In India, the Companies Act of 2013 (hereinafter referred to as "Act") plays a
vital role in regulating corporate affairs, emphasizing transparency, and
ensuring the effective operation of business entities. This significant
legislation is a manifestation to establishing a resilient and accountable
corporate sector, crucial for economic progress in the ever-changing global
Chapter XVI of the Act which encompasses Sections 241 to 246[i], addresses
grievances related to corporate oppression and mismanagement. However, chapter
XVI neither provides clear definitions nor clarifies what precisely constitutes
"oppression" and "mismanagement". This article focuses on the complexities
surrounding the interpretations of oppression and mismanagement pertaining to
Statement Of Problem
The Act is the cornerstone of corporate governance in India. However the Act
refrains from offering precise and unambiguous definitions of "oppression" and
"mismanagement." The absence of clear definitions in the Act has considerable
consequence, as it fosters a range of interpretations and raises concerns about
the understanding and application of these terms in practice.
While the Act does prescribe remedies for addressing oppression and
mismanagement, the absence of explicit definitions has given rise to intricate
legal disputes and ambiguities.
Chapter XVI - Prevention of Oppression and Mismanagement: An In-depth Look
Sections 241 to 246 of the Act, constitute provisions to tackle issues relating
to corporate oppression and mismanagement. A summary of the salient features of
each of these sections are provided herein below:
Section 241 - Seeking Tribunal Relief for Allegations of Oppression or
Section 241 of the Act states "Application to Tribunal for relief in cases of
oppression, etc[ii].". This provision allows any member of a business entity to
approach the tribunal if they suspect that the company's activities are
negatively affecting public interest, the interests of the company, its members,
or if there has been a substantial change in its management likely to have
Section 242 - Authority of Tribunal and Remedial Measures
Section 242 of the Act states "Power of Tribunal[iii]" This provision states
that once a petition is filed under Section 241 of the act, the tribunal
possesses the authority to take various actions to resolve the matters in
dispute. These actions may include regulating the future conduct of the company,
facilitating the purchase of shares, reducing share capital, imposing
constraints on share transfers, revising agreements, dismissing directors,
recovering gains, and determining appropriate costs.
Section 243 - Ramifications of Altering or Abrogating Specific Agreements
Section 241 of the Act states "Consequences of termination or modification of
certain agreement[iv]" This section states the consequences when the tribunal
terminates, sets aside, or modifies agreements mentioned in section 242. The
section explicitly states that these actions do not give rise to any claims
against the company. Furthermore, it prohibits directors or managers affected by
such actions from assuming similar roles without the tribunal's consent for a
specified period. Failure to comply with these provisions attracts penalties.
Section 244 - Applications under Section 241
This section states who possesses the right to file an application under Section
241[v]. For companies with share capital, this includes a minimum of one hundred
members or one-tenth of the total members, or members holding one-tenth of the
issued share capital. In companies without share capital, the threshold is not
less than one-fifth of the total members. The section also outlines
circumstances under which the tribunal may waive these requirements at its sole
Section 245 - Class Action [vi]
This Section empowers members or depositors who perceive prejudicial conduct in
a company's management to file applications on behalf of these groups. The
applications may seek diverse orders, including restraining the company from
unlawful acts, voiding resolutions, claiming damages, and more. This section
defines the necessary number of members or depositors for such applications and
establishes a structured procedural framework.
Section 246 - Extending Specific Provisions to Proceedings under Sections 241
This section ensures that specific provisions (sections 337 to 341) are applied
with necessary modifications to proceedings under sections 241 and 245, ensuring
a consistent legal framework for these proceedings.
In summary, these statutory sections within the Act furnish a legal framework
for addressing and redressing instances of oppression and mismanagement within
companies. These sections offer remedies and guidelines for seeking relief from
the tribunal, with a primary objective of protecting the interests of members,
depositors, and the general public when confronted with corporate malpractice.
However, the term "oppression" or "mismanagement" are still not defined under
Judicial Interpretation Of Oppression And Mismanagement
The Act does not explicitly define the term "oppression," but courts have
provided valuable insights into its meaning and scope. Similarly,
"mismanagement" lacks a clear definition within the Act but can be understood as
conducting a company's affairs in a prejudicial, dishonest, or inept manner.
This judicial interpretations of these terms, drawing on landmark cases, such as
Tata Consultancy Services Limited v. Cyrus Investments Pvt. Ltd. & Ors,[viii]
provide a comprehensive analysis and are listed as follows:
Oppression, as interpreted through various court judgments, primarily involves
conduct that violates the conditions of fair play and fair dealing, that a
shareholders should reasonably expect when entrusting their investments to a
The case of Elder v. Elder & Watson Ltd.[ix] provides insight, suggesting that
oppression requires more than a mere loss of confidence or a deadlock; it
necessitates a visible departure from fairness. In Elder v. Elder & Watson Ltd.,
the court stated that oppressive conduct should encompass "a violation of the
conditions of fair play", highlighting that mere disagreements or management
disputes do not necessarily constitute oppression.
