A PROJECT REPORT ON-

MISREPRESENTATION AND OPPRESSION

INDEX

1. INTRODUCTION
2. PREVENTION OF OPPRESSION (SECTION 397)
3. PREVENTION OF MISMANAGEMENT (SECTION 398)
4. Powers of the Company Law Board /Tribunal (Section 402)
5. CONDITIONS PREVALENT FOR OBTAINING RELIEF
6. CONCLUSION
7. BIBLIOGRAPHY
INTRODUCTION
The management of companies is based on the principle of majority rule ordinarily- decision
of the majority is the rule for the minority. This sound principle has, occasionally, been
abused and the whip of the majority has often produced sullen effects, prejudicial to the best
interests of the shareholders.

Before the commencement of the Companies Act, 1956 the only remedy available (under the
Indian Companies Act, 1913) to an oppressed minority was to file a petition in the court to
wind up the company on the ground that it was ‘just and equitable’ to do so. The winding up
remedy is, however, not always advantageous to the petitioning shareholder, or the other
shareholders because the very person whose conduct is complained of, may be the only
person capable of buying up the shares of the dissentients. Nevertheless, the oppression or
mismanagement calls for some remedial action. Sections 397 and 409 of the Companies Act,
1956 and Sections 241 to 246 of the Companies Act, 2013 empower the Tribunal and the
Central Government to deal with such situations, i.e. contain remedies available to the
oppressed in cases of mismanagement and oppression.

In order to understand the conditions precedent to obtain relief in cases of mismanagement

and oppression in Indian Company Law, we must first understand the terms Oppression and
Mismanagementand Prevention of Oppression and Mismanagement.
OPPRESSION AND MISMANAGEMENT- A
BASIC UNDERSTANDING
Oppression as per Section 397(1) of Companies Act 1956 has been defined as 'when affairs
of the company are being conducted in a manner prejudicial to public interest or in a manner
oppressive to any member or members'.
In layman’s version, Oppression is the exercise of authority or power in a burdensome, cruel,
or unjust manner. It can also be defined as an act or instance of oppressing, the state of being
oppressed, and the feeling of being heavily burdened, mentally or physically, by troubles,
adverse conditions, and anxiety.
The term Mismanagement has been defined under Section 398 (1) as 'conducting the affairs
of the company in a manner prejudicial to public interest or in a manner prejudicial to the
interests of the company or there has been a material change in the management and control
of the company, and by reason of such change it is likely that affairs of the company will be
conducted in a manner prejudicial to public interest or interest of the company’.

The meaning of the term "oppression" as explained by Lord Cooper in the Scottish case of
Elder v. Elder & Western Ltd.,1which has been cited with approval by Wanchoo, J
(afterwards C.J.) of the Supreme Court in Shanti Prasad v. Kalinga Tubes,2at pg. 204 is as
under:

"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, on
which every shareholder who entrusts his money to the company is entitled to
rely."

The complaining shareholder must be under a burden which is unjust or harsh or tyrannical. 3
"A persistent course of unjust conduct must be shown".4

An attempt to force new and more risky objects upon an unwilling minority may in
circumstances amount to oppression. This was held in Re. Hindustan Co-operative Insurance
Society Ltd., AIR. 1961 Cal. 443 wherein the life insurance business of a company was
acquired in 1956 by the Life Insurance Corporation of India on payment of compensation.

1
(1952) Scottish Cases 49
2
(1965) 1 Comp. L.J. 193
3
Lord Simonds in Scottish Co-operative Wholesale Society v. Meyer, 359) AC 324 at p., 342
4
In Re. H.R. HarmerLtd., (1958) 3 All ER 689
The directors, who had the majority voting power, refused distribute this amount among
shareholders, rather they passed a special resolution changing the objects of the company to
utilise the compensation money for the new objects. This was held to be "oppression".

The court observed: "The majority exercised their authority wrongfully, in a manner
burdensome, harsh and wrongful. They attempted to force the minority shareholders to invest
their money in different kinds of business against their will. The minority had invested their
money in a life insurance business with all its safeguards and statutory protections. But they
were being forced to invest where there would be no such protections or safeguards".

Generally, if the affairs of a company are being run by the Board in a manner which is
prejudicial to the interest of the company or to the public it is said to be mismanaged. In Re,
Albert David,5 it was held that if a company was being run by the Board in their own interest
overriding the wishes and interest of the majority of shareholders is deemed to be
mismanagement. Courts have also ruled that erosion of a company substratum, abuse of
fiduciary duties, and misuse of funds are all instances of mismanagement that come within
the ambit of section 398. However, when the director or board of directors use their power to
indulge in activities such as misappropriation of fund, fraud etc, such practices are commonly
termed as mismanagement.

