PROJECT REPORT ON

PREVENTION OF OPPRESSION AND MISMANAGEMENT

Submitted in the fulfillment of the requirements of

Management training of

THE INSTITUTE OF COMPANY SECRETARIES OFINDIA

Company Secretaryship Training

Project Report

PROJECT TOPIC

PREVENTION OF OPPRESSION AND MISMANAGEMENT

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 INDEX

Sr.No Topic
1. Certificate
2. Acknowledgement
3. Preface
4. Executive Summary
5. a. Introduction
6. Meaning of “Oppression” and “Mismanagement”

7. Section 241 : Application to Tribunal for relief in cases of oppression

8. Section 242: Powers of Tribunal
9. Section 243: Consequences of termination or modification of certain agreements
10. Section 244: Right to apply under section 241
11. Section 245: Class Action Suit
 Meaning of Class Action Suit
 Application of class action and relief
 Liability of audit firms and its partners
 Required number of applicants
 Requirements for consideration of applications
 Effects of order
 Frivolous or vexatious application
 Exemption to Banking Company
12. The principle of non-interference (Rule in Foss v. Harbottle)

13. Case Laws

15. Procedure to make application with NCLT

16. Transitional Issues

17. NCLT Rules, 2016

18. b. Conclusion

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 CERTIFICATE

This is to certify that Dinesh Tanawade having Registration Number 450158580/03/2014has

successfully completed his project report on Prevention of Oppression And Mismanagement
under my guidance.

For Amita Desai & Co.

Ms. Amita Desai

Proprietor
FCS NO.: 4180 CP NO.: 2339

ACKNOWLEDGEMENT

Happiness lies in pursuit as much as in reaching the goal & today I stand with the kernel of
my Endeavour, while pursuing it many a known hands pushed me towards, learned souls put
me on the right path & enlightened me with their knowledge and experience. No words could
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adequately express my feelings. I shall ever remain thankful indebted to them all. Indeed the
words at my command are just not sufficient to express my sincere thanks and deep sense of
gratitude to Ms. Amita Desai.

My whole hearted thanks to my colleagues for their assistance at each and every step and nice
memorable Company during course of this programme. It is impossible to forget good
friends; for their continuous rejuvenating, inspiring words and best wishes.

Words would not be sufficient for the constant encouragement, love and affection of my
family. I would not have completed this work without their relentless hard work, sacrifice and
everlasting blessings.

PREFACE

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This project report has been prepared after a thorough study of various books, case studies,
and data from web pages, for submission of the 'Institute of Company Secretary of India'.

We learned so many things as having practical knowledge of fundamental theories.

The purpose of this report has very well served in getting theoretical and procedural
knowledge of National Company Law Tribunal (“NCLT”). The report emphasizes the
prevention of oppression and mismanagement under the Companies Act, 2013 and NCLT
rules.

EXECUTIVE SUMMARY

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In the execution of this project all the theoretical knowledge has been practically
implemented, as it is part of our training. We found it real time exposure. We faced real time
issue and also learned that how to get rid from the problems occurred in the practical life.

We did analysis; we have considered various factors while preparation, drafting and
presentation of petition before NCLT for prevention of oppression and mismanagement.

We have given very detailed information so one can have better idea and understanding.

This project will be very helpful to those who actually seeks corporate environment.

INTRODUCTION

A company in abroad sense is a group of persons who have comae together or who have
contributed money for some common purpose and have contributed themselves into distinct
legal entity. Company is the amalgation of two distinct words- “com” and “pain”, the former
meaning with/together and the latter meaning “bread”. The whole Scheme of the Companies
Act is to ensure proper conduct of the affairs of the company in public interest and
preservation of image of country in public interest.

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Democracy gives each and every individual right to speak and express their their views
openly. Not hampering others religious sentiments and dignity being a restriction on Article
19. Majority rule is the hallamrk of democracy. It equally applies to corporate democracy and
is not free from pitfalls and abuse. Corporate democracy is more vulnerable to it because it is
reckoned with the number of shares and not with number of individuals involved. The rule of
majority has been made applicable to the management of affairs of the company. The
members pass resolutions on many subjects either by simple ot three-fourth majority. Once
resolution is passes by majoprity it is binding on all members. As a resultant corollary, court
will not ordinarily intervene to protect the minority interest affected by resolutin. However
there are exceptions to its this rule – Prevention of Oppression and mismanagement being one
such ground.

What is Oppression?

‘Oppression’ means when affairs of the company are being conducted in a manner
prejudicial to public interest or in a manner oppressive to any member(s).

What is Mismanagement?

Mismanagement is the situation when there is gross misconduct and deviation from
company’s original course of action which leads to substantial failures of company/loss to
public/ to company.

Section 241-Application to Tribunal for relief in cases of oppression, etc

Any member of a company who complains that-

 The affairs of the company have been or are being conducted in a manner prejudice to :

-Interest of public

-Oppressive to him

-Interest of the company

 the material changes by or in the interests of,any creditors, including debenture holders or

any class of shareholders of the companyhas 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, which Prejudicial to :

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-interest of members or any class of members may apply to the Tribunal only when such
member have a right to apply under section 244.

 The Central Government may also apply to the Tribunal under this Chapter for an order if

it is of the opinion that the affairs of the company are being conducted in a manner

prejudicial to public interest.

