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Oppression and mismanagement

Presented by: CS NESAR AHMAD Tel: +91-11-2953 6312


csnesar367@gmail.com Mob: +91-9810044367
‘Sankalp’ C-227, Paryavaran Complex
New Delhi-110 030
CONTENTS
A comparative analysis of provisions of oppression &
mismanagement under Companies Act 2013 (‘2013 Act’) &
Companies Act 1956 (‘1956 Act’).
 NCLT/NCLAT constitution & CLB dissolution – Critical
issues in transition of matters related to oppression and
mismanagement.
Rules of prevention of oppression & mismanagement under
2013 Act , Chapter –XVI .
Practical and procedural aspects of drafting, art of pleading and
court craft.
Landmark judgments and principles evolved on oppression &
mismanagement .
Co Act 2013 Co Act 1956

Comparison of provisions of
oppression & mismanagement under
both Acts .
COMPARATIVE ANALYSIS
SECTION 241 OF THE 2013 ACT : CORRESPONDING TO
SECTIONS 397, 398, 401,402, 403, & 404 OF 1956 ACT

SECTION 241 OF THE 2013 ACT: APPLICATION TO


TRIBUNAL

 Under the 1956 Act, the CLB was empowered to grant relief
against oppression and mismanagement . The 2013 Act has
transferred these functions to NCLT & NCLAT.

 The 1956 Act did not cover past aspects of oppression but acts
oppression that have happened in the past and the same are
continuing till the date of filing petition. The 2013 Act in Section
1( Part A) expanded the scope of agitating past concluded actions.
COMPARATIVE ANALYSIS

Under the 2013 Act, members can seek relief against conduct
of affairs in a manner prejudicial to public interest or oppressive
to him or any member or members or prejudicial to the interests
of the company even though it may not amount to oppression.
This was combined in S. 397 & 398 under 1956 Act.

SECTION 242 OF THE 2013 ACT: POWERS OF


TRIBUNAL

The illustrative list of reliefs by NCLT under S. 242 (sub-


section (2)], ) have been enlarged in comparison in to S. 402 of
1956 Act.
COMPARATIVE ANALYSIS

SECTION 244 OF THE 2013 ACT : CORRESPONDING


TO SECTIONS 399 OF 1956 ACT

SECTION 244 OF THE 2013 ACT: RIGHT TO APPLY


UNDER S. 241
S. 399 of the 1956 Act provide that the Central Government may
waive any of the cond. ( regarding minimum number of
members should apply) . However, under the 2013 Act , power to
waive compliance with provisions with provisions of S. 244 of
the 2013 Act is with the NCLT .
COMPARATIVE ANALYSIS

SECTION 245 OF THE 2013 ACT: CLASS ACTION

 It is a new provision wherein it permits class action by


members or depositors against company, its directors and
auditors, expert or advisor or consultant or any other person for
damages and compensation or any fraudulent, unlawful or
wrongful act or conduct .
Application for class action suit has to be filed before the
NCLT.
TRANSITION OF MATTERS TO NCLT
AND CRITICAL ISSUES.
TRANSITIONAL ISSUES
 With respect to the notification dated June 1, 2016 forming
NCLT, various sections of the Companies Act 2013 (which have
reference to NCLT are made effective.
 The clause (b) of Sec. 242(1) and clause (c) & (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
09.09.2016. The said clause(s) contains a reference to order of
winding-up on just and equitable grounds , in case of purchase of
shares or interests of any member of the company, order of
reduction of it’s 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 account, fraudulent
conduct of business and damages against delinquent
directors/partners.
RULES
RULES OF PREVENTION OF OPPRESSION &
MISMANAGEMENT UNDER 2013 ACT (‘Act’) , CHAPTER –
XVI .

 Salient features of the rules are as under-

 Number of members who can file an application for class


action.

 Publication of notice : For the admission of the class action


application filed under sub-section (1) of section 245, a public
notice shall be issued by NCLT , to all the members of the class
RULES
RULES OF PREVENTION OF OPPRESSION &
MISMANAGEMENT UNDER 2013 ACT , CHAPTER –XVI .

 Application under clause (a) or clause (b) of sub-section (1) of


section 241 of the Act shall not be withdrawn without the leave of
the NCLT.

 Serving copy of every such application under clause (a) or


clause (b) of sub-section (1) of section 241 of the Act to
concerned company and Regional Director or such other person
as may be directed by NCLT.
RULES
RULES OF PREVENTION OF OPPRESSION &
MISMANAGEMENT UNDER 2013 ACT , CHAPTER –XVI .

 Where an order made by the NCLT on a petition under this


Chapter involves a reduction of share capital or alteration of the
memorandum of association, the provisions of the Act and rules
relating to such matters shall apply as the NCLT may direct.

 The Tribunal shall give notice of every application made to it


under section 241 or 245 to the Central Government and shall
take into consideration the representations, if any, made to it by
that Government before passing a final order under those
sections.
PRACTICAL AND PROCEDURAL
ASPECTS OF DRAFTING, ART OF
PLEADING AND COURT CRAFT
NCLT Rules, 2016 (PART III)
INSTITUTION OF PROCEEDINGS, PETITION, APPEALS
ETC.
Rule 20: PROCEDURE
 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.

