To begin1, Although Company Law 2013 does not define the word "oppression," a
court of law has described it as "activity that constitutes a noticeable
deviation from the rules of fair dealing and a violation of criteria that demand
fairness - particularly with regard to shareholder rights."
Mismanagement has no precise definition in the act, although it can be defined
as handling business operations in a prejudiced, dishonest, or inefficient
manner. When members are subjected to persecution and the firm is mismanaged,
Sections 241 to 246 provide the necessary remedies.
An oppression remedy is a legal right afforded to aggrieved shareholders under
Commonwealth nations' corporate law. It allows shareholders to file a lawsuit
against the corporation in which they own stock if the company's actions have an
oppressive, unfairly prejudiced, or unfair disregard for a shareholder's
interests. It was enacted in reaction to the decision in Foss v Harbottle, which
found that if a company's acts are confirmed by a majority of its shareholders,
the courts would typically not intervene.
It has been widely seen in companies' legislation throughout the Commonwealth,
- The Canada Business Corporations Act
- The Corporations Act 2001 of Australia
- The Companies Act 1993 of New Zealand
- The Companies Act, 2008 of South Africa
- The Companies Act of Singapore
- The Companies Act 1965 of Malaysia
The Companies Ordinance of Hong Kong also contains similar provisions.
In India, The Companies Act of 2013 is an Act of the Indian Parliament governing
Indian company law that defines the formation of a company, its obligations, its
directors, and its dissolution. The Companies Act of 2013, Section 241to246,
lays forth the measures for effectively dealing against oppression and
mismanagement in a corporation.Truthbetold,The principle of majority rule is at
the heart of corporate democracy.
The rule of Foss v Harbottle
the principle of majority, which stated that individual shareholders have no
cause of action in law for any wrongdoing by the corporation, and that any
action brought in respect of such losses must be brought by the corporation
itself or through a derivative action.While majority rule is the norm, minority
rights are frequently overlooked.The goal is to achieve a balance between
small/individual shareholders' interests and the company's effective control. As
a result, sections 241 to 246 of the Indian company legislation of 2013 have
been enacted to protect minority interests.
For the purpose of this paper, I will focus on the Canada Business Corporations
Act and compare it to its Indian counterpart.
The Canada Business Corporations Act2 is a piece of legislation passed by the
Canadian Parliament that governs Canadian corporations. Corporations in Canada
can be formed either at the federal level, under the CBCA, or at the provincial
level, under a corresponding provincial statute.
A "complainant" has the right to sue a company 4under section 241 of the CBCA if
the corporation's actions are oppressive, unduly detrimental, or neglect the
interests of a shareholder, creditor, director, or officer. The "oppression
remedy" is the name given to this right. Courts and pundits have interpreted the
oppression remedy as imposing a broad norm of "fair" behaviour on each CBCA
business and its management. When this norm is broken, complainants may petition
the court for an injunction to stop the oppressive behaviour. The court has the
authority to issue whatever order it sees proper, including monetary damages,
appointing a receiver, dissolving the business, ordering the acquisition of
securities, and changing the organization's charter papers.
This research paper aims to compare and investigate the company laws of India
and Canada with regards to the concept of prevention of oppression and
mismanagement within companies and thus find out weaknesses in the Indian laws
which need to be corrected.
- What are the concepts and ways by which the Canadian law is better drafted than
the Indian law?
The notion of oppression and mismanagement was first established in Section
153-C (1) (a) of the Companies Act, 1913, which was amended in 1951 and was
encircled with the concept of oppression to "part of the company's
shareholders." The English Companies Act, 1948, introduced this notion into
Indian law, stating that any dispute between a business and its shareholders may
only be settled by winding up the firm.
However, in certain cases, this was
found to be insufficient, prompting the Cohen Committee in England to urge that
the idea of oppression be introduced as an alternative remedy. The same logic
applies in Indian law, where this remedy was established by section 397 of the
old Companies Act, 1956, which is now known as the Companies Act, 2013 ("the
Act, 2013"). Under section 241 of the Act, the idea of oppression and
mismanagement is clarified in Chapter XVI under the heading "Prevention of
oppression and mismanagement."