Thus, the term oppression and mismanagement could be understood in context of various
judicial interpretations which vary from case to case.

PREVENTION OF OPPRESSION
5
(1964) CWN 163, 172
The first remedy available to an oppressed minority is to move the Company Law
Board(Tribunal according to the Companies Act, 2013). Section 397 of the Companies Act,
1956 (Section 241 of the Companies Act, 2013) provides that any member of a company who
complains that the affairs of the company are being conducted in a manner prejudicial to
public interest or in a manner oppressive to any members (including any one or more of
themselves) may make an application to the Company Law Board'/Tribunalby way of
petition for relief. Following requirements must be satisfied for seeking a relief under this
section:

(i) That the affairs of the company are being conducted:

(a) In a mannerprejudicial to public interest,
(b) Oppressive to any members, or

(c) In a manner prejudicial to the company;

(ii) That the fact justified the compulsory winding up order on the ground that it isjust
and equitable that the company should be wound up.

(iii) That to wind up the company would unfairly prejudice the petitioners [RamjiLal
Baiswala v. Britain Cable Ltd.6].

There have been a few additions w.r.t the conditions in the Section 241 of the Companies
Act, 2013. Along with the aforementioned conditions, the following conditions must also be
satisfied:

The material change has taken place in the management or control of the company, whether
by;

1. An alteration in the Board of Directors, or

2. Manager, or

3. In the ownership of the company’s share, or

4. If it has no share capital, in its membership, or

5. In any other manner whatsoever7, and

that, by reason of such change, it is likely that the undertakings of the organization will be
directed in a way biased to its interests or its individuals or any class of individuals. These
6
(1964) 14 Raj. 135
7
Opression and Mismanagment under Companies Act, 2013, https://aishmghrana.me/2013/06/14/oppression-
mismanagement/, last checked on February 20, 2016.
progressions ought not be a change achieved by, or in light of a legitimate concern for,
any creditors, including debenture holders or any class of shareholders of the
organization. The Central Government, in the event that it is of the conclusion that the
undertakings of the organization are being led in a way biased to open intrigue, it might
itself apply to the Tribunal for a request.8

This relief is, however, not available under the following situations:
1) Where there are minor acts of mismanagement e.g. where passengers travelling without
tickets on a company bus were not checked or where the petrol consumption by a
transport company was excessive. Negligence & inefficiency, even assuming that these
are proved, do not amount to oppression or mismanagement as contemplated by the act.9 
2) Where a shareholder holding 30% of shares of a company is denied access to or
inspection of books of accounts of the company. This is because this right is recognized
by the Companies Act.10 

PREVENTION OF MISMANAGEMENT
Section 398 (Companies Act, 1956) provides for relief in cases of mismanagement. For a
petition under this section to succeed, it must be established that the affairs of the company
8
Id.
9
Mohta Bros. Vs Calcutta Landing & Shipping Limited
10
Lalita Rajya Laxmi Vs. India Motor Company
are being conducted in a manner prejudicial to the interest of the company or public interest,
[(Section 398 (1) (A)] or that, by reason of any change in the management or control of the
company, it is likely that the affairs of the company will be conducted in that manner
[(Section 398 (1) (b)]. If the court is so convinced, it may, with a view to bringing to an end
or preventing the matter complained of or apprehended, make such order as it thinks fit
[Section 398 (2)]. A very clear illustration of mismanagement contemplated by the section is
Rajahmundry Electric Supply Corporation v. A. Nageswara Rao.11 In this case, a petition was
brought against a company by certain shareholders on the ground of mismanagement by
directors. The court found that the vice chairman grossly mismanaged the affairs of the
company and had drawn considerable amounts for his personal purpose, that large amounts
were owing to the Government for charges for supply of electricity, that machinery was in a
state of disrepair, that the directorate had become greatly attenuated and "a powerful local
junta was ruling the roost", and that the shareholders outside the group of the chairman were
powerless to set matters right. This was held to be sufficient evidence of mismanagement.
The Court accordingly appointed two administrators for the management of the company for
a period of six months vesting in them all the powers of the directorate.
A similar verdict was provided to a company by the Calcutta High Court in Richardson and
Cruddas Ltd. v. Haridas Mundra.12
There should be present and continuing mismanagement. The charges of mismanagement in
the past, even if proved, are not enough to establish an existing injury to the interest of the
company or public interest.13
"Relief against mismanagement runs in favour of the company and not to any particular
member or members'.14 Secondly, It is not necessary for the court to find a case for winding
up in cases of mismanagement in order to grant relief. (Ibid., p. 294). "Proof of prejudice to
the public interest or to the company is enough. Thirdly, the section enables the court to take
into consideration outside interest affected by corporate operation." Thus, the Calcutta High
Court refused to order the winding up of a grossly mismanaged company and appointed a
special officer to manage it because the company was engaged in special industries necessary
for the implementation of the country's plans. [Richardson & Cruddas Ltd. v. Haridas
Mundra, (ibid)].

