memorandum or articles of the company; (c) to declare a resolution altering the memorandum
or articles of the company as void for passing a resolution by suppression of material facts or by
making misstatement to the members or depositors; (d) to restrain the company and its directors
from acting on such resolution; (,e) to restrain the company from doing an act in contravention
of the provisions of this Act or any other law for the time being in force; (f) to restrain to the
company from or action contrary to any resolution passed; (g) to claim damages or
compensation ! cl.emand any suitable action from or against (i) the company or its directors; (ii)
the auditor, tor, or (iii) any expert or advisor or consultant; (h) to seek any other remedy as the
Tribunal may deem fit.
class action. In the case of a company having a share
forection245(3)oftheCompaniesAct,2013providesforrequisitenumberofmembers:., h
t
capital (i) not less than one unclred **------_)ersm of the company or (ii) not less than such
percentage of the total number 1. ,, ----- Bangalore Medical Trust v. B.S. Mudappa, (1991)
4 SCC 54: AIR 1991 SC 1902: 1991 AIR 4:. 2. SCW 2082.
,. - See, Stephen C. Yeazell: The Past and Future of Defendant and Settlement Classes in Collective
Litigation, 39 Ariz. L. Rev. 687. -,

of its members as may be prescribed, whichever is less or (iii) any member or members holding
not less than such percentage of the issued share capital of the company as may be
prescribed. Provided the applicant or applicants has or have paid all calls and other sums due
on his or their shares. In the case of a company not having a share capital, the requisite number
of members for class action shall not be less than one fifth of the total number of its members.
In the case of depositors the requisite number of members for class action shall be (i) not less
than one hundred depositors or (ii) not less than such percentage of the total number of
depositors as may be prescribed whichever is less or (iii) any depositor or depositors to
whom the company owes such percentage of total deposits of the company as may be
prescribed.
In considering an application for class action the Tribunal shall bring consideration certain factors
before granting any relief. These are: (a) acting of the applicants in good faith; (b) any evidence
necessary; (c) cause of action; (d) any evidence of non-interested person; (e) act or omission
relating to cause of action; (f) occurrence of act or omission for cause action.
On admission of the application the Tribunal shall regard to the following, namely; (a) public
notice to all the members; (b) whether similar application pending in any other Court; (c)
two class action applications for the same cause of action; (d) costs and expenses.
Any order passed by the Tribunal shall be binding on the company and others directly
connected with the company failure to comply with the order by any person would cause
imposition of fine and also imprisonment. If the application for class action as found to be
frivolous or vexatious, it is liable to be rejected with costs. Banking company is not
attracted by the provision of this section.
Section 37 of the Companies Act, 2013 provides for institution of suit for misstatement in
prospectus or for fraudulently inducing persons to invest money by way of any affected
person, group of persons or association of persons which is in the nature of class action.
Representation Action/Class Action 1
By applying the principles of agency, a large number of members of an association who are
parties to a contract may join as plaintiff or defendants to institute a legal proceeding and
such device of recourse to avoid multiplicity of proceedings or impossibility for some
reasons or other is called representative action or class action. Generally, a representative
action may not be brought if it confers a new right of action. Nor can representative
proceedings be used in an action in which a personal liability is sought to be enforced. There
must be "interest" share by all the members. It is for the benefit of the class that the class
action is brought.