 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.
NCLT Rules, 2016 (PART III)
INSTITUTION OF PROCEEDINGS, PETITION, APPEALS
ETC.
Rule 20: PROCEDURE
 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.
 shall be divided into paragraphs and shall be numbered
consecutively.
Full name, parentage, age, description of each party and address
and in case a party sues or being sued in a representative character,
shall also be set out at the beginning.
NCLT Rules, 2016 (PART III)
INSTITUTION OF PROCEEDINGS, PETITION, APPEALS
ETC.
Rule 21: PARTICULARS TO BE SET OUT IN THE
ADDRESS FOR SERVICE
 The address for service of summons shall contain:

1. the name of the road, street, lane and Municipal Division or


Ward, Municipal Door and other number of the house;
2. the name of the town or village;
3. the post office, postal district and PIN Code, and
4. any other particulars necessary to locate and identify the
addressee such as fax number, mobile number, valid e-mail
address, if any
NCLT Rules, 2016 (PART III)
INSTITUTION OF PROCEEDINGS, PETITION, APPEALS
ETC.
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 representative presenting it.
NCLT Rules, 2016 (PART III)
INSTITUTION OF PROCEEDINGS, PETITION, APPEALS
ETC.
Rule 23: PRESENTATION OF PETITION OR APPEAL
 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.

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.
NCLT Rules, 2016 (PART III)
INSTITUTION OF PROCEEDINGS, PETITION, APPEALS
ETC.
Rule 23: PRESENTATION OF PETITION OR APPEAL
 Sufficient number of copies of the appeal or petition or
application shall also be filed for service on the opposite party.

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.
Sufficient number of copies of the appeal or petition or
application shall also be filed for service on the opposite party.

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.
NCLT Rules, 2016 (PART III)
INSTITUTION OF PROCEEDINGS, PETITION, APPEALS
ETC.
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.
NCLT Rules, 2016 (PART III)
INSTITUTION OF PROCEEDINGS, PETITION, APPEALS
ETC.
Rule 25: LODGING OF CAVEAT

 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.

The caveat shall remain valid for a period of ninety days from
the date of its filing.
NCLT Rules, 2016 (PART III)
INSTITUTION OF PROCEEDINGS, PETITION, APPEALS
ETC.
RULE 26: ENDORSEMENT AND VERIFICATION

 At the foot of every petition or appeal or pleading there shall


appear the name and signature of the authorised representative.

Every petition or appeal shall be signed and verified by the party


concerned in the manner provided by these rules.
NCLT Rules, 2016 (PART III)
INSTITUTION OF PROCEEDINGS, PETITION, APPEALS
ETC.
RULE 27: TRANSLATION OF DOCUMENT
 A document other than English language intended to be used in
any proceeding before the Tribunal shall be received by the
Registry accompanied by a copy in English
Shall be agreed to by both the parties or certified to be a true
translated copy by authorised representative engaged on behalf of
parties in the case
Appeal or petition or other proceeding shall not be set down for
hearing until and 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.
NCLT Rules, 2016 (PART III)
INSTITUTION OF PROCEEDINGS, PETITION, APPEALS
ETC.
RULE 28: ENDORSEMENT AND SCRUTINY OF
PETITION OR APPEAL OR DOCUMENT
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
Any defect in such document shall be rectified within seven days
from the date of return by the person in charge
Where the defects are not rectified within the prescribed time,
the Registrar may, for reasons to be recorded in writing, decline to
register the pleading or document.
NCLT Rules, 2016 (PART III)
INSTITUTION OF PROCEEDINGS, PETITION, APPEALS
ETC.
RULE 29: REGISTRATION OF PROCEEDINGS
ADMITTED

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.
NCLT Rules, 2016 (PART III)
INSTITUTION OF PROCEEDINGS, PETITION, APPEALS
ETC.
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 adjudicating authority and
retransmit the same.
NCLT Rules, 2016 (PART III)
INSTITUTION OF PROCEEDINGS, PETITION, APPEALS
ETC.
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 behalf 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 authorization:
Provided further that it shall set out the list of members for whose
benefit the proceedings are instituted.
NCLT Rules, 2016 (PART III)
INSTITUTION OF PROCEEDINGS, PETITION, APPEALS
ETC.
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.
NCLT Rules, 2016 (PART III)
INSTITUTION OF PROCEEDINGS, PETITION, APPEALS
ETC.
RULE 33:Procedure on production of defaced, torn or
damaged documents

When a document produced along with any pleading appears to


be defaced, torn, or in any way damaged or otherwise its condition
or appearance requires special notice, a mention regarding its
condition and appearance shall be made by the party producing the
same in the Index of such a pleading and the same shall be verified
and initialed by the officer authorized to receive the same.
Appearance, Art of Advocacy &
Court Craft
Appearance, Art of Advocacy & Court Craft
Appearance

S.432 of the Act authorises the party to any proceeding


or appeal to appear in person or through CA, CS, CMA
or legal practitioner.
Appearance, Art of Advocacