When majority shareholders act in a manner that is not in the best interest of the company and is violating the Articles of Association (AOA), Memorandum of Association (MOA), and provisions under the Companies Act, then it gives rise to oppression and mismanagement.

Oppression

Section 241 of the Companies Act (“Act”), 2013 (pari materia with its precursor Section 397 of the 1956 Act) gives respite to the oppressed minority. Essentially, oppression denotes abuse of power. This section does not define oppression, it is left to courts to ascertain whether “oppression” under this section has been committed or not as per facts and surrounding circumstances of each case. Although the word “oppressive” has not been defined under the section, it is imaginable, to chart out a case in which majority shareholders abuse their principal voting power, are “treating the company and its affairs as if they were their property” to the detriment of the minority shareholders.[i] 

The Supreme Court has substantially clarified the scope of making an oppression claim by the guidelines laid down in the case of V.S. Krishnan v. Westfort Hi-tech Hospital Ltd.[ii]The Supreme Court in this case, after analyzing several case laws, shed light on the circumstances in which a claim against oppression can arise:

1. Where the act is harsh, burdensome, and wrong.
2. Where the act is mala fide and is for a collateral purpose where although the ultimate objective may be in the interest of the company, the immediate purpose would lead to a benefit for some shareholders as compared to the others.
3. The act is against integrity and good conduct.
4. The claim of oppression may be fully permissible under law but may yet be oppressive. The test as to whether an action is oppressive or not is not on the basis of whether it is legally permissible or not since even if legally permissible, if the conduct is otherwise against integrity, good conduct or is burdensome, harsh or wrong or is mala fide or for a collateral intent.
5. When the act is realized to be oppressive, the discretionary power is given to the Company Law Board to set right, remedy, or quash such oppression is pervasive. (Under Companies Act, 2013, this function of Company Law Board has now been transferred to NCLT and NCLAT, having greater powers than the former).
6. What constitutes oppression is a question of fact and, therefore, whether an act is oppressive or not is essentially a question of fact.[iii]

Mismanagement

The remedy against mismanagement contained in Section 241(1)(b) of the 2013 Act applies when two conditions are fulfilled.  

First, when there is a substantial change in the management or control of the company, which could occur in various ways including alteration of the board, manager, or ownership of the company (the cause). Second, when such change is the reason that the company conducts its affairs in a manner that is prejudicial to the interests of the company or its shareholders (the effect). 

The courts have observed that the mismanagement remedy has a much wider ambit than the oppression remedy.

Conclusion

The Companies Act provides the minority shareholders a right to approach the Tribunal to seek several reliefs against the company or the majority shareholders in a Company.[iv] Application made against a claim of oppression, prejudice, and mismanagement under Section 241, is heard and decided by the Tribunal under powers given to such body under Section 242 of the Companies Act, 2013.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.