The phrases 'oppression' and 'mismanagement' are not defined anywhere in the Act
of 2013. Oppression, on the other hand, is defined as an act "when the company's
operations are managed in a way prejudicial to the public interest, oppressive
to members, or prejudicial to the company's interests" and mismanagement, which
is prosecuted "where it is shown that the company's operations are being handled
in a manner harmful to the business or the public interest, or by reason of a
change in the company's control."
A large and growing body of literature has investigated and tried to understand
The Companies Act of 2013, Specifically Section 241to246, which lays forth the
measures for effectively dealing against oppression and mismanagement in a
corporation, and its scope and comparisons with laws of other countries.
In 2011, Shital Jhunjhunwala published a paper in which she said "While the
rights of shareholders as owners of company is paramount, it is equally true
that the interest of shareholders and other stakeholders (mangers, employees,
customers, financers, suppliers, governments and society) is inter-woven. The
interest of shareholders is served only when the well being of other
stakeholders is taken care of. Power brings with it responsibility.
rights empowered to shareholders obligate them to discharge their responsibility
of protecting the interests of the company and all its stakeholders. As owners
of the company, shareholders are a principal player in both the company's
governance and business and must be actively involved in the company. Some have
even suggested that postal or electronic ballot be made compulsory for some
critical matters like sale of whole or substantial part of the undertaking.
There has been considerable opinion that active role of institutional holders
who have both the means (financial and intellectual) and the power (voting) to
do so would improve corporate governance and protect the interest of
shareholders, particularly the minority shareholders."
In 2018, Sadhana et al. published a paper in which they did a Study on the
Oppression of the Minority Shareholders in India with Reference to the Majority
Rule in which they said " The rule in Foss v. Harbottle is actually rule of
majority supremacy. It means that once a resolution is passed by the majority,
it is binding on all the members. This principle was earlier considered as the
symbol of democracy. But as far as India is concerned, this principle stands
diluted and is not followed in its strict sense.
The Companies Act of 1956 gave some provisions to protect the minority
shareholders from the majority shareholders. It was the first step taken by the
legislature to recognize the rights of the minority shareholders in India. In
the Companies Act, 1956, the minority shareholders were not considered as a
major part of the company due to the suppression by the majority in the company.
But Companies Act of 2013 has taken various crucial steps to safeguard the
interest of the minority rights of the shareholders in the company irrespective
of the existence of oppression and mismanagement of the company affecting the
of the minority shareholders. It can also be ascertained that the core intention
of the legislation is to safeguard the interests of the minority shareholders.
But the challenge to this is the enforcement of these rights. The minority
shareholders‟ rights guarantee proper administration only when it is implemented
successfully by giving importance to the minority shareholders in the management
of the company.
Another major flaw in the Companies Act of 2013 is that the
numerical threshold that is mentioned under Section 244 of the Companies Act of
2013. While it is understood that there should be some filters to ensure that
frivolous suits are not filed and the Court‟s time is not wasted, it is
difficult to meet the requisite number mentioned. This came into light after the
recent Tata and Cyrus Mistry conflict where the Mistry group‟s plea was
initially rejected as they did not fulfill the numerical threshold.
power of waiver is given to the NCLT, there is no clarity on when the NCLT can
exercise that right and what is the criteria for the same. Generally, having
filters for direct actions such as for oppression, which the shareholders bring
in their own names and to assert their rights (rather than that of the company),
goes against the spirit of corporate law and also ends up enfeebling the
The introduction of class action suit is one step in the right direction.
Efforts must be taken to create awareness regarding the same, so that the
affected parties use this mechanism and get justice. This will also lead to
reduction in the number of lawsuits since it has allowed a group of people to
file the case against one defendant on common grounds. Further, the companies
have started taking steps to ensure that the rights of the minority shareholders
are not violated. The concept of „piggybacking‟ is being followed presently.