11
AIR 1956 SC 213
12
(1959) 29 Comp. Cas. 547
13
R.S. Mathur v. H.S. Mathur, (1970) 1 Comp. LJ 35
14
Mathew J. Kust: Foreign Enterprise in India, 293 (1964)
POWERS OF THE TRIBUNAL
Under section 242 of the Companies Act, 2013, the Tribunal has the power to order for the
regulation of the conduct of affairs of the company in future, the purchase of shares,
restriction on the transfer of the share, termination, setting aside or modification of any
agreement, setting aside of any transfer, delivery of goods, payment, execution or other act
relating to property, removal of managing director, manager, or any of the directors of the
company, recovery of undue gains made by any managing director, manager or director
during the period of his appointment as such, imposition of costs as may be deemed fit.
A certified copy of the order shall be filed with the registrar within 30 days of the order by
the tribunal.15
Any contravention of the provisions of this chapter shall lead company towards the imposing
of fine which shall not be less than 10 lakh rupees and which may extend to 25 lakh rupees
and every officer of the company who is in default shall be punished with an imprisonment of
six months and with fine which shall not be less than twenty-five thousand rupees and which
may extend to one lakh rupees.16
The powers of the Tribunal were dealt in Section 402 of the Companies Act, 1956. This
section provides that without prejudice to the generality of the powers of the Tribunal, any
order under Section 397 or 398 may provide for:
1. The regulation of the conduct of the company's affairs in future. Thus, for example, in
Richardson & Cruddas Ltd. v. Hardas Mundra, (63 CWN 439; AIR 1959 Cal 695), the court
appointed a special officer with an advisory board to the total exclusion of the shareholders of
a company to function subject to the terms and condition laid down in the order.
2. The purchase of the shares or interests of any member of the company by other members
or by the company. This relief was provided in Mohan Lalv. The Punjab Co. Ltd., AIR 1961
Punj. 485.
3. In the case of purchase of its shares by the company, the consequent reduction of its share
capital.
4. The termination, setting aside or modification of and agreement between the company and
managing director, or any other director, and the manager.
5. The termination, setting aside or modification of any agreement with any person,
provided due notice has been given to him and his consent obtained.
6. Setting aside of any fraudulent preferences made within three months before the date of the
application.
7. Any other matter for which, in the opinion of the court, it is just and equitable that
provision should be made. [See as an illustration, Mrs. Gajarbaiv.Patny Transport (P) Ltd.,
15
Prevention Of Oppression And Mismanagement Of A Company, https://blog.ipleaders.in/prevention-
oppression-mismanagement-company/, last checked on February 20, 2016.

16
Id.
(1966) 2 Comp LJ 234, a decision of Andhra Pradesh High Court]. The facts were that one of
the directors died leaving behind a will bequeathing the shares in the company to his second
wife and sons who were already the shareholders of the company and the petitioner. The
directors on account to their private dispute with the petitioners, acting, in a high-handed
manner and unreasonably refused to transfer a part of the shares bequeathed under the Will
while transferring some shares in favour of themselves as provided under the Will. They
made certain improper transfers also. The petitioners applied under Sections 397 and 398 of
the Companies Act for removal of one of the director from the Board, and for the
appointment of committee of shareholders to manage the affairs of the company. But the
court held that "the proper order' to make, in the circumstances, is to direct the
directors to transfer the shares to the petitioners in accordance with the terms of the Will".

