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Sunday, August 29, 2010



Dealing with a company law project has always been one of my favorite challenges and when it is to be presented to Dubey sir that makes it all the more special. WHAT MAKES COMPANY LAW SPECIAL IS THAT it is non traditional in nature has a large ambit within it and is obviously one of the most lengthy. Now what makes this project so special is the fact that in this project a very important and relevant matter is mentioned and all the more some very right facts are presented in this project which I will like to read in forthcoming chapters.


The term oppression as has been explained means that “The essence of matter seems to be that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing , and a violation of the conditions of fair play on which every share holder who entrusts his money to the company is entitled to rely”.

I would like to quote the section 397 of the company acts which says that shareholders are granted relief from oppression if the affairs of the company are conducted in a manner which is :-

      (1)  Either prejudicial to public interest or oppressive to any members

(2)    Which would entitle the court to order winding up under the just and equitable clause.

(3)    Such order of winding up would unfairly prejudice such members.


Though it is easy to define oppression as , a persistent , unjust conduct resulting in an unduly harsh burden to the complaining shareholder , it becomes more difficult to categorize the kind of acts which would result in such oppression. In the English case re H.R. Harmer Ltd.[1].  It was held that “ The result of application under sec. 210 in different cases must depend on particular facts of each case, the circumstance in which oppression may arise being so infinitely various that it is impossible to define them with precision”.
Sec. 210 of the English companies act corresponds with our sec 397. Merely because the majority has indulged in the minority acts of mismanagement will not be deemed to be oppression. Thus in Lalita Rajya Lakshmi v. Indian Motors Co. [2]  The petitioners alleged that the board of directors were guilt of certain acts detrimental to minority of  shareholders. The Acts complained of were that  the income was deliberately shown less by inflating expenditure, not maintaining a check either on petrol consumption or on ticket less travel , disposal of second hand buses at very low prices , declaring low dividends. The court held that , even if each of these allegations were proved there wold still be no oppression. Further “To attempt to get a majority by lawful means is not a fact or circumstance which justifies winding up the company. What would amount to oppression has been well defined in Kalinga Tubes Ltd. Shanti Prasad Jain[3]   “There must be unfair abuse of power and impairment of confidence in the probity with which companys affairs are being conducted as distinguished from mere restatement on the part of minority at being outvoted on some issue of domestic policy. It is not lack of confidence between the shareholders per se that the brings the section into play……
Oppression involves at least an element of  lack of probity or fair dealing to members in the matter of his proprietary right as shareholders. Persons connected with management of the companies affairs must in connection therewith be guilty of fraud, misfeance or misconduct towards members. It does not include mere domestic disputes between directors and members or lack of confidence between one section of members and another section in the matter of policy or administration.

Though this section is generally applicable to cases where there is an oppression of minority , in special cases if the court feels it just , the section may be brought to apply on application made by majority who have been rendered helpless by the acts of minority. Thus in Re Sindri Iron Foundry (1963) 69 CWN 118 it was observed “if the courts find that the companys interest is beingseriously prejudiced by the activities of one of the groupof shareholders , two different registered offices at two different addresses have been set up , that two rival meetings are being held up tyhere is no reason why the court should not make appropriate orders to put an end to such matters.

When the aggrieved member is able to show that he has sufficed an injustice in his capacity as a shareholder of the company and not any other capacity. Thus in Re Ludie Brios Ltd.  A minority shareholder of a private company was removed from his position as working director. He would have gained nothing from the company if he had merely been a shareholder , becaue the company did’nt pay any dividends , so that the only return he got on his investment from the company was remuneration as a director. Despite this he was not granted a relief under this section, because he had suffered as a director of the company and not as a member. The decision has been criticized severally as being unrealistic .

2 Facts must justify winding up  Unless and until the facts alleged as being oppressive , justify an order of winding up under section 433 (f) as being just and equitable , Sec 397 will not apply. A linking of section 397 with 433 may result in some deserving cases being denied relief, because sec. 433(f) is itself fraught with difficulties and it is difficult to categorize the case which would come under it . But in general this clause is used to provide an alternate remedy to winding up .

3 Oppression of continuing nature   Lastly, the section will come into play only when the oppression  is of a continuing nature ie. Isolated incidents of oppression will not suffice .  The Wording of the section makes it clear because it says that , the affairs of the company must be conducted in an oppressive manner – something carried on over a period of time.

Who can apply under sec. 397   Sec 399 specifies that requisite number of persons required to sign an application alleging  oppression  u/s 397 as follows;
(Where The company has a share capital , the appplicaton must be signed by atleast 100 members of the company or members holding one tenth of the issued share holding of the company.
(b) Where the company is without a share capital application has to be signed by one fifth of the total number of its members.
©  Central Govt. may on application any member or members to sue it feels is just or equitable to do so.
If the requisite number of persons consent then the application may be made by one or moreon behalf of all of them . Consent here has the same meaning as in the section 13 of the contract act. People agreeing to the same thing in the same sense.  Thus in M.C. Doraiswami v. Sakthi Sugars Ltd. A Petition came under section 397 was rejected by the court because the consenting members had been merely told that there signaturies were needed for requisitioning a meeting. The court held that the signatories must be told of the specifics that are alleged to be constituting the oppression. There cannot be a blanket consent. Under Sec. 401 even the central govt. has the power to apply for relief under this section . Once a petition is admitted by the court then it can be withdrawn or compromised only with the permission of the court . Such sa permission is gantd only if the court assssured that such compromise would be in the best interests of both the company and its shareholders


Power Corrupts and more power corrupts even more . Once control is acquired over the company it is easy to give in temptation and start managing the affairs of the company in such  a manner that the best interests of the management rather than company are served.
In short there is ample scope for mismanagement if the management is lacking in either the will or the capacity or both to manage.