Accordingly, if the majority sells their shares then the minority shareholder
right has to be included in the deal. Moreover, it also requires the party to
consider the purchase of the business, in order to sell 100% of the outstanding
Two years later, In 2020, Umakanth Varottil. published a paper in which he said
"The oppression, prejudice and mismanagement provisions in sections 241 and 242
continue to form the mainstay of shareholders remedies under Indian company law.
Anecdotal evidence suggests that reliance by petitioning shareholders on these
remedies far exceed other shareholder remedies such as derivative actions and
class actions.118 Despite nearly 70 years of legislative and judicial activity
seeking to shape the contours of the oppression, prejudice and mismanagement
remedies, a number of concerns remain.
English law has witnessed reforms to
mitigate the harshness of the oppression remedy by transitioning to the concept
of unfair prejudice and jettisoning the conditional limb to make it a standalone
remedy. However, while Indian law has sought to expand the remedies by retaining
the concept of mismanagement and introducing the notion of prejudice, the fact
that as a species they cohabit with the continued existence of the oppression
remedy may have the effect of muddying the waters. More importantly, the
conditional limb necessitates that the petitioning shareholders establish the
grounds for just and equitable winding up, which limits the scope of the remedy
Last year, in 2021, Anirudh Grover published a paper in which he said "The
regulatory authority should be proactive in creating an investor friendly
environment. The statutory and regulatory provisions should focus more on
minority shareholder rights and empower them to influence the overall decision
making which is beneficial for both viz the company and the investors.
governance and secretarial standards are mechanisms that should be undertaken by
all firms, thereby building and boosting investors trust and confidence in the
management of the company. Since investor's money contributes highly to the
operation of business, protection of minority shareholders should have paramount
importance. Concentrated shareholding which is not bona fide should be prevented
at all instances."
Overall, these studies provide important insights into the Indian law with
regards to prevention of oppression and mismanagement and highlight the need for
better drafted and more broad-based laws, that leave no room for bad
interpretation and abuse of discretion by bodies such as the NCLT.
The Relevant Laws In Question
- Canada Business Corporations Act (R.S.C., 1985, c. C-44)
Application to court re oppression 3
Companies Act 2013
- A complainant may apply to a court for an order under this section.
If, on an application under subsection (1), the court is satisfied that
in respect of a corporation or any of its affiliates:
that is oppressive or unfairly prejudicial to or that unfairly disregards the
interests of any security holder, creditor, director or officer, the court may
make an order to rectify the matters complained of.
- any act or omission of the corporation or any of its affiliates effects a
- the business or affairs of the corporation or any of its affiliates are
or have been carried on or conducted in a manner, or
- the powers of the directors of the corporation or any of its affiliates
are or have been exercised in a manner
- Powers of court
In connection with an application under this section, the court may make any
interim or final order it thinks fit including, without limiting the
generality of the foregoing:
- An order restraining the conduct complained of;
- An order appointing a receiver or receiver-manager;
- An order to regulate a corporation's affairs by amending the articles or
by-laws or creating or amending a unanimous shareholder agreement;
- An order directing an issue or exchange of securities;
- An order appointing director in place of or in addition to all or any of the
directors then in office;
- An order directing a corporation, subject to subsection (6), or any other
person, to purchase securities of a security holder;
- An order directing a corporation, subject to subsection (6), or any other
person, to pay a security holder any part of the monies that the security holder
paid for securities;
- An order varying or setting aside a transaction or contract to which a
corporation is a party and compensating the corporation or any other party to
the transaction or contract;
- An order requiring a corporation, within a time specified by the court, to
produce to the court or an interested person financial statement in the form
required by section 155 or an accounting in such other form as the court may
- An order compensating an aggrieved person;
- An order directing rectification of the registers or other records of a
corporation under section 243;
- An order liquidating and dissolving the corporation;
- An order directing an investigation under Part XIX to be made; and
- An order requiring the trial of any issue.