Section 242 – Powers of Tribunal

1. Any application made under section 241 and the Tribunal is of the opinion that –
a. The company’s affairs being conducted in a manner prejudicial to any members or
public interest or to the interst of the company and
b. The winding up the company would unfairly prejudice such member(s), but that
otherwise the facts would justify the making of a winding up order on the ground
that it was just and equitable that the company should be wound upthe Tribunal
may bring an end to the matters complained of by passing an order as it thinks fit.
2. Without prejudice to the generality of the powers under sub-section (1), an order
under that section may provide for-
a. The regulation for conduct of affairs of the company in future.
b. The purchase of shares or interests of any members of the company by other
members thereof or by the company.
c. In the case of a purchase of its shares by the company as aforesaid, the consequent
reduction of its share capital
d. Restrictions on the transfer or allotment of the shares of the company
e. The termination, setting aside or modification, of any agreement, howsoever
arrived at, between the company and the managing director, any other director or
manager, upon such terms and conditions as may, in the opinion of the Tribunal,
be just and equitable in the circumstances of the case
f. The termination, setting aside or modification of any agreement between the
company and any person other than those referred to in clause (e)
Provided that no such agreement shall be terminated, set aside or modified except
after due notice and after obtaining the consent of the party concerned.
g. The setting aside of any transfer, delivery of goods, payment, execution or other
act relating to property made or done by or against the company within three

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 months before the date of the application under this section, which would, if made
or done by or against an individual, be deemed in his insolvency to be a fraudulent
preference
h. Removal of the managing director, manager or any of the directors of the
company
i. Recovery of undue gains made by any managing director, manager or director
during the period of his appointment as such and the manner of utilisation of the
recovery including transfer to Investor Education and Protection Fund or
repayment to identifiable victims
j. The manner in which the managing director or manager of the company may be
appointed subsequent to an order removing the existing managing director or
manager of the company made under clause (h)
k. Appointment of such number of persons as directors, who may be required by the
Tribunal to report to the Tribunal on such matters as the Tribunal may direct
l. Imposition of costs as may be deemed fit by the Tribunal
m. Any other matter for which, in the opinion of the Tribunal, it is just and equitable
that provision should be made
3. The order passed by the tribunal, the certified copy of the order shall be filed by the
Company with the ROC within 30 days of the order of the Tribunal.
4. The tribunal may make interim order which it thinks fit for regulating the conduct of
the company’s affairs, on the appliaction of any party, upon such terms and conditions
as appera to it to be just and equitable.
5. Where the tribunal makes any order under sub-section 1 for alteration of MOA or
AOA of a company, then, notwithstanding any other provision of this act, the
company shall not have power, except to the extent, if any, permitted in th order, to
make, without the leave of the Tribunal, any alteration whatsoever which is
inconsistent with the order, either in the MOA or in the AOA.
6. Any alteration in MOA or AOA of a company made by the order subject to provisions
of sub-section (1) shall in all respects have the same effect as if they had been duly
made by the company in accordance with the provisions of this Act and the said
provisions shall apply accordingly to the MOA or AOA so altered.
7. A certified copy of every order altering, or giving leave to alter, a company’s MOA or
AOA, shall within thirty days after making thereof, be filed by the Company with the
ROC who shall register the same.
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Section 243 – Consequences of termination or modification of certain agreements

1. An order made under section 242 terminates, sets aside or modifies an agreement such

as is referred to in sub-section (2) of that section, -

a. Such order shall not give rise to any claims whatever against the company by any

person for damages or for compensation for loss of office or in any other respect

either in pursuance of the agreement or otherwise;

b. No MD or other director or manger whose agreement is so terminated or set aside

shall, for a period of five years from the date of the order terminating or setting

aside the agreement, withoust the leave of the tribunal, be appointed, or act, as

MD or other director or manager of the Company:

Provided that the Tribunal shall not grant leave under this clause unles notice of

the intention to apply for leave has been served on the CG and that Government

has been given a reasonable opportunity of being heard in the matter.

Section 244 – Right to apply under scetion 241

1. The following members of a company shall have the right to apply under section ,

namely:-

a. Company having 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 ot condition that the applicant or apllicants

has or have paid all calls and other sums due on his or theirs shares;

b. Company not having share capital–not less than one-fifth of the total number of

members:

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 Provided that the tribunal may, on an application made to it in this behalf, waive

all or any of thr requirements specified in clause (a) or clause (b) so as to unable

the members to apply under section 241.

Explanation: 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 sub-
section (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.

Section 245 – Class action

What is Class action suit?

A class action suit is a lawsuit where a group of people representing a common interest may

approach the Tribunal to sue or be sued. It is a procedural instrument that enables one or

more plaintiffs to file and prosecute litigation on behalf of a larger group or class having

common rights and grievances.

Application of Class Action and Reliefs [Section 245 (1)]

Sub - section (1) of section 245 states that such number of members, depositor or any class of

them, as the case may be, may, file an application before the Tribunal for seeking all or any

of the following orders, namely:—

(a) to restrain the company from committing an act which is ultra vires the articles or

memorandum of the company;

(b) to restrain the company from committing breach of any provision of the company’s

memorandum or articles;

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(c) to declare a resolution altering the memorandum or articles of the company as void if the

resolution was passed by suppression of material facts or obtained by mis-statement to the

members or depositors;

(d) to restrain the company and its directors from acting on such resolution;

(e) to restrain the company from doing an act which is contrary to the provisions of this Act

or any otherlaw for the time being in force;

(f) to restrain the company from taking action contrary to any resolution passed by the

members;

(g) to claim damages or compensation or demand any other suitable action from or against—

(i) the company or its directors for any fraudulent, unlawful or wrongful act or omission or

conduct or any likely act or omission or conduct on its or their part;

(ii) the auditor including audit firm of the company for any improper or misleading statement

of particulars made in his audit report or for any fraudulent, unlawful or wrongful act or

conduct; or

(iii) any expert or advisor or consultant or any other person for any incorrect or misleading

statement made to the company or for any fraudulent, unlawful or wrongful act or conduct or

any likely act or conduct on his part;

(h) to seek any other remedy as the Tribunal may deem fit.