To be considered oppressive,
conduct must be burdensome, harsh, and wrongful. This was reaffirmed in Scottish
Coop. Wholesale Society Ltd. v. Meyer[x], where the House of Lords emphasized on
the meaning as "burdensome, harsh, and wrongful" conduct.
The Halsbury's Laws of England, 4th Edition, further clarifies that oppression
should involve a continuing course of oppressive conduct, specifically directed
at the petitioner in their capacity as a member. It necessitates an element of
lack of probity or fair dealing concerning the petitioner's proprietary rights
as a shareholder. In essence, it should not merely entail inefficient or
In the Needle Industries case[xi], it was clarified that technically legal and
correct conduct may justify relief under the just and equitable jurisdiction.
Conduct involving illegality or contravention of the Act may not be sufficient
for relief. It is crucial to establish a pattern of continued oppression rather
than isolated acts to warrant legal intervention.
While the Act, does not explicitly define mismanagement, it can be characterized
as the conduct of a company's affairs in a prejudicial, dishonest, or inept
manner. Section 241 sub clause 1 of the Act provides a framework for addressing
mismanagement, stating that it involves actions detrimental to the public
interest, the shareholders, or the company itself.
In the context of mismanagement, the case of Tata Consultancy Services Limited
v. Cyrus Investments Pvt. Ltd. & Ors. sheds light on the intricacies of the
term. This case revolved around the removal of Mr. Cyrus Mistry from various
directorships within the Tata Group by a resolution of the companies' Board of
Directors and at shareholder meetings. Subsequently, Cyrus Investments Private
Limited and Sterling Investment Corporation Private Limited filed a complaint
under Sections 241, 242, and 243, alleging prejudice, oppression, and
- Findings of the case of Tata Consultancy Services Limited v. Cyrus
Investments Pvt. Ltd. & Ors.
The landmark judgment highlights several critical aspects of the judicial
interpretation of oppression and mismanagement. The aspects are as follows:
- Directorship Removal and Oppression
The court emphasized that mere removal from a directorship position is
insufficient to establish a case of oppression and mismanagement. The National
Company Law Tribunal (NCLT) can dismiss such complaints. However, relief under
Section 242 can be granted if the removal is part of a larger design to oppress
or prejudice the interests of some members.
- Winding Up
The court clarified that winding up a company due to findings of oppression and
mismanagement is only warranted when there is a justifiable lack of confidence
in the conduct and management of the company's affairs. A mere lack of
confidence between majority and minority shareholders is not sufficient to
trigger such action.
- Limited Reinstatement Powers
Sections 241 and 242 do not provide the tribunal with the power of
reinstatement. The court highlighted that its role is to examine past conduct or
ongoing conduct but cannot address apprehensions of future misconduct based on
the company's articles.
In the realm of corporate law, the judicial interpretation of the terms
"oppression" and "mismanagement" in India is a nuanced and evolving process. The
interpretation focuses on a wrongful conduct and a sustained pattern of
oppression, while mismanagement revolves around prejudicial, dishonest, or inept
conduct in company affairs. The Tata Consultancy Services Limited case, with its
detailed analysis, clarified several crucial aspects of these terms, providing
guidance to both legal practitioners and the business community.
Understanding these interpretations is vital for shareholders and stakeholders
in companies, as it determines when they can seek legal remedies under the Act.
It also underscores the importance of distinguishing between genuine cases of
oppression and mismanagement and mere disputes or disagreements within corporate
entities, ensuring the efficient and equitable functioning of businesses in the
- Findings of other cases in the Indian law
Several cases in India provide crucial insights into the interpretation on
oppression and mismanagement within the corporate context. The judgments of
various cases, such as Shanti Prasad Jain v. Kalinga Tubes[xii], Sangramsinh P.
Gaekwad v. Shantadevi P. Gaekwad[xiii], Needle Industries (India) Ltd. v. Needle
Industries Newey (India) Holding Ltd., Cyrus Investments Pvt. Ltd. v. Tata Sons
Ltd., Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co.
Ltd.[xiv], and Power Finance Corpn. Ltd. v. Shree Maheshwar Hydel Power Corpn.
Ltd[xv]., collectively shed light on oppression and mismanagement within the
- Defining Oppression:
In the case of Shanti Prasad Jain v. Kalinga Tubes, the concept of oppression
was elucidated. The judgment outlines that oppression involves conduct that, at
the very least, signifies a visible difference from the standards of fair
dealing. It underscores the violation of the conditions of fair play, that every
shareholder expects when investing in a company. This definition emphasizes that
mere disagreements or management disputes do not qualify as oppression. Rather,
it necessitates conduct that is burdensome, harsh, and wrongful.
