ijalr

Trending: Call for Papers Volume 3 | Issue 2: International Journal of Advanced Legal Research [ISSN: 2582-7340]

Section 241

Section 241 of the Companies Act, 2013- A Critical Analysis

INTRODUCTION

Although it is well known that the administration of a company is entirely based on the concept of majority rule, it is also well known that the concerns of the minority cannot be entirely disregarded. When we speak about the majority and the minority, it is important to make it clear that we are referring to the voting power of each group. This distinction arises due to the fact that a very small number of shareholders may have majority ownership, despite the fact that the majority of shareholders may only individually own a relatively little part of the total share capital. Once in power, a majority may do anything they want with the firm without much fear of repercussions, since they can simply ignore any questions raised about their decisions at the next general meeting and still get their way. When a resolution receives a majority vote, it becomes legally binding for all of the members. As a direct result of this, the court will often not intervene to safeguard the interests of the minority group when those interests are threatened by a decision.

In this blog, we address oppression and bad management, therefore it’s important to reference the landmark ruling that makes the former rare and the latter uncommon.

In light of the above, the pressing question that arises is, “What exactly are oppression and  mis management?” According to the Companies Act, 2013 (the “Act”), “oppression” occurs when a firm operates in a way that violates the best interests of the general public and the fundamentals of fair dealing, when it imposes novel and challenging goals that the opposing faction of shareholders objects to, when a member is denied membership, when an excessive or onerous burden is placed on a member, and when a member is the target of oppressive acts. On the other hand, the concepts of oppression and mismanagement lack a universally accepted meaning.

NCLT APPLICATION:

The Hon’ble National Company Law Tribunal (hereinafter referred to as “Tribunal”), which possesses the necessary authority, may be contacted in order to file a complaint against the actions of the majority shareholders as an immediate remedy for the oppressive behaviour described in the previous section.

  1. Prerequisites for the submission of an oppressive application are as follows:

The applicant must hold at least 10% of the total issued capital in order to be eligible to make a claim of oppression and mismanagement, represent 20% or more of the members, or have the support of at least 100 members of the firm. The Tribunal has the discretionary right to waive any or all of the aforementioned restrictions in order to make it possible for the members to submit an application. However, it is crucial to remember that a member who has unpaid calls or other amounts owed on their shares or who is only a share warrant holder is unable to submit an application on the grounds of oppression and mismanagement. This is because these members have not met the requirements to be considered eligible to file an application on these grounds.  This is owing to the fact that these members’ calls and/or other amounts that are due on their shares have not been paid.

Additionally, the Central Government now has the power to file a complaint against such a person, refer it to the Tribunal, and ask it to conduct an investigation and determine whether or not the defendant is qualified to hold the office of director or any other position related to the conduct and management of any company. Additionally, the Central Government has been granted the power to bring a legal action against such a person and then send that matter to it. The Central Government is now in charge of acting in this capacity. Additionally, the Central Government has been given the authority to do so.

  1. The steps that must be taken in order to comply with the requirements of an application asserting oppression:

The following information is important to keep in mind and adhere to in the event that any of the qualifying candidates have the intention of submitting an application based on grounds of oppression in accordance with section 241 of the Act. These are the grounds for which an application can be submitted:

  1. The application must be submitted in accordance with the guidelines outlined inForm 1 of the 2016 National Company Law Tribunal Rules.The application must be explicit on the facts, specifics, and information provided by the applicants or respondents. To be considered valid, an application must include the following: a statement of any restriction, the circumstances of the case, and the remedy demanded; evidence that the application satisfies the requirements for establishing the jurisdiction of the Tribunal; and a receipt showing that you paid the application fee, which is Rs. 10,000/- as of the day this article was written.

When discussing the reliefs that have been requested, it is essential to separate them into two distinct categories: (i) main reliefs, which refer to the reliefs that the applicant requests from the Tribunal as the final order; and (ii) interim reliefs, which refer to the reliefs that the applicant wishes to request during the course of the case.