Such application may be filed by the members, depositor or any class of them, as the case

may be, if they are of the opinion that the management or conduct of the affairs of the

company are being conducted in a manner prejudicial to the interests of the company or its

members or depositors.

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Sub-section (10) of Section 245 states that subject to the compliance of this section, an

application may be filed or any other action may be taken under this section by any person,

group of persons or any association of persons representing the persons affected by any act or

omission, specified in sub-section (1).

Liability of audit firms and its partners [Section 245 (2)]

Where the members or depositors seek any damages or compensation or demand any other

suitable action from or against an audit firm, the liability shall be of the firm as well as of

each partner who was involved in making any improper or misleading statement of

particulars in the audit report or who acted in a fraudulent, unlawful or wrongful manner.

Required number of Applicants [Section 245 (3)]

The requisite number of members provided in sub-section (1) of Section 245, shall be as

under:—

A. In case, application by Members:

(a) In the case of a company having a share capital -

(i) not less than one hundred members of the company, or

(ii) not less than such percentage of the total number of its members as may be prescribed,

Whichever is less; or

(iii) any member or members holding not less than such percentage of the issued share

capital of the company as may be prescribed, subject to the condition that the applicant or

applicants has or have paid all calls and other sums due on his or their shares;

(b) In the case of a company not having a share capital -

(ii) not less than one-fifth of the total number of its members.

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B. In case, application by Depositors:

(i) Not less than one hundred depositors of the company, or

(ii) Not less than such percentage of the total number of depositors as may be prescribed,

Whichever is less shall have right to apply.

(iii) Any depositor or depositors to whom the company owes such percentage of total

deposits of the company as may be prescribed shall also have right to apply.

An application may be filed or any other action may be taken under this section by any

person, group of persons or any association of persons representing the persons affected by

any act or omission, specified in sub-section (1).

Requirement for Consideration of Application [Section 245 (4)]

In considering an application for class action, the Tribunal shall take into account, in

particular—

(a) whether the member or depositor is acting in good faith in making the application for

seeking an order;

(b) any evidence before it as to the involvement of any person other than directors or officers

of the company on any of the matters provided in clauses (a)to (f) of subsection (1);

(c) whether the cause of action is one which the member or depositor could pursue in his

own right rather than through an order under this section;

(d) any evidence before it as to the views of the members or depositors of the company who

have no personal interest, direct or indirect, in the matter being proceeded under this section;

(e) where the cause of action is an act or omission that is yet to occur, whether the act or

omission could be, and in the circumstances would be likely to be—

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(i) authorised by the company before it occurs; or

(ii) ratified by the company after it occurs;

(f) where the cause of action is an act or omission that has already occurred, whether the act

or omission could be, and in the circumstances would be likely to be, ratified by the

company.

In case of admission of application

Section 245(5) provides that if an application filed for class action is admitted, then the

Tribunal shall have regard to the following, namely:—

(a) public notice shall be served on admission of the application to all the members or

depositors of the class in such manner as may be prescribed;

(b) all similar applications prevalent in any jurisdiction should be consolidated into a single

application and the class members or depositors should be allowed to choose the lead

applicant and in the event the members or depositors of the class are unable to come to a

consensus, the Tribunal shall have the power to appoint a lead applicant, who shall be in

charge of the proceedings from the applicant’s side;

(c) two class action applications for the same cause of action shall not be allowed;

(d) the cost or expenses connected with the application for class action shall be defrayed by

the company or any other person responsible for any oppressive act.

Effects of Order

Order shall be binding: Any order passed by the Tribunal shall be binding on the company

and all its members, depositors and auditor including audit firm or expert or consultant or

advisor or any other person associated with the company. [Section 245(6)]

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Punishment for non-compliance: Any company which fails to comply with an order passed

by the Tribunal under this section shall be punishable with fine which shall not be less than

five lakh rupees but which may extend to twenty-five lakh rupees and every officer of the

company who is in default shall be punishable with imprisonment for a term which may

extend to three years and with fine which shall not be less than twentyfive thousand rupees

but which may extend to one lakh rupees. [Section 245(7)]

Frivolous or vexatious Application [Section 245 (8)]

Where any application filed before the Tribunal is found to be frivolous or vexatious, it shall,

for reasons to be recorded in writing, reject the application and make an order that the

applicant shall pay to the opposite party such cost, not exceeding one lakh rupees, as may be

specified in the order.

Exemption to Banking Company [Section 245 (9)]

This Section is not applicable to Banking Company. Nothing contained in under section 245

of the companies Act, 2013 shall apply to a banking company.

