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Prevention Of Oppression And Mismanagement

   Posted On :  14.05.2018 11:38 pm

Special powers have been vested in the Company Law Board for the protection of members against oppression by the majority of shareholders and for intervention in case of mismanagement of a company’s affairs.

Prevention Of Oppression And Mismanagement
 
 
Special powers have been vested in the Company Law Board for the protection of members against oppression by the majority of shareholders and for intervention in case of mismanagement of a company’s affairs. This has been done because the cardinal rule laid down in Foss v.Harbottle, that the minority is bound by the decision of the majority, is abused in many cases. Secs. 397 and 409 provide for remedial measures.

 If the oppressed minority consider that to wind up the company would not relieve but on the contrary, they would be unfairly prejudiced by winding up, they may petition the court under Sec. 397, and the court may impose a solution on the disputants. A certain number of members (stated below) may apply to the Company Law Board for relief on the grounds that the affairs of the company are being conducted:-
 
1. In a manner oppressive to any member or members, or

2. In a manner prejudicial to the interests of the company, or
 
3. In a manner prejudicial to the public interest, or
 
4. That material change has taken place in the management or control of the company and that by reason of, it may pass any orders with a view to bringing an end to the matters complained of, or apprehended.
 
If the Company Law Board is satisfied that the affairs of the company are being conducted as complained of, it may pass any order with a view to bringing an end to the matter complained of, or apprehended. The number of members necessary to make application is (i) in the case of a company having share capital, 100 members or 10 per cent of the total number of member, whichever is less, or members holding 10 per cent of the issued capital; (ii) in the case of a company not having share capital, 20 per cent of its total number of members. The Central Government is also entitled to apply to the Company Law Board for an order as above.
 
The Company Law Board may in its discretion make any order that it thinks fit, and in particular, it may provide for: (i) the regulation of the company’s affairs in future, and may even frame fresh regulation; (ii) the acquisition of the shares or interests of any members by other members or by the company; (iii) the consequent reduction of the share capital in case of (ii) above; (iv) termination, setting aside or modification of any agreement, howsoever arrived at, between the company and the managing agent, secretaries and treasurers, managing director, any other director, or manager; (v) termination, setting aside or modification of any agreement between the company and any other person with the latter’s consent; (vi) setting aside any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within 3 months of the application which would amount to a fraudulent preference in the case of an individual’s insolvency; (vii) any other matter for which in the opinion of the Company Law Board it is just and equitable that provision should be made (Sec. 402). No compensation is payable for loss of office resulting from the termination of agreement by the Company Law Board. Any person whose agreement of office has been terminated cannot act for the company for 5 years thereafter without the leave of the Company Law Board. In addition to the above order, heavy penalties are provided.

 

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