When one or more qualified members of a company submit an application on their behalf, the other members must sign a letter of consent authorizing the applicant or applicants to present the application on their behalf. The letter of consent must also list the names and addresses of all the members on whose behalf the application is being presented. The company will be deemed to have satisfied its eligibility criteria if an application is submitted on behalf of any qualified members of a business by any one or more of those members.

  1. The Rules have very precisely outlined the criteria for the structure of the application’s contents, in addition to the need that it be written in English .
  2. It is crucial to submit the application with the necessary supporting documentation, such as the applicant’s Memorandum of Association, Articles of Association, and Share Certificates, furthermore to affidavits certifying to the veracity of the application’s information and its annexes. It is vital to attach any and all pertinent documents to the application, as they will serve as proof to the claims that have been made. The evidences that are presented to support the application might either be in the form of verbal testimony, written documentation, or electronic information . On the other hand, the Tribunal puts a greater importance on evidence that is given either in writing form or via the use of technological means
  3. It is strongly suggested that all of the documents, including the annexures but omitting the Board Resolution, that need to be filed in order to apply for a job be printed on green ledger paper only with a single-sided orientation. On the other hand, the Board Resolution must be printed on firm’s letterhead and fully signed by the authorized representative. Along with two copies of the application, the original must be submitted to the Tribunal’s register. The Board Resolution should be printed on the firm letterhead if it is necessary.
  4. Once the application has been properly and successfully filed without including any problems, it is assigned a number and put on a list for a hearing. During the hearing, the first thing that the Tribunal does is decide whether or not the applicant fulfils the conditions that are required in order to submit the application. If the Hon’ble Tribunal finds that the applicant meets the necessary criteria, it will continue with the matter and schedule further pleadings and hearings.
  5. The Hon’ble Tribunal will often request written arguments from the parties based on the oral arguments presented in court after the pleadings and oral arguments are concluded, and then reserve the matter for orders.

It is vital that all required paperwork be submitted to the Tribunal during the pleading stage itself and prior to the start of the arguments since the Tribunal has the authority to reject any document the parties intend to submit during the argument stage.  Additionally, in the event that any party wishes to file any documents pertinent to the case after the completion of the pleadings or during the arguments, the party shall be required to acquire the prior consent of the Tribunal by filing an interlocutory application.

Using a Judicial Approach to Oppression:

The Indian Supreme Court ruled that shareholders who bring complaints against a firm must show that the company has materially deviated from the norms of its dealings and has breached requirements of fair play upon which each shareholder may reasonably depend. If a member is being oppressed, the complaining member must be able to show that it is exclusively because of their membership status. This does not include minor disagreements between board members or members, or a lack of trust between a subset of members and the rest of the membership in regards to policy and administration.

When Life Insurance Corporation acquired a different company’s life insurance business in1956, the company’s directors, who held the majority of voting rights, decided not to distribute the proceeds to shareholders but instead passed a special resolution altering the company’s objectives and allocating the compensation funds to the new objectives. Therefore, the dominant shareholders compelled the minority owners to put their money into an unpopular line of work. The Calcutta High Court ruled that the law was too restrictive and would hurt the company and its minority shareholders.

The following events have also been judged oppressive by courts and tribunals.

  • Misappropriation of funds;
  • Fraud;
  • Violating laws or the AOA;
  • Preventing directors from doing their jobs;
  • Appointing an improper director or improperly distributing shares to dilute other members and achieve dominance.

Conclusion:

Despite the fact that the process may be lengthy and take years to complete, the laws of oppression have played a significant role in limiting the authority and actions of majority members of a corporation to guarantee fair and effective governance. This has been done to ensure that corporations are governed in a fair and effective manner. It is recommended that Section 241 of the Act be revised to include stringent deadlines in order to prevent abuses by a limited number of parties who want to slow down the process using a variety of justifications.

AUTHORED BY: SIDDHANT MANCHANDA

Image Source

Leave a Comment

Your email address will not be published. Required fields are marked *