CONSEQUENCE OF TERMINATION OR
MODIFICATION OF AGREEMENTS (SECTION 243)
Where an order made under section 242 terminates, sets aside or modifies an agreement—
(a)  such order shall not give rise to any claims whatever against the company by any person
for damages or for compensation for loss of office or in any other respect either in
pursuance of the agreement or otherwise;
(b) no managing director or other director or manager whose agreement is so terminated or
set aside shall, for a period of five years from the date of the order terminating or setting
aside the agreement, without the leave of the Tribunal, be appointed, or act, as the managing
director or other director or manager of the company. Tribunal shall not grant leave under
this clause unless notice of the intention to apply for leave has been served on the Central
Government and that Government has been given a reasonable opportunity of being heard
in the matter.17

RIGHT TO APPLY UNDER SECTION 241

According to section 244 of the Act, the following people can apply for the orders from the
tribunal-
1. In the case of a company having share capital of 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 member or members holding not less than one- tenth of the
issued share capital of the company, subject to the condition that the applicant or
applicants has or have paid all calls, and other sums due on his or their shares.
2. In the case of a company not having a share capital, not less than one- fifth of the total
number of its members.
Section 245 of the act talks about class action suits, wherein the class of members having a
similar cause of action can file an application before the tribunal to seek necessary orders.18

17
Opression and Mismanagment under Companies Act, 2013,
https://aishmghrana.me/2013/06/14/oppression-mismanagement/, last checked on February 20, 2016.

18
Prevention Of Oppression And Mismanagement Of A Company, https://blog.ipleaders.in/prevention-
oppression-mismanagement-company/, last checked on February 20, 2016.
CONDITIONS PREVALENT FOR OBTAINING
RELIEF
With the above explanations, the concept of oppression and mismanagement and the power
of the Tribunalare clear. It must be noted that, in order to seek relief, certain conditions must
be fulfilled. These conditions are enumerated as follows:
a. There must be ‘oppression’- The Punjab and Haryana High Court in Mohan Lal
Chandmall Vs. Punjab Co. Ltd19has held that an attempt to deprive a member of his
ordinary membership rights amounts to oppression. Imposing of more new and risky
objects upon unwilling minority shareholders may in some circumstances amount to
oppression.20 However, minor acts of mismanagement cannot be regarded as oppression.
The court will not allow that the remedy under Section 397 becomes a vexatious source
of litigation.21 But an unreasonable refusal to accept a transfer of shares held as
sufficient ground to pass an order under Section 397 of the Companies Act, 1956.22 Thus
to constitute oppression there must be unfair abuse of the powers and impairments of the
confidence on the part of the majority of shareholders.
b. Facts must justify winding up- It is well settled that the remedy of winding up is an
extreme remedy. No relief of winding up can be granted on the ground that the directors
of the company have misappropriated the company’s fund as such act of the directors
does not fall in the category of oppression and mismanagement. 23 To obtain remedy
under Section 397 of the Companies Act, the petitioner must show the existence of facts
which would justify the winding up order on just and equitable ground.
c. The oppression must be continuous in nature- It is settled position that a single act
oppression or mismanagement is sufficient to invoke Section 397 or 398 of the
Companies Act. No relief under either of the section can be granted if the act
complained of is a solitary action of the majority. Hence, an isolated action of
oppression is not sufficient to obtain relief under Section 397 or 398 of the Act. Thus to
prove oppression continuation of the past acts relating to the present acts is the relevant
factor, otherwise a single act of oppression is not capable to yield relief.

19
AIR 1961 Punj. 485
20
Re Hindustan Cooperative Insurance Society Ltd., (1961) 31 Comp. Cas. 193
21
Lalita Rajya Lakshmi Vs. Indian Motor Co., AIR 1962 Cal. 127
22
Gajabai Vs. Patni Transport Co., (1965) 2 Comp. L. J. 243
23
Palghat Exports Ltd. Vs. F. V. Chandran, (1994) 79 Comp. Cas. 213 Ker
d. The petitioners must show fairness in their conduct- It is settled legal principle that the
person who seeks remedy must come with clean hands. The members complaining must
show fairness in their conduct. For ex- Mere declaration of low dividend which does not
affect the value of the shares of the petitioner, was neither oppression not
mismanagement in the eyes of law.24
e. An application under the Section 397 can be made only by the members. In the case of a
company having share capital minimum one hundred members or one-tenth of total
number of member of the company, whichever is less; or a member or members holding
not less than 10% of the paid up capital of the company can file such petition. In case of
a company not having share capital, minimum one-fifth of the total number of members
of the company is required for the purpose. However, Central Government may
authorise any lesser number of members to file such petition.
f. It must be established that the affairs of the company are being conducted in a manner,
i. Oppressive to any member/members of the company; or
ii. Prejudicial to the public interest.
g. The oppression complained of must affect a person in his capacity as a member of the
company. Rights and interests as a member of a company can only be agitated and not
in relation to any commercial relation that a member has with the company, as was
decided by the CLB in the case of Anil Gupta Vs. Mirai Auto Industores Ltd.25
h. The applicant must make out a prima facie case that the degree of oppression is so
severe that there is just and equitable ground for winding up of the company. But at the
same time, it must also be established that the winding up of the company would not
unfairly prejudice the applicant.
i. It may be noted that expression ‘issued share capital’ in Section 399(1) includes both the
preference and equity share capital.