Similarly in the case of Needle Industries (India) Ltd. v. Needle Industries
Newey (India) Holding Ltd. the court stated that oppressive conduct should
encompass actions that are burdensome, harsh, and wrongful. Section 397[xvi] of
the Act states that all affairs of the company shall be conducted fairly and in
good faith. Not every illegality can be deemed oppressive, but when illegal acts
form a part of a sequence designed to cause oppression, they fall under the
purview of the law. It's important to note that isolated unlawful acts may not,
by themselves, support the inference of oppression.
- Continuity in Oppression:
The case of Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad highlights the
importance of demonstrating a continuous oppressive act by the majority
shareholders of a company, suggesting that oppressive behaviour persists until a
petition is filed. The crucial criterion is that the company's affairs are being
conducted in a manner that is oppressive to its shareholders.
Although the Act does not provide a clear definition of mismanagement, several
cases have delineated its characteristics. In the case of Cyrus Investments Pvt.
Ltd. v. Tata Sons Ltd., it was noted that the core concern in oppression and
mismanagement cases is the unfairness and prejudice that could harm the
interests of company members. Companies primarily aim to generate profits, and
"interest" here refers to the economic interests of the members.
In the case of Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills
Co. Ltd. the court further clarifies the preventive nature of remedies provided
under Sections 397 and 398 of the Act. The aim is to halt oppression and
mismanagement by controlling shareholders, preventing their continuation to the
detriment of the aggrieved shareholders or the company. These remedies do not
empower aggrieved shareholders to undo actions already taken by controlling
shareholders in managing the company.
- Temporal Aspects:
In the case of Power Finance Corpn. Ltd. v. Shree Maheshwar Hydel Power Corpn.
Ltd. the court states the temporal aspects of oppression and mismanagement.
Under Section 241 of the Companies Act, 2013, the expressions "have been" and
"are being conducted" are used. "Have been" pertains to past acts that continue
into the present. In contrast, "are being conducted" refers to ongoing conduct.
The Indian judiciary has provided significant clarity on the terms "oppression"
and "mismanagement." Oppression is characterized by a departure from fair play,
with conduct that is burdensome, harsh, and wrongful. Mismanagement pertains to
unfair or inept conduct that harms the economic interests of company members.
Continuity in oppressive conduct and temporal aspects play pivotal roles in
establishing cases of oppression and mismanagement. These case judgments
collectively provide a comprehensive understanding of these legal principles
within the Indian corporate framework.
In the intricate landscape of corporate governance in India, the Act serves as a
beacon of regulation, promoting transparency and accountability. Within this
legislative framework, Chapter XVI addresses the pressing issues of corporate
oppression and mismanagement. However, it notably refrains from providing
explicit definitions of these pivotal terms, creating a realm of legal
uncertainty and debate.
These terms, despite their absence in the Act, carry significant weight in the
corporate domain. The complexity arises from the fact that their interpretation
lies at the intersection of law, equity, and commerce. The judiciary has
elaborated that oppression, entails more than mere disagreement; it involves a
visible departure from the standards of fair dealing, signifying burdensome,
harsh, and wrongful conduct.
These judicial interpretations highlight the
importance of a sustained pattern of oppressive behaviour, as opposed to
isolated incidents, as a prerequisite for legal intervention.
the Act does not offer a precise definition of mismanagement, the courts have
sketched its characteristics as the conduct of a company's affairs in a
prejudicial, dishonest, or inept manner. This conduct ultimately jeopardizes the
economic interests of stakeholders.
The landmark case of Tata Consultancy
Services Limited v. Cyrus Investments Pvt. Ltd. & Ors. unravelled critical
aspects of the judicial interpretation of oppression and mismanagement. It
emphasized that removal from directorship alone does not establish a case of
oppression and mismanagement. Moreover, winding up a company due to findings of
oppression and mismanagement necessitates a justifiable lack of confidence in
the management of the company's affairs.
In conclusion, the ambiguity surrounding the definitions of oppression and
mismanagement, while seemingly a legislative shortcoming, has prompted a dynamic
evolution in Indian corporate law. The judiciary has meticulously carved these
concepts, emphasizing fairness, wrongful conduct, and a sustained pattern of
oppression. These interpretations serve as a guiding light for shareholders and
stakeholders, ensuring that remedies under the Companies Act are invoked
judiciously and efficiently.
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- 1952 SC 49
- [l958] 3 All E.R. 66, H.L., also reported in  3 W.L.R. 404.
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