The Companies Act of 2013 does not include a definition for the term “Oppression.” Oppression is any wrongful action taken by the authorities against a party who has given his or her assent. The definition of “oppression” in the Dictionary of Black Law is “the act or an instance of unjustly exercising power.” Oppression can also be described as an act that violates or contravenes fair conditions, particularly when it comes to the rights of stakeholder groups. The Companies Act of 2013 does not define the term “mismanagement.” It can be characterised as an unfair, dishonest method of controlling the company’s business.
The idea of majority rule serves as the foundation for corporate democracy. The Foss v. Harbottle rule, which stated that individual shareholders have no legal recourse for any wrongdoing by the corporation and that any action brought regarding such losses shall be brought either by the corporation itself or through a derivative action, is where the principle of the majority first appeared.
Although majority rule is the norm, minority rights are frequently neglected. Striking a balance between the interests of the small/individual shareholders and the efficient control of the business is the goal. Sections 241 to 246 of the Indian Company Law, 2013, were therefore established to protect the rights of minorities.
The “Oppression and Mismanagement” provisions of the Companies Act are covered in Sections 241 to 246. The following is a quick description of each section:
Section 241– Application to Tribunal for Relief in Cases of Oppression, etc.
Section 242– Powers of the Tribunal.
Section 243– The consequence of Termination/ Modification of certain agreements.
Section 244– Right to apply to the Tribunal.
Section 245-Class Action.
Section 246– Application of some provisions to the application made to the Tribunal under section 241 or section 245
Right to Apply Under Section 241 of Companies Act, 2013
Who may make a complaint against oppression and mismanagement is covered in Section 244 of the Companies Act, 2013. It details the person’s right to complain about oppression and mismanagement. Only the company and one member, who will submit an application on the other member’s behalf, will be granted the right. For the corporation, the rights are additionally separated and contingent upon the companies that have share capital and those that do not. If the company has stock, the amount will be determined by how many shares of stock each member owns.
Therefore, the share capital must be 100, or one-tenth of the total number of members, and if the share capital’s value is being calculated, it must be one-tenth of the share capital. One-fifth of the members may file a complaint against oppression and mismanagement if the company has no share capital. If just one member of the group has the authority to submit an application, that member must obtain the written permission of all other members.
A member of the company may file an application to the tribunal in cases of “Oppression” and “Mismanagement” if either of the following conditions is met:
1. The company’s affairs are being managed or conducted in an oppressive way;
2. A material change is being made that is not in the member’s best interest. Notably, the Central Government also has the option of filing an application with the Tribunal if it believes that the company’s business practices are contrary to the public interest.
Powers of the Tribunal
Powers available to the Tribunal on “Oppression” and “Mismanagement” applications made by the member are defined by Section 242 of the Companies Act. As a result, the Tribunal has the authority to issue the order it sees fit if it believes that the company’s operations are being run in a way that is harmful to the interests of its members, the general public, or the firm.
The following are possible provisions for the order:
1. Control over how a company’s affairs are conducted.
2. Other members purchase the members’ shares or interests. However, if the corporation decides to buy the shares, there should be a corresponding decrease in its share capital.
3. Limitations on the transfer or allocation of company shares. Advertisement.
4. Termination, revocation, or amendment of any agreement between the company and the managing director or any other director on certain terms and conditions.
5. Cancellation, annulment, or modification of any contract between the business and any individual. Notably, such termination, setting aside, or modification is only allowed when the relevant party has received the proper notice and consent.
6. Removing all transfers, deliveries, executions, payments, or other actions involving the property that were made by or against the corporation within three months after the application date.
7. The way of re-appointment of the company’s managing director, manager, or other directors.
8. The recovery of ill-gotten riches made by the managing director, manager, or director, and how it will be done.
9. The selection of directors who must submit reports to the Tribunal. Advertisement
10. Costs assessed as the tribunal thought appropriate.
Minimum of members that must be present to submit an application before the Tribunal
According to Section 244 of the Companies Act, the minimum number of three members are required to submit an application to the Tribunal is as follows:
| Type of company | Minimum number of members |
| The Company having a share capital | • Lower of – 1. Not less than 100 members of the company; or 2. Not less than 1/10th of the total number of the members. • Any member/ members holding not less than 1/10th of the issued share capital. |
| The company not having a share capital | Not less than 1/5th of the total number of the members. |
Important points:
- The minimal number of members necessary to submit an application to the Tribunal may be waived in whole or in part by the Tribunal.
- After receiving the other members’ written consent, one or more members may submit an application on their own or on their group’s behalf.