24
Jaledhar Chakraborty Vs. Power Tools Appliances Co. Ltd., (1994) 79 Comp. Cas. 505
25
(2003) 113 COMP. CAS. 63
COMPANIES ACT, 1956 vis-à-vis COMPANIES
ACT, 2013
On a detailed analysis of theprovisions of Companies Act, 1956 and the Companies Act
2013, we get-

1. Provision of Section 397 and 398 of Companies Act, 1956 are combined in Section 241
of Companies Act, 2013 and accordingly applications for relief in cases of oppression,
mismanagement will have to be directed to the Tribunal.
2. While the powers of the Tribunal under the 1956 Act on application under Section 397 or
398 and Section 404 were limited, the 2013 Act granted additional powers to the Tribunal
including to:
(a) restrictions on the transfer or allotment of the shares of the company; 
(b) removal of the managing director, manager or any of the directors of the company; 
(c) recovery of undue gains made by any managing director, manager or director during the
period of his appointment as such and the manner of utilization of the recovery including
transfer to Investor Education and Protection Fund or repayment to identifiable victims; 
(d) the manner in which the managing director or manager of the company may be
appointed subsequent to an order removing the existing managing director or manager of
the company; 
(e) appointment of such number of persons as directors, who may be required by the
Tribunal to report to the Tribunal on such matters as the Tribunal may direct; and 
(f) imposition of costs as may be deemed fit by the Tribunal.26
3. The necessity of building up the presence of 'just and equitable' conditions to defer any
prerequisites of the section relating to the meeting the base minority limits and giving
"security" while permitting such an application are prohibited from the Companies Act,
2013.
4. Further, by way of Section 245, the Companies Act, 2013 has introduced the concept of
“class action” which did not exist in the previous Act.

CONCLUSION
26
Oppression and Mismanagement under the Companies Act, https://www.linkedin.com/pulse/oppression-
mismanagement-under-companies-act-rituparna-duttagupta, last checked on February 20, 2016.
Even though the company is operated by the majority through directors, they are not free to
do such an act which is only in their personal interest and not in the interest of the company.
The companies act has substantially protected the rights of minority shareholders. Minority
shareholders can take recourse to the provisions of section 397 and 398 in cases where
companies indulge in oppression or mismanagement, prejudicial to the affairs of the
company and public interest. The Company Law Board/ Tribunal have been assigned with
substantial powers to protect the interests of the minority shareholders.
Thus, it can be concluded that oppression and mismanagement are a part and parcel of
business. During the course of business, oppression of small/minority shareholders takes
place by the majority shareholders who are in control of the company. Similarly,
mismanagement of business is not uncommon. When we talk of mismanagement we mean
mismanagement of resources. Diner version of mismanagement could arise where the
management does not act/react to a business situation leading to downfall of business.
In order to check all these discrepancies the need was felt to have any measure to prevent
the oppression and mismanagement thus Chapter 6th of Part 6th of Companies Act, 1956
provides for the judicial as well as administrative remedies to check oppression and
mismanagement. It is a powerful tool which provides such power that even a single member
can approach the Company Law Board if any of his rights has been infringed or in order to
prevent the oppression and mismanagement in the company.
Thus, there have been conditions stipulated in order to claim for relief which must be relied
upon to make the claim valid. This has been done so keeping in mind the interests of the
company in question. These conditions protect the interests of the company and eliminate
the chances of abuse of the provision of oppression and mismanagement. Therefore, it can
be concluded that the conditions stipulated under the Companies Act have proved to be a
boon for the company and bane for those who tend to exploit such provisions.
Lastly, it can be said that even the courts and the Company Law Board have contributed to a
great extent in checking the abuse of the provisions of oppression and mismanagement
which is evident from the large number of case laws decided.