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PREVENTION OF OPPRESSION AND MISMANAGEMENT



          PREVENTION OF OPPRESSION AND MISMANAGEMENT

Meaning of oppression and mismanagement

These words not defined in co. law but meaning for the purpose of co. law should be used in broad sense and not in strict literal sense and can be derived from following case laws:

1.       

·         Oppression involves atleast an element of lack of fair dealing to the member of his propriety right as shareholder.

·         Persons concerned with management of the co. affairs must, in connection therewith, be guilty of fraud, misfeasance or misconduct towards the members.

2.            Oppression must be of a continuous process. Hence isolated acts of oppression or mismanagement will not give rise to an action u/s 397

3.            An attempt to force new and more risky object upon an unwilling minority, May, in circumstances, amount to oppression.

4.            A person can complain of oppression only in his capacity as a member and not in capacity as a director or a creditor.

5.            The legal representatives of a deceased member, whose name is still on the register of members, are entitled to file a petition under section 397 for relief against oppression or mismanagement.

Person claiming relief on the ground oppression has to prove on the part of majority:

a.       Lack of probity (honesty) OR

b.      Unfair conduct OR

c.       Prejudice to him in the exercise of legal and propriety rights as a shareholder.


Conditions to be satisfied before filing petition u/s 397of the companies act

1.            conditions for claiming relief from oppression

The remedy is available u/s 397 only if following conditions are satisfied

a.      Oppression or prejudice to the public int.

It must be established that the affairs of the company are being conducted:

                                                             I.      In manner oppressive to any member OR

                                                          II.      In a manner prejudicial to public int.

Meaning of oppression as per last question


b.      Oppression in the capacity of a member

Relief claim only person in his capacity of member

c.       Continuity of oppression

d.      Justification of winding up

The application must make out prima facie case that degree of oppression is so severe that there is just and equitable ground for winding up of company.


2.      Eligibility to make an application

An application u/s 397 can be made only by the members of the company. Further such members must meet the eligibility requirements as prescribed u/s 399.


3.      order by the company law board (CLB)

Where an application is made to CLB complaining oppression, if it is satisfied that the affairs of the co are being conducted in a manner which is oppressive to any member or prejudicial to public int. , it may make necessary orders ending the matters complained.

Conditions which must be satisfied before filing a petition u/s 398 for the prevention of management. (Twice)

 

1.      conditions for claiming relief from mismanagement

Section 398 will be invoked in either of the following two conditions:

a)      the affairs of co being conducted in a manner which is

·         prejudicial to public int. OR

·         prejudicial to the int. of company


b)      that due to “material change” that has taken place in the management or the control, it is likely that the affairs of the co will be conducted in the manner:

·         prejudicial to public int. OR

·         prejudicial to the int. of company


Meaning of material change:

It will deem to have taken place in following cases:

·               alteration in BOD OR

·               change in manager OR

·               alteration in ownership of the co shares

·               Alteration in the membership of co in case of no share capital.


                  c) Continuity of mismanagement is required.

              

2.      Eligibility to make an application

An application u/s 398 can be made only by the members of the company and must meet the eligibility requirement under section 399


3.      Orders by the CLB

Where an application is made to CLB complaining mismanagement, if the CLB is satisfied that the conditions prescribed in section 398 are satisfied. It may make the necessary orders for ending the matters, complained of.

 

Who can apply to the CLB for relief in case of oppression and mismanagement?

As per section 399

This provision has been enacted to discourage frivolous (useless) application.

1.      eligibility to make an application:

a.      members

·         in case of co having share capital

Members eligible to apply shall be the lowest of the following

Ø  100 members OR

Ø  1/10 of total members OR

Ø  Members holding not less than 1/10 of total issued share capital.

·               Co having no share capital

Application shall be made by atleast 1/5 of total number members.

The CG may (even if the above requirements is not complied) allow any member to apply, if in its opinion, circumstances exist which make it just and equitable to do so.

 

2.      conditions to be fulfilled for valid application

a.       The applicant must have paid all the calls and others sums due on their shares.

b.      Condition of holding requisite number of shares to be fulfilled at the time of application.

c.       Joint holder of shares to be counted as one member only.

d.      Shares concerned here can be ES/PS


     3. Imp issues:

·         Members ceasing to be members-consequences

The requirement as to minimum shareholding is to be satisfied only at the time of filing application. If some of the members who consented to the application ceased to be member by selling their shares, the application is still maintainable.

·         The consent must be given prior to making of application otherwise ineffective.

·         Withdrawal of consent-consequences.

The consent to be given by shareholder is reckoned at the beginning of the proceedings. The withdrawal of consent by a shareholder during the course of proceedings does not affect the maintainability of the application.

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