- Duty of directors
If an order made under this section directs amendment of the articles or
by-laws of a corporation,
- the directors shall forthwith comply with subsection 191(4); and
- no other amendment to the articles or by-laws shall be made without the
consent of the court, until a court otherwise orders.
A shareholder is not entitled to dissent under section 190 if an amendment
to the articles is effected under this section.
A corporation shall not make a payment to a shareholder under paragraph
(3)(f) or (g) if there are reasonable grounds for believing that:
- the corporation is or would after that payment be unable to pay its
liabilities as they become due; or
- the realizable value of the corporation's assets would thereby be less
than the aggregate of its liabilities.
- Alternative order
An applicant under this section may apply in the alternative for an order
under section 214.
Section 241. Application to Tribunal for relief in cases of oppression, etc
Section 244. Right to apply under section
- Any member of a company who complains that:
- the affairs of the company have been or are being conducted in a manner
prejudicial to public interest or in a manner prejudicial or oppressive to
him or any other member or members or in a manner prejudicial to the
interests of the company; or
- the material change, not being a change brought about by, or in the
interests of, any creditors, including debenture holders or any class of
shareholders of the company, has taken place in the management or control of
the company, whether by an alteration in the Board of Directors , or
manager, or in the ownership of the company's shares , or if it has no share
capital, in its membership, or in any other manner whatsoever, and that by
reason of such change, it is likely that the affairs of the company will be
conducted in a manner prejudicial to its interests or its members or any
class of members, may apply to the Tribunal , provided such member has a
right to apply under section 244, for an order under this Chapter.
- The Central Government, if it is of the opinion that the affairs of the
company are being conducted in a manner prejudicial to public interest, it
may itself apply to the Tribunal for an order under this Chapter.
Provided that the applications under this sub-section, in respect of such
company or class of companies, as may be prescribed, shall be made before the
Principal Bench of the Tribunal which shall be dealt with by such Bench.
- Where in the opinion of the Central Government there exist circumstances
- any person concerned in the conduct and management of the affairs of a
company is or has been in connection therewith guilty of fraud, misfeasance,
persistent negligence or default in carrying out his obligations and
functions under the law or of breach of trust;
- the business of a company is not or has not been conducted and managed
by such person in accordance with sound business principles or prudent
- a company is or has been conducted and managed by such person in a
manner which is likely to cause, or has caused, serious injury or damage to
the interest of the trade, industry or business to which such company
- the business of a company is or has been conducted and managed by such
person with intent to defraud its creditors, members or any other person or
otherwise for a fraudulent or unlawful purpose or in a manner prejudicial to
public interest, the Central Government may initiate a case against such
person and refer the same to the Tribunal with a request that the Tribunal
may inquire into the case and record a decision as to whether or not such
person is a fit and proper person to hold the office of director or any
other office connected with the conduct and management of any company.
- The person against whom a case is referred to the Tribunal under
sub-section (3), shall be joined as a respondent to the application.
- Every application under sub-section (3):
- shall contain a concise statement of such circumstances and materials as
the Central Government may consider necessary for the purposes of the
- shall be signed and verified in the manner laid down in the Code of
Civil Procedure, 1908, for the signature and verification of a plaint in a
suit by the Central Government.
- The following members of a company shall have the right to apply under
section 241, namely:
Provided that the Tribunal may, on an application made to it in this behalf,
waive all or any of the requirements specified in clause (a) or clause (b) so as
to enable the members to apply under section 241.
- in the case of a company having a share capital, 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;
- in the case of a company not having a share capital, not less than
one-fifth of the total number of its members:
For the purposes of this sub-section, where any share or shares are held by two
or more persons jointly, they shall be counted only as one member.
- Where any members of a company are entitled to make an application under
subsection (1), any one or more of them having obtained the consent in
writing of the rest, may make the application on behalf and for the benefit
of all of them.