The Principle of Non-interference (Rule in Foss v. Harbottle)

The general principle of company law is that every member holds equal rights with other

members of the company in the same class. The scale of rights of members of the same class

must be held evenly for smooth functioning of the company. In case of difference(s) amongst

the members the issue is decided by a vote of the majority. Since the majority of the members

are in an advantageous position to run the company according to their command, the

minorities of shareholders are often oppressed. The company law provides for adequate

protection for the minority shareholders when their rights are trampled by the majority. But

the protection of the minority is not generally available when the majority does anything in

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the exercise of the powers for internal administration of a company. The court will not

usually intervene at the instance of shareholders in matters of internal administration, and will

not interfere with the management of a company by its directors so long they are acting

within the powers conferred on them under the articles of the company. In other words, the

articles are the protective shield for the majority of shareholders who compose the Board of

directors for carrying out their object at the cost of minority of shareholders. The basic

principle of non-interference with the internal management of company by the court is laid

down in a celebrated case of Foss v. Harbottle 67 E.R. 189; (1843) 2 Hare 461 that no action

can be brought by a member against the directors in respect of a wrong alleged to be

committed to a company. The company itself is the proper party of such an action.

CASE LAW

In Foss v. Harbottle, two shareholders, Foss and Turton brought an action on behalf of
themselves and all other shareholders against the directors and solicitor of the company
alleging that by their concerted and illegal transactions they had caused the company’s
property to be lost to the company. It was also alleged that there was no qualified Board.
Foss and Turton claimed damages to be paid by the defendants to the company. It was held
by the court that the action could not be brought by the minority shareholders although there
was nothing to prevent the company itself, acting through the majority of its shareholders,
bringing action. The wrong done to the company was not which could be ratified by the
majority of members. The company (i.e. the majority) is the proper plaintiff for wrong done
to the company, so the majority of members are competent to decide whether to commence
proceedings against the directors. The reasons for rule were nicely stated by Melish L.J. in
MacDougall v. Gardiner, (1875) 1 Ch. D. 13 (C.A.) at p. 25 in the following words:
“If the thing complained of is a thing which in substance the majority of company are
entitled to do, or if something has been done irregularly which the majority of the company
are entitled to do regularly, or if something has been done illegally which the majority of the
company are entitled to do legally, there can be no use in having litigation about it, the
ultimate end of which is only that a meeting has to be called, and then ultimately the

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 majority gets its wishes.”
In Rajahmundry Electric Supply Co. v. Nageshwara Rao AIR 1956 SC 213, the
Supreme Court observed that:
“The courts will not, in general, intervene at the instance of shareholders in matters of
internal administration, and will not interfere with the management of the company by its
directors so long as they are acting within the powers conferred on them under articles of the
company. Moreover, if the directors are supported by the majority shareholders in what they
do, the minority shareholders can, in general do nothing about it.”
In Pavlides v. Jensen (1956) Ch. 565, a minority shareholder brought an action for damages
against three directors and against the company itself on the ground that they have been
negligent in selling a mine owned by the company for £ 82,000, whereas its real value was
about £ 10,00,000. It was held that the action was not maintainable. The judge observed, “It
was open to the company, on the resolution of a majority of the shareholders to sell the mine
at a price decided by the company in that manner, and it was open to the company by a vote
of majority to decide that if the directors by their negligence or error of judgement has sold
the company’s mine at an undervalue, proceedings should not be taken against the
directors”.
In Edwards v. Halliwell (1950) 2 All. E.R. 1064, Jenkins, L.J. restated the rule in the
following terms: “The rule in Foss v. Harbottle comes to no more than this. First, the proper
plaintiff in respect of wrong alleged to be done to company is prima facie the company
itself. Secondly, where the alleged wrong is a transaction which might be made binding on
the company by a simple majority of members, no individual member is allowed to maintain
an action in respect of that matter for the simple reason that, if a mere majority of the
members of the company is in favour of what has been done, then cadit quaestio... (cannot
be questioned). If on the other hand, a simple majority of members of the company or
association is against what has been done, then there is no valid reason why the company
itself should not sue”.

Mr. Vikram Bakshi V/s. McDonalds India Private Limited

McDonalds India has recently been in the news for shutting down 43 of its 55Delhi outlets.
The bone of contention leading to this event is the ongoing dispute between Mr. Vikram

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Bakshi and McDonalds India Private Limited (“MIPL”). This case has clarified that the
National Company Law Tribunal (“NCLT”) can establish its jurisdiction to hear disputes
regarding oppression and mismanagement, even with the existence of a Joint Venture
Agreement (“JVA”). The NCLT confirmed that the mere existence of a JVA and arbitration
clause would not impede the NCLT from establishing its jurisdiction, as the jurisprudence
around oppression enables the tribunal to keep the best interest of the company, its
shareholders and, in this case, also the general public’s best interests in mind.
Mr Bakshi was the Managing Director of Connaught Plaza Restaurants Private Limited
(“CPRL”). CPRL was incorporated in furtherance of a Joint Venture Agreement (“JVA”)
between Mr. Bakshi and MIPL in 1995; and both parties have a 50:50 share in the said
company. The JVA was entered into for setting up franchises of McDonalds in North India
and getting all the prerequisite approvals and running the business in North India. In due
course, a dispute arose out of the JVA, and Mr. Bakshi approached the NCLT alleging acts of
oppression and mismanagement against him by MIPL.
The NCLT decision dated 13th July 2017 granted clarity on such allegations by confirming
oppression, reinstating Mr. Bakshi as the Managing Director and appointing Justice G.S.
Singhvi to act as an Administrator in the company, with the right to vote in Board Meetings.
Analysis

While the decision of the NCLT in this case delves into the facts of the issue, there is a need
to elucidate the establishment of jurisdiction of the Tribunal in cases of oppression arising
from the scope of a personal contract (in this case, the JVA). The question arising from the
facts is whether private agreements lie beyond the scope of Section 397 of the Companies
Act, 1956. The NCLT’s decision confirmed that oppression under Section 397 establishes
the jurisdiction of the CLB (now the NCLT) under Section 402 of the Companies Act, 1956.