Class Action (Section 245)
The important provisions are given in the table below:
| Particulars | Details |
| Circumstance for filing an application to the Tribunal | The Specified number of member/ members/ depositor/ depositors/ any class of them are of the opinion that the management/ conduct of the affairs of the company are being conducted in a manner being prejudicial to the interest of the company/ members/ depositors. |
| The requisite number of members for filing an application | The company having share capital- • Lower of – 1. Not less than 100 members of the company; or 2. Not less than prescribed percentage of the total number of the members. • Any member/ members holding not less than prescribed percentage of the issued share capital. The company not having share capital- • Not less than 1/5th of the total number of the members. |
Circumstances of filling
An application must be submitted to the tribunal if any member, depositor, or class of them as previously specified believes that the company’s management is being done in a way that is detrimental to the company’s interests.
Seeking of orders from the Tribunal
- Prevent the business from
- Committing an offence against the company’s AOA or MOA
- Breaking any rule set forth in the company’s AOA or MOA
- Acting in accordance with a resolution that was ruled invalid and which had the effect of changing the company’s MOA or AOA by withholding information from the members or depositors. The directors are likewise subject to the constraint.
- Committing any act that is against this Act or any other legislation that is currently in effect.
- Or for any false or deceptive representation made by
- the company,
- the director,
- the auditor (including the audit firm and the firm as well as all partners), an expert, advisor, or consultant.
- The tribunal may also seek any other remedy it deems appropriate.
Important Aspects
Before deciding whether to grant the request, the Tribunal must consider the following issues:
- The request must be made in good faith, and the tribunal will take into account whether it was submitted by someone other than the company’s directors or officers.
- Whether the issue could be brought up on the member’s or depositor’s own behalf.
any proof of the members’ opinions who have no direct or indirect personal stake in the issues.
- When the cause of action has already started but can still be approved by the corporation, as well as when the cause of action has already started but can still be approved.
The following details are important to consider after the application is accepted:
- Public notice must be issued to the class’s members and deposits.
- Similar applications will be treated as one and the lead applicant will be chosen by the class/depositors. The Tribunal will choose the main applicant if a decision regarding their appointment cannot be made.
- There can only be one application for a certain cause of action.
- The business or person in charge of the oppressive act is required to pay the fee.
- The tribunal’s decisions are legally binding.
- The class-action clause in this section does not apply to banking companies.
| Section Number and Description | Penalty |
| Sec 242- Alteration of the MOA/AOA in contravention of the order of the tribunal | Company Fine-Min: Rs 1 Lakh Max: Rs 25 Lakh Officer in default Fine-Min: Rs 25,000 Max: Rs 1 Lakh Imprisonment-Max:6 months Or Both |
| Sec 243- Any person who knowingly acts as a Director/Manager/managing director before the expiry of 5 years, whose agreement is terminated | Imprisonment Max: 6 months Fine-Max: Rs 5 Lakh Or Both |
| Sec 245- Company fails to comply with the order of the tribunal Sec 245-Application filed before the tribunal is frivolous | Company Fine-Min: Rs 5 Lakh Max: Rs 25 Lakh Officer in default Fine-Min: Rs 25,000 Max: Rs 1 Lakh Imprisonment-Max:3 years Rs 1 Lakh paid by the applicant to the opposite party |
An important case in English business law recognised for establishing the “appropriate plaintiff rule” and the “majority rule” is Foss v. Harbottle. While the principle given out in Foss v. Harbottle is sound, there are some situations in which it cannot be applied, including those involving personal rights. Given the foregoing, the essay tries to follow the progression of the Foss v. Harbottle case and emphasise the importance of members’ personal rights beyond the former’s scope.
In this instance, two minority shareholders (Richards Foss and Edward Starkie Turton) individually sued the directors of a firm, saying that they had engaged in coordinated and illegal acts that had cost the company its assets. The directors were accused of misappropriating company funds and falsely mortgaging company real estate, which had a negative impact on the company’s ability to carry out its original mission of “laying and maintaining an ornamental park” as specified in the Act that served as the basis for its incorporation by the parliament (the “Act”). Thus, the primary question in the case was whether a corporation’s shareholders may independently exercise the right to sue, i.e., whether they could bring a lawsuit for harm done to the firm.
In this case, the petitioners argued that the firm was not an ordinary company because its origins were in the Act, which granted outsiders or members the power to bring a claim against the directors. It was alleged that certain illicit business dealings were being carried out by the company’s directors through the misuse of funds and erroneous mortgages on company assets, costing the company money and wasting property.
Further, it was requested that the court order the directors to pay up the losses the company sustained. The defendants argued in response that the petitioners lacked locus standi to bring any legal action against the directors on the company’s behalf. According to the argument, the Act did not grant the petitioners any legal recourse for the company’s loss in legal action.
The Judgement
The Court of Chancery denied the petitioners’ claim and ruled that the corporation alone had the standing to file a lawsuit because the activities in question had resulted in losses for the business; the shareholders were not the “appropriate plaintiff” in this particular case. Furthermore, it was decided that minority shareholders could not file a lawsuit for a mistake that the majority shareholders may approve.
As a result, two rules were introduced:
(1) “Proper Plaintiff Rule,” which states that in the event that a company is wronged, only the company has the right to file a lawsuit on its behalf, making the firm the only one who qualifies as the proper plaintiff;
(2) the “majority rule,” which states that the firm must abide by the decisions of the majority of its shareholders and that the court should not get involved when such decisions could be erroneous. Another name for the “appropriate plaintiff rule” is “the ruling in Foss v. Harbottle.” In this instance, it was decided that stockholders could not sue the firm for losses incurred. It was noted that a company has a different legal identity from its members and the authority to bring legal action in its own name. As a result, only the corporation has the authority to file a lawsuit when something is done to it; stockholders do not have that authority.
Exceptions to the rule
Furthermore, it was noted that a company’s decisions are typically founded on democratic principles, meaning that the majority rule applies. The corporation must abide by all decisions reached by a majority, whether it be a simple majority or a special majority as required by the law. When there is an irregularity that can be upheld by the majority, courts do not become involved. Thus, the court, in this case, pushed the shareholders to use all internal dispute resolution procedures before seeking legal assistance.
It was noted that although the minority shareholders were granted substantive rights, they were refused redress on procedural grounds notwithstanding the severity of the regulations outlined in the case. Thus, in Foss v. Harbottle, exceptions were made to the rule in order to lessen its harsh and unfair effects on the minority stockholders. The ruling in Foss v. Harbottle is not relevant in the current situation to the actions taken by the majority shareholders to oppress, suppress, or depress the minority stockholders.
It does not apply in situations involving “ultra vires and illegal acts; breach of fiduciary duties; fraud or oppression against the minority shareholders; variation of class rights; scheme of compromise or arrangement; oppression and mismanagement; rights of dissentient shareholders under takeover bids; and class action lawsuits,” in other words. It should be underlined that the ruling in Foss v. Harbottle only applies when a member’s corporate right is violated; it does not apply when his individual right is denied.
Personal Right’s Exception
Individual rights, also referred to as personal rights, are those that each member has the ability to assert on their own behalf if they believe that their rights have been violated. The two sources of these rights are (1) the implied membership agreement that the member and the corporation engaged in at that time and (2) general law. These rights are contractual in nature and cannot be altered without the concerned member’s written consent. A member is considered to have personal rights under the company’s memorandum or articles of incorporation if they have a particular interest in seeing that the relevant clauses are followed, as opposed to the interests of the other members as a whole.
Application of the exception
The concept of Foss v. Harbottle does not apply to personal rights; rather, it is one of the exceptions. Accordingly, the violation or denial of a member’s personal rights is not covered by the scope of the principle. It is argued that a member may, in principle, defy the majority opinion of all other shareholders in cases when personal rights are at issue. In the case of MacDougall v. Gardiner, which is well-known for its application of the majority rule from Foss v. Harbottle and interpretation of the personal right exception to the rule, this was further maintained.
In the case of MacDougall v. Gardiner, which is well-known for its application of the majority rule from Foss v. Harbottle and interpretation of the personal right exception to the rule, this was further maintained. The outcome of this case has strengthened the rule of majority established in Foss v. Harbottle and deterred shareholders from filing frivolous lawsuits about the internal management of the corporation. In this case, Mellish LJ made a distinction between (1) a simple internal irregularity that involved an infraction of the company’s articles but might have been approved by the majority, and (2) A significant violation of the company’s charter giving shareholders cause to bring a claim. According to his opinion, any lawsuit brought about by a legitimate majority action that was carried out improperly or illegally is pointless because the improper or illegal nature of the legitimate action may be confirmed or revoked at a corporate meeting. He pointed out that this did not apply in situations when the minority’s rights were violated as a result of the majority abusing its authority since in those situations, the minority’s rights were affected and they had a legal right to take legal action.
The member is thus necessary to demonstrate that the violation of his rights was caused by a violation of the business’s constitution and not just an internal irregularity of the internal management of the firm when the exemption of personal rights under the rule is sought. Some personal rights arising from contracts and general law include the “right to have his name and shareholding entered on the register of members, right to vote, right to have his vote recorded, right to stand as a director of a company at an election, right to elect directors, right to inspect the register of members, and right to receive notice of a general meeting.”