In the present paper, after an in-depth perusal of both the laws, One aspect of
difference sticks out like a sore thumb. It highlights the inefficiency of the
Indian law with regards to protecting the interests of minority shareholders, so
that they don't face undue bias or prejudice.
The aspect I want to point out is with regards to who all can apply for an order
from the court with regards to oppression and mismanagement.
Accordingtosection241(2)oftheCBCA,A current or former registered security
holder, a current or former director or officer, the Director5 designated under
the CBCA, or "any other person who, in the judgement of a court, is a suitable
person to submit an application under this Part" is considered a "complainant"
under Canadian company law. A creditor of the corporation (albeit not every
creditor would qualify), as well as a trustee appointed under the Bankruptcy and
Insolvency Act or (in some situations) a monitor appointed under the Companies'
Creditors Arrangement Act, might all be considered in this respect.
Whereas according to section 244 in the Indian company law6, in the case of a
company having a share capital, 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;
and in the case of a company not having a share capital, not less than one-fifth
of the total number of its members: (Provided that the Tribunal may, on an
application made to it in this behalf, waive all or any of the requirements
specified in clause (a) or clause (b) so as to enable the members to apply under
After reading both laws, we can see that the Canadian law prevails over the
Indian law because it has a broader and more liberal criteria as to who can
apply to the courts as a complainant. In the Indian law, It is entirely up to
the discretion of the Tribunal as to who it can consider to be legitimate
complainants in a case of oppression and mismanagement.
The fact is that in corporate democracy, the majority always wins7. The
company's management is founded on the majority rule, which means that all
topics discussed in a general meeting are determined by a majority vote, which
may neglect minority interests. The importance of balancing the rights of
majority and minority members is acknowledged in Section 241 of the Companies
Act, 2013 (the "Act"), which protects company members against persecution and
It establishes the rights of minorities to challenge majority decisions by
filing an application with the Tribunal.Minority members must, however, meet the
qualifying conditions set forth in Section 244(1) of the Act in order to seek
remedy in cases of oppression and mismanagement, unless the Tribunal waives the
requirement on a member's application (s).
This according to me is dangerous as it can have a huge potential of leading to
abuse of discretion, which means that it may lead to error of judgment by the
NCLT in making a ruling that is clearly unreasonable, erroneous, or arbitrary
and not justified by the facts or the law applicable in the case. This can also
result in great injustice, as companies may perform unethical activities like
deliberate dilution in shareholding, which may lead to a situation where an
aggrieved shareholder may not be able to file a complaint in the first place in
the NCLT as the dilution has reduced their share in the company to such an
extent that they have lost their locus standi.
To further stress on my point, this issue arose from the recent infamous Tata-Cyrus
Mistry feud, in which the Mistry group's appeal was first denied because they
did not meet the numerical share criterion. Despite the fact that the NCLT has
the power of waiver, it is unclear when the NCLT can use it and what the
requirements are for doing so.
According to me this violates the principles of natural justice.
Natural justice is not mentioned in the Indian Constitution, although it is seen
as a vital component of the judicial system. Natural justice is a notion of
common law that comes from the Latin word "jus natural," which meaning "natural
law." Natural justice denotes "natural sense of right and wrong" in layman's
terms, and it is synonymous with "fairness" in technical terms.The concepts of
natural justice have emerged as key protections against injustice in the courts,
in order to avoid abuse of authority and to check on their limitations. The goal
of natural justice is to ensure that citizens are treated fairly and to prevent
injustice from being disregarded. Decisions that go against natural justice are
null and void.
In the present comparison between the two laws, the principle of Natural Justice
known as Audi alteram partem (rule of fair hearing) is being violated by the
It literally means "hear the other side" or "allow the other side to be heard."
This is the second most basic rule of natural justice, which states that no one
should be sentenced without a hearing. When a person is being prosecuted and his
or her rights or interests are being jeopardized, he or she must be given an
equal opportunity to be heard and defend himself.