In the present case, the NCLT held that since the provisions of the JVA had for all practical
purposes been incorporated into the AoA, any malafide action or act of oppression would be
considered an act of oppression against the shareholder (in this case, Mr. Bakshi). Further,
such acts of oppression are also against the best interests of the company, thereby granting
the NCLT the right to pass an order, even though the dispute was stemming from a private
contract. In this case, the NCLT also spoke about the interests of the public, especially the
employees who would lose their jobs due to the ongoing dispute. Hence, this elevation of a

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private contractual agreement to a company law dispute is effectuated keeping the interests of
the shareholders and the company in mind.
The incorporation of the JVA into the AoA also illuminates the common intentions of the
parties, their fiduciary duties towards each other and is an evidentiary document of their
shared good faith. It is in this context that the NCLT has held that while the JVA is a private
contract, MIPL’s actions amount to oppression under the Companies Act, 1956 due to the
incorporation of the same into the AoA. Further, both parties have referred to the AoA in the
past (such as Article 35 – Board to appoint a Director in furtherance of Clause 7 of the JVA)
and it would be unfair to now adopt a contrary interpretation. Hence the NCLT held that
Clause 7 of the JVA that states that the “Partner” (Mr. Bakshi) must be reappointed every two
years is incorporated into Article 35 of the AoA and any acts of oppression to undermine the
same will attract the jurisdiction of this Tribunal.
The main takeaway from this NCLT decision is rooted in the understanding that Section
398,398 and 402 of the Companies Act, 1956 form a self-sufficient code for the regulation of
the management of the company to ensure there is no harm to the interests of the company or
any of its shareholders. This manifests in the broad powers given to the CLB (now the
NCLT), leading to the establishment of its jurisdiction, even when a separate JVA (with an
arbitration clause) exits.

Cyrus Investments pvt. Ltd. & Anr. Vs. Tata Sons Limited & Ors
The Petitioners, minority shareholders of Tata Sons Ltd, Cyrus Investments Pvt. Ltd. And
Sterling Investments Corporation Pvt. Ltd. filed the Company Petition before the Tribunal
alleging acts of oppression and mismanagement in the conduct of affairs of Tata Sons
Limited on various grounds including on the ground of replacement of Mr. Cyrus P. Mistry
as the Executive Chairman. By its judgement, the tribunal dismissed the company Petition,
denied all reliefs, and rejected all allegations raised therein by the Petitioners.
During the course of hearings spanning several weeks, the Tribunal heard exhaustive
arguments on the elements of oppression and mismangement u/s 241 and 242 of the
Companies Act, 2013. The Tribunals decision is a key development on
oppression/mismanagement jurisprudence under the 2013 Act, and an important judgement to
take into consideration before approaching the Tribunal under section 241-242. The 15 key
takeaways from the NCLT judgement are as follows:

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1. Sections 241 and 242 are for preventive reliefs (not declaratory) to arrest the malafides
ongoing in a company.
2. To invoke the jurisdiction of the Tribunal u/s 241, the company must be a going concern,
there must be an action in progress and the action should be oppressive or prejudicial to
any of the members complaining or the company. If these elements of secton 241 are
complied with, the Tribunal will then ascertain whetehr the proved facts would justify
the winding-up of the company on just and equitable grounds. Lastly the Tribunal must
arrive at the finding that the winding-up of the company on just and equitable ground
would unfailry prejudice the member. Only once this entire process is achieved, the
Tribunal can then pass relief u/s 241 for oppression and/or mismanagement.
3. Mere unfairness of the action complained of is not enough to invoke section 241, the
action must be prejudicial to either the petitioners (i.e. members compalining), or to the
company.
4. Under the 2013 Act, oppression and mismanagement have been abridged into one
section making the requirement of ‘just and equitable ground that the company should be
wound up’ applicable to both oppression and mismanagement (earlier applicable only to
oppression under secton 397 of the Companies Act, 1956). Therefore, under the 2013
Act, a petitioner approaching the tribunal u/s 241 alleging mismanagement, will now
have to meet the twin conditions of i) mismanagement and ii) the existence of just and
equitable ground for winding-up the company.
5. Minority shareholders are bound by the rule of majority. It is only when the elemnts of
sections 241-242 are met, at the most the minority shareholder may extricate itself from
the company through the exit route on faie valuation, but the minority shareholder will
not get anyu right to impose his rule upon the shareholders who have majority in the
company.
6. The exercise of rights (including affirmative vote rights) under the Articles by majority
shareholder, which rights ere agreed to by the petitioners being minority shareholder,
cannot be a grievance under secton 241. Protecting the rights of the majority in the
Articles can neither become oppression against the minority shareholderd, nor be
mismanagement of the affairs of the company.
7. The concept of the ‘Shadow Director’ has not been incorporated in the 2013 Act, and did
not find place in the Companies Act, 1956. However, u/s 2(60) of the 2013 Act, the
definition of “officer who is in default” extends punishment to any person in accordance
with whose advise, directions or instructions the Board of the company is accustomed to
21
 act, other than a person who gives advice to the Board in a professional capacity. The
intent behind the section 2(60) is not to let the real culprit go scot free, but to impute with
charges the person abetting the wrongful act. The Tribunal held that the actions of such a
person directing the Board to do somethng that is punishable under the 2013 Act and
falling within section 2(60) is not actionable u/s 241-242. This is because the causative
factor for section 241 is management in relation to the affiars of the company and does
not contemplate taking action for culpability as a result of section 2(60).
8. Advice andsuggestions by shareholders of the company, as long as not fraught with
malafides, should be treated as advice and suggestions for the benefit of the copany and
not as interference. Once the advice (solicited or unsolicted) is accomplished through the
company,s board, the board memebrs privy to the approval cannot complain over the
same.
9. An executive chairman does not have soverign authority over the company. In
Coprpoarte democracy, decision makling always remains with the Board as long as they
enjoy the pleasure of the shareholders. Likewise an execuitve chairmanwill continue as
long as he/she enjoys the pleasure of the Board. An assumption by the executive
chairman that he/she would have a free and in running the affairs of the compnayis
incongruous to corporate governance and corpoarte democracy. The Tribunal held that
the concept of ‘free hand rule’is antithesis to collective responsibility and collective
decision making.
10. Mere closeness of relationship cannot be a ground to assail a transaction for not being
at arm’s length. The tests to ascertain whether transactyions are at arm’s length or not is to
determine whether i) there is ann element of fraud involved, ii) there is an unlawful gain,
and iii) standard practices which are in place were not followed. In the absence of such
tests, just the mere closeness between two persons cannot lead to a conclusion that the deal
between them is not at arm’s length, and not for the beneift of the company.
11. It is only where the circumstances warrant lifting the corporate veil that the affairs of
a subsidiary/affiliate company will be considered in a petition u/s 241 against the holdong
compamy. Even if the allegations agaisnt the subsidiary/affiliated company in a sec 241
petition are taken to be true, in the absence of the subsidiary/affiliated company as party
respondents to the petition, the petition will be bad for non-joinder. In this regard, the
Tribunal relied upon the Supreme Court’s decision in Shankar Sundaram v.
Amalgamations Ltd. & ors.

