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A Comparative Analysis Of The Process Of Prevention Of Oppression And Mismanagement Within Companies Between India And Canada

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, including:
  • 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[1] established 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.

Research Objective
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.

Research Question
  • What are the concepts and ways by which the Canadian law is better drafted than the Indian law?

Literature Review
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.

The massive 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 rights.

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.

Though the 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 minorities.

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 shares. "

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 substantially."

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.

Corporate 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
  1. Canada Business Corporations Act (R.S.C., 1985, c. C-44)[2]
Application to court re oppression 3

  1. A complainant may apply to a court for an order under this section.
  2. Grounds
    If, on an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates:
    1. any act or omission of the corporation or any of its affiliates effects a result,
    2. the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or
    3. the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner
    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.
  3. 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:
    1. An order restraining the conduct complained of;
    2. An order appointing a receiver or receiver-manager;
    3. An order to regulate a corporation's affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement;
    4. An order directing an issue or exchange of securities;
    5. An order appointing director in place of or in addition to all or any of the directors then in office;
    6. An order directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder;
    7. 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;
    8. 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;
    9. 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 determine;
    10. An order compensating an aggrieved person;
    11. An order directing rectification of the registers or other records of a corporation under section 243;
    12. An order liquidating and dissolving the corporation;
    13. An order directing an investigation under Part XIX to be made; and
    14. An order requiring the trial of any issue.
  4. Duty of directors
    If an order made under this section directs amendment of the articles or by-laws of a corporation,
    1. the directors shall forthwith comply with subsection 191(4); and
    2. no other amendment to the articles or by-laws shall be made without the consent of the court, until a court otherwise orders.
  5. Exclusion
    A shareholder is not entitled to dissent under section 190 if an amendment to the articles is effected under this section.
  6. Limitation
    A corporation shall not make a payment to a shareholder under paragraph (3)(f) or (g) if there are reasonable grounds for believing that:
    1. the corporation is or would after that payment be unable to pay its liabilities as they become due; or
    2. the realizable value of the corporation's assets would thereby be less than the aggregate of its liabilities.
  7. Alternative order
    An applicant under this section may apply in the alternative for an order under section 214.
Companies Act 2013
Section 241. Application to Tribunal for relief in cases of oppression, etc
  1. Any member of a company who complains that:
    1. 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
    2. 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.
  2. 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.
  3. Where in the opinion of the Central Government there exist circumstances suggesting that:
    1. 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;
    2. 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 commercial practices;
    3. 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 pertains; or
    4. 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.
  4. The person against whom a case is referred to the Tribunal under sub-section (3), shall be joined as a respondent to the application.
  5. Every application under sub-section (3):
    1. shall contain a concise statement of such circumstances and materials as the Central Government may consider necessary for the purposes of the inquiry; and
    2. 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.

Section 244. Right to apply under section
  1. The following members of a company shall have the right to apply under section 241, namely:
    1. 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;
    2. 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 section 241.

    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.
  2. 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 section 241.)

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 mismanagement.

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 Indian law9.

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 this idea.

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)[3] 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[4], the Supreme Court of Canada noted:

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.

  1. Foss v Harbottle, Wikipedia (2022), (last visited Feb 27, 2022).
  2. Legislative Services Branch, Consolidated federal laws of Canada, Canada Business Corporations Act Canada Business Corporations Act (2022), (last visited Feb 27, 2022).
  3. Punchhi, M., 2022. Harbans Lal vs Collector Or Central Excise And ... on 14 July, 1993. [online] Available at: [Accessed 4 March 2022].
  4. 2022. Peoples Department Stores Inc. (Trustee of) v. Wise - SCC Cases. [online] Available at: [Accessed 5 March 2022].
Written By: Mohammed Arafat Mujib Khan

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