It allows the party the right to reply to the evidence against them and to pick
their own legal representation. When adjudicating a disagreement between
parties, the principles of natural justice constitute the basis of a
fundamentally fair procedure between the parties. Before making any order, any
person or group exercising judicial or quasijudicial duties must behave in good
faith and listen to all sides equitably.No party will be forced to suffer in
person without being given a fair chance to be heard, as well as the right to
rectify any pertinent statement given that is adverse to them.
If the Legislature specifically authorises a Quasijudicial authority like the
NCLT to proceed without giving the aggrieved a chance to be heard, the law would
be in violation of the principles of fair hearing, which are now enshrined in
Articles 14 and 21 of the Constitution. According to the Supreme Court, the main
objective of the norm of fair hearing was to prevent the failure of justice.
Thus, "the right to a fair hearing" or "the right to be heard" is the heart of
As a result, any decisions that breach the concept of audi alteram partem might
be overturned in court as being contrary to natural justice principles. To end,
The Hon'ble Court concluded in the landmark case of Harbans Lal v Commissioner
(1993) that having a reasonable chance to be heard is an essential part of a
fair trial. Furthermore, hearing might be either oral or written.
Conclusion And Suggestions
The purpose of the current research paper was to to compare and investigate the
company laws of India and Canada with regards to the concept of prevention of
oppression and mismanagement within companies and thus find out weaknesses in
the Indian laws which need to be corrected. A significant finding to emerge from
this paper is with regards to the difference between the Canadian Law and the
Indian Law is with regards to who can become a complainant in a case of
oppression and mismanagement.
A perusal of both the laws reveals that the Canadian law is far more liberal and
fairer, as it does not place any shares-based limitations on its complainants,
in utter contrast with the Indian law. Anybody can complain, be they security
holder, creditor, director or officer. Thus, It doesn't violate the natural
justice principle of audi alteram partem, and doesn't allow for the potential of
abuse of discretion from bodies such as the NCLT.
The study has gone some way towards enhancing our understanding of the nature of
company laws of both countries. We can see that the Canadian law is far broader
based in its approach. Canadian legislation (both federally and in all
provinces) provides for a broad approach to the oppression remedy. In Peoples
Department Stores Inc. (Trustee of) v. Wise, the Supreme Court of Canada
48....In any common law jurisdiction, the oppression remedy of s. 241(2)(c) of
the CBCA and analogous sections of provincial laws addressing companies provide
the broadest rights to creditors.
The oppression remedy is "the broadest, most comprehensive, and most open-ended
shareholder remedy in the common law world," according to one expert.
Thus, my two suggestions are to remove the shares-based limitation present in
the Indian law and draft the law in such a way that by its very language it
becomes explicit as to the rights of all shareholders, leading to no room for
unjust and wild legal interpretations. Removing shares-based limitation will
prevent abuse of judicial discretion and the potential of majority shareholders
in a company using unfair means like dilution of shares to oppress the minority.
To end it, One quote that comes to my mind and which I highly believe in is
"Democracy is not the law of the majority but the protection of the minority.",
which was said by Albert Camus. Therefore, I believe that Indian company laws
should be drafted in line with the democratic nature of our country, and not
lead to injustice, evil and oppression.
Written By: Mohammed Arafat Mujib Khan
- Foss v Harbottle, Wikipedia (2022), https://en.wikipedia.org/wiki/Foss_v_Harbottle
(last visited Feb 27, 2022).
- Legislative Services Branch, Consolidated federal laws of Canada, Canada
Business Corporations Act Canada Business Corporations Act (2022),
https://laws-lois.justice.gc.ca/eng/acts/C-44/section-241.html (last visited
Feb 27, 2022).
- Punchhi, M., 2022. Harbans Lal vs Collector Or Central Excise And ... on
14 July, 1993. [online] Indiankanoon.org. Available at: [Accessed 4 March
- Scc-csc.lexum.com. 2022. Peoples Department Stores Inc. (Trustee of) v.
Wise - SCC Cases. [online] Available at: [Accessed 5 March 2022].