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 12. Where the subsidiary/associate company’s management is different from that of the
holding company, as such it is not possible to construe something that has happened in
such a subsidiary / associate compayas an action prejudicial to the members of the holding
company.
13. Section 163 oof the 2013 Act can only be asserted when the right of proportional
representation has been incorporated in the Articles. In the absence of any rights,
expectations or obligations in the Articles, the Court/Tribunal should not go behind the
contractual arrangements already in place amongst the shareholders in the form of Articles
on the basic principle that nobody can have a right more than what he has agreed to.
14. Since the removal of a Director is a shareholder’s right, as long as there is no
understanding for the petitioner to be provided with representation on the Board, removal
of a Director cannot be a grievance under section 241. In the absence of any special rights,
merely a person continuing as director for some time will constitute legitimate
expectation.
15. Under the 2013 Act, there is no concept of a deemed publi company (i.e. a private
company which is a public company with the introduction and amendment of Section 43
A in the Companies Act, 1956). Therefore, section 43A companies which have
characteristics of section 2(68) of the 2013 Act will become private companies. Such
company is at liberty to inform the ROC under section 43A (2A) of the Companies act,
1956 that it has become a private company. Therefore the ROC shall substitute the word
“public” into “private” and make necessary alteration in the certificate of incorporation.

PROCEDURE TO MAKE APPLICATION WITH NCLT

Following are the requisite points for consideration before filing petition, appeal or
application before NCLT as per NCLT Rules:

i. Every application, petition, documents to be filed before NCLT shall be in English and if in
any other language, it shall be accompanied with copy of Translation in English.
ii. It shall be type written, printed in double space, on one side of legal paper, with margins:
Top 4 c.m., Right-2.5 c.m. and left-5c.m. and it shall be duly paginated, indexed and stitched
together in paper book form.

23
iii. The cause title shall state “Before the National Company Law Tribunal” and shall specify
the Bench to which it is presented and also set out the proceedings or order of the authority
against which it is preferred.
iv. Appeal or petition or application or counter or objections shall be divided into paragraphs
and shall be numbered consecutively and each paragraph shall contain as nearly as may be, a
separate fact or allegation or point.
v. Every petition, application, appeal or document shall be filed in Triplicate shall be
accompanied by an index in triplicate containing their details and the amount of fee paid
thereon.
vi. Copy of petition, application or appeal shall also be filed to the opposite party and copy of
Resolution for authorisation to sign, verify and institute on behalf of the company shall also
be enclosed.
vii. True copy of resolution for authorisaton to sign, verify and institute on behalf of the
company shall also be enclosed.
viii. Every petition, applicaton or appeal shall be filed in Form No. NCLT-1 along with the
attachement of notice of admission in Form NCLT-2.
ix. Title Heading for proceeding shall be in Form No. NCLT-4.
x. Every petition or applicaton shall be verified by an affidavit in Form No. NCLT-6.
xi. Notice of motion shall be filed in Form No. NCLT-3.
xii. Notice to the opposite party shall be issued in Form No. NCLT-5.
xiii. Where any petition or application is required to be advertised, it shall be advertised in
Form No. NCLT- 3A in vernacular language and in English Newspaper. Advertisement if
published shall also be placed on the website of the company, if any.
xiv. Every party may appear either in person or through authorised representative, who shall
make an appearnce through filing Vakalatnama or Memorandum of Appearance in Form No.
NCLT-12 representing parties.
xv. No intern employed by Authorised Representative shall appear, access to the records or
obtain copies of order, unless his name is eneterd in Register of intern maintained by bench.
Authorised Representative shall make application in Form NCLT-10 for registering his
intern.
xvi. On scrutiny, the appeal or petition or application or document is found to be defective,
such document shall, after notice to the party, be returned for compliance and if there is a
failure to comply within seven days from the date of return, the same shall be placed before
the Registrar who may pass appropriate orders.
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 xvii. The Registrar may for sufficient cause return the said document for rectification or
amendment to the party filing the same, and for this purpose may allow to the party
concerned such reasonable time as he may consider necessary or extend the time for
compliance.
xviii. On admission of appeal or petition or caveat or application, the same shall be numbered
and registered in the appropriate register maintained in this behalf and its number shall be
entered therein.
xix. On the admission of appeal or petition or application the Registrar shall, if so directed by
the Tribunal, call for the records relating to the proceedings from any adjudicating authority
and retransmit the same.
xx. The Tribunal shall notify to the parties the date and place of hearing of the petition or
application in such manner as the President or a Member may, by general or special order,
direct.
xxi. Where at any stage prior to the hearing of the petition or application, the applicant
desires to withdraw his petition or application, he shall make an application to that effect to
the Tribunal, and the Tribunal on hearing the applicant and if necessary, such other party
arrayed as opposite parties in the petition or the application or otherwise, may permit such
withdrawal upon imposing such costs as it may deem fit and proper for the Tribunal in the
interests of the justice.
xxii. Every party may appear before a Tribunal in person or through an authorised
representative, duly authorised in writing in this behalf.
xxiii. The Registry shall send a certified copy of final order passed to the parties concerned
free of cost and the certified copies may be made available with cost as per Schedule of fees,
in all other cases.
xxiv. The certified copy of the order of NCLT shall be filed with ROC in Form NO. INC-28
within the time prescribed by the Act.