Sec.398 of the act provides statutory relief against mismanagement. For this section to apply it has to be proved that
a)      The affairs of the company are being conducted in such a manner to the companys interest or public interest.
b)      By reason of change in management or control of the company there is every likelihood of the company affairs being conducted in the aforesaid manner.

On a petition being made to CLB if it is convinced of the genuineness of the petition make a suitable order with a view to either bringing an end to such mismanagement or according a suitable relif.

IT is beyond the scope of section 398 to consider or look at the lengthy or illegality of an action because the alleged change may be perfectly legal but I ma still be prejudicial to the company . Where there is mismanagement, any member of company can file a petition under the CLB. A petition cannot be filed for past misdemeanor or acts of mismanagement.  The acts complained of must be in the present and continuing  Except when the acts in the past project themselves as a continuing word pervading the present conduct of the company. It was found that the vice chairman had been grossly mismanaging the company. He had drawn large amounts for is personal uses , a considerable sum was owed to the government against supply of electicity. The factory machinery was in urgent need of repair, the directorate had become greatly attenuated aand those shareholders who didn’t belong to chairamans faction was helpless and unable to set things.


Initially the jurisdiction to hear petition against oppression and mismanagement was vested in the company court but now this jurisdiction has been transferred to the company law board by virtue of 1988 amendment. Sections 397 and 398 vest vide powers in the CLB in this regard. Sec. 402 makes an attempt to define the powers of the board while making an order under Ss.397 and 398 . These powers are as follows

1)      Regulating the future conduct of the companies affairs.

2)      Allowing the purchase of shares or interest of members by other members of the company , or by the company itself.

3)      If the Company is allowed to purchase its own shares , then the powers allow the consequential reduction of the capital.

4)      The recission or alteration of any agreement between the company and its managerial personnel.

5)      In Case , any fraudulent preference had been made within a period of 3 months prior to the petition then the power to set aside transaction.

6)      The rescission set aside or modification of any agreement with any person

Wherever the CLB orders an alteration of the memorandum or articles, the company is nt at a liberty to alter it in the manner in which would be in contravention of the order. Similarly Whenever an agreement between the company and one of its managerial personnel is terminated  the person would be entitled to compensation or damages and nor will he be capable of joining employment in the company in any managerial capacity for a period of 5 years or so.
Under Sec. 406 CLLB can also start misfeance proceedings against the guilty officers even if the company is not wound up . The powers of the CLB under these sections are not affected by the presence of arbitration clause though it may by its own discretions refer the matter to arbitration and exercise its own powers
Under Sec. 408 the central govt. has the powers to appoint directors to the board, On recommendation from CLB. The CLB can take up the matter to give such matter either on a reference by the central government or an applivatin by not less than 100 members or by members holding 10% of the voting power.

                                                CHAPTER 3


In any industrial society , incorporated enterprises form the very backbone of economy and are the best mode of channel sing  and increased limiting capital. IN the beginning shareholders or the suppliers of capital were in the position to exercise effective control over the managerial abuse or misuse of power , but slowly with increasingly diffused stockholding and gradually diffused effect of the doctrine of ultra vires shareholders today have reached a stag where they either entirely disinterested in the management
Are hopelessly inadequate situation to act in any constructive manner.
1)      Highly difficult stockholding resulting in disjoint shareholders having practically no contact with each other .
2)      Change in basic interests of the shareholders- from initially being interested in every aspect of the company , they are at present interested only in the amount of divided they receive.
3)      Lack of adequate information about the actual running of the company. and lack of necessary skills to interpret the information given to them and pick out the lacunae.
4)      The formalities and expenses involved in going to the courts make the shareholder reluctant to approach the court for relief., even when there is a just cause for them to do so. In most cases the shareholders are not even aware of the relief’s available to them . this ignorance is blatantly taken advantage of by powers that be who can act in any manner they wantwithout being hindered.

|                                                                                                      |
  Mandatory provisions                                                           Permissive provsions
          |                                                                                                        |
____________                                                                       ____________________
|                        |                                                                      |                    |                |
On                   By Court                                                 On Members  Report By   Suo
Special             Order                                                       Application    Registrar     Motto
Resolution                                                                                                                 By CLB
                                                                                   |                             |                              |
                                                        Fraud Opression Or                       Fraud Misfeance

Mandatory Provisions

Under Sec. 237 Central Govt. is bound to appoint inspectors  to appoint in the matters of a company  in these two cases

1)      When the Company by a Resolution demands an investigation.
2)      When the court passes an order declaring that the affairs of company ought to be investigated and directs the central Govt. to appoint an inspector for judge.

The Section Does Not Specify The Person Who can approach the Court for Such An ORder


With the changing era and Changing time new kinds of ideas and ways will be developed by which a person can defraud, mismanage a company to its whims and fancies. For the law to catch up it will always have to make up and therefore we say that all is what is analyzed in the above mentioned project . The Ways by which irregularities can be curbed by an ironhand and the ways by which things can be made good for. That is all what I’ve to say in the concluding remarks of this project.

[1] (1958) 3  All ER 689
[2] AIR 1962 Cal 127
[3] 1964 1 Comp lj 117

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