Transitional issues
1. With respect to the notification dated June 01, 2016 forming NCLT, various sections of the
Companies Act, 2013 (which have reference to NCLT are made effective).
2. The clause (b) of Sec. 242 (1) and clause (c) and (g) of Sec. 242(2) including sections 337 to
341 of Companies Act, 2013 (relating to powers of NCLT) has since been notified w.e.f.
September 09, 2016. The said clause(s) contains a refernce to order of winding up on just and

25
equitable grounds, in case of purchase of shares or interest of any member of the company,
order of reduction of its share capital and setting aside certain acts of company within 3
months before the date of application and also application to Tribunal by the aggrieved
person or frauds by officers, non-maintenance of books of accounts, fradulent conduct of
business and damages against delinquent directos/ partners.

NCLT Rules, 2016

RULE 20: PROCEDURE
1. Every Appeal/ petition/ application / caveat petition or objection or counter presented
to the Tribunal shall be in English in case it is in some other Indian language, it shall
be accompanied by a copy translated in English.
2. Shall be fairly and legibly type written, lithographed or printed in double spacing on
one side of standard petition paper with an inner margin of about four centimeter
width on top and with a right margin of 2.5. cm, and left margin of 5 cm, duly
paginated, indexed and stitched together in paper book form.
3. The cause title shall state “Before the National Company Law Tribunal” and shall
specify the Bench to which it is presented and also set out the proceedings or order of
the authority against which it is preferred.
4. Shall be divided into paragraphs and shall be numbered consecutively.
5. Full name, parentage, age, description of each party and address and in case of party
sues or being sued in a representative character, shall also be set out in the beginning.
6. The names of the parties shall be numbered consecutively and a separate line should
be allotted to the name and description of each party.
7. These numbers shall not be changed and in the event of the death of a party during th
pendency of the appeal or petitionn or matter, his legal heirs or representative, as the
case may be, if more than one shall e shown by sub-numbers.
8. Where fresh parties are brought in, they may be numbered consecutively in the
particular category, in which they are brought in.
9. Every proceeding shall state immediately after the cause title the provision of law
under which it is preferred.

RULE 21: PARTICULARS TO BE SET OUT IN THE ADDRESS FOR SERVICE.

The address for service of summon shall contain:

26
 a. Name of the road, street, lane and Municipal Division or Ward, Municipal Door and
other number of the house.
b. The name of the town or village
c. The post office, postal district and PIN code, and
d. Any other particular necessary to locate and identify the addressee such as fax
number, mobile number, valid e-mail address, if any

RULE 22: INITIALLING ALTERATION

Every interlineations, eraser or correction or deletion in any appeal or petition or application
or document shall be initialled by the party or his authorised represenative presenting it.

RULE 23: PRESENTATION OF PETITION OR APPEAL

3. Every petition, application, caveat, interlocutory application, documents and appeal
shall be presented in triplicate by the appellant or applicant or petitioner or
respondent, as the case may be, in person or by his duly authorised representative or
by an advocate duly appointed in this behalf in the prescribed form with stipulated fee
at the filing counter and non-compliance of this may constitute a valid ground to
refuse to entertain the same.
4. All the documents filed in the Tribunal shall be accompanied by an index in triplicate
containing their details and the amount of fee paid thereon.
5. Sufficient number of copies of the appeal or petition or application shall also be filed
for service on the opposite party.
6. All the documents filed in the Tribunal shall be accompanied by an index in triplicate
containing their details and the amount of fee paid thereon.
7. Sufficient number of copies of the appeal or petition or application shall also be filed
for service on the opposite party.
8. The processing fee prescribed by these rules, with required number of envelopes of
sufficient size and notice forms shall be filled along with memorandum of appeal.

RULE 23 A: PRESENTAION OF JOINT PETITION

1. If the Bench is satisfied having regard to the cause of action and the nature of relief
prayed for and that they have a common interest in the matter, the Bench may permit
morew than one person to join together and present a single petition.

27
 2. Such permission shall be granted where the joining of the petitioners by a single
petition is specifically permitted by the Act.

RULE 24: NUMBER OF COPIES TO BE FILED

The appellant or petitioner or applicant or respondent shall file three authenticated copies of
appeal or petition or application or counter or objections, as the case may be, and shall deliver
one copy to each of the opposite party.

RULE 25: LODGING OF CAVEAT

1. Any person may lodge a caveat in triplicate in any appeal or petition or application
that may be instituted before this Tribunal by paying the prescribed fee after
forwarding a copy by registered post or serving the same on the expected petitioner or
appellant and the caveat shall be in the Form NCLT 3C and contain such details and
aprticulars or orders or directions, details of authority against whose orders or
directions th appeal or petition or appplication is being instituted by the expected
appellant or petitioner or applicant with full address for service on other side, so that
the appeal or petition or application could be served before the appeal, petition or
interim application is taken up: Provided, that the Tribunal may pass interim orders in
case of urgency.
2. The caveat shalll remain valid foe ninety days from the date of its filing.

RULE 26: ENDORSEMENT AND VERIFICATION

1. At the foot of every petition or appeal or pleading there shall appear the name and
signature of the authorised representative.
2. Every petition or appeal shall be signed and verified by the party concerned in the
manner provided by these rules.
RULE 27: TRANSLATION OF DOCUMENTS

1. A document other than English language intended to be used in any proceeding before
the Tribunal shall be received by thr Registry accompanied by a copy in Englisg,
which is agreed to by both the parties or certified to be true translated copy by
authorised representative engaged on behalf of aprties in the case or if the authorised
28
 representative engaged in the case authenticates such certificate or prepared by a
translator approved for the purpose by the Registrar on payment of such charges as he
may order.
2. Appeal or petition or other proceeding shall not be set down for hearing until or
unless all parties confirm that all the documents filed on which they intend to rely are
in English or have been translated into English and required number of copies are
filed into tribunal.

RULE 28: ENDORSEMENT AND SCRUTINY OF PETITION OR APPEAL OR

DOCUMENT

1. The person in charge of the filing counter shall immediately on receipt of petition
or appeal or application or document affix the date stamp of Tribunal thereon and
also on the additional copies of the index and return the acknowledgement to the
party and he shall also affix his initials on the stamp affixed on the first page of
the copies and enter the particulars of all such documents in the register after daily
filing and assign a diary number which shall be enetered below the date stamp and
thereafer cause it to be sent for scrutiny.
2. If, on srutiny, the appeal or petition or application or document is found to be
defective, such document shall, after notice to the party, be returned for
compliance and if there is failure to comply within seven days from the date of
return, the same shall be placed before the Registrar who may pass appropriate
orders.
3. The Registrar may for sufficient cause return the said document for rectification or
amendment to the party filing the same, and for this purpose may allow to the
party concerned such reasonable time as he may consider necessary or extend the
time for compliance.
4. Where the party fails to take any step for the removal of the fecet within the time
fixed for the same, the Registrar may, for reasons to be recorded in writing,
decline to register the pleading or document.

RULE 29: REGISTRATION OF PROCEEDINGS ADMITED:-

29
On admission of appeal or petition or caveat or application, the same shall be numbered and
registered in the appropriate register maintained in this behalf and its number shall be entered
therein.

RULE 30: CALLING FOR RECORDS

On the admission of appeal or petition or application the Registrar shall, if so directed by the
Tribunal, call for the records relating to the proceedings from any adjucating authority and
retransmit the same.

RULE 31: PRODUCTION OF AUTHORISATION FOR AND ON BEHALF OF AN

ASSOCIATION

Where an appeal or application or petition or other proceeding purported to be instituted by

or on ehalf of an association, the person or persons who sign(s) or verify (ies) the same shall
produce along with such application, for verification by the Registry, a true copy of the
resolution of the association empowering such person(s) to do so:

Provided that the Registrar may at any time call upon the party to produce such further
materials as he deems fit for satisfying himself about due authorisation.

Provided further that it shall set out the list of members for whose benefit the proceedings are
instituted.

RULE 32 : INTERLOCUTORY APPLICATIONS

Every interlocutory application for stay, direction, condonation of delay, exemption from
production of copy of order appealed against or extension of time prayed for in pending
matters shall be in prescribed form and the requirements prescribed in that behalf shall be
complied with by the applicant, besides filing an affidavit supporting the application.

RULE 33: PROCEDURE ON PRODUCTION OF DEFACED, TORN OR DAMAGED

DOCUMENTS:

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When a documet produced along with any pleading appears to be defaced, torn, or in any way
damaged or otherwise its condition or appearace requires specia notice, a ention regarding its
condition and appearance shall be made by the party producing the same in the Inex of such a
pleading and the same shall be verified and initialed by the officer authorsed to receivce the
same.

CONCLUSION:

The act and the Tribunals try to maintain a fine balance between the Right of Majority to rule
(i.e. the Rule laid down in Foss v. Harbottle) and the protection of interests of the minority
shareholders through the prevention of Oppression and Mismanagement.

Upon careful examinaton of the provisions of the Companies Act, 2013 it can be ascertained
that legislative intent in Companies Act, 2013 is to safeguard the minority interest in a more
comprehensive manner. The provisions of Companies Act, 2013 not only requires proper
implementation upon addressing the present gap, but also requires creating confidence in the
minoirty shareholders with respect to the institutional and regulatory mechanism which
ensures that interest of minority shareholders shall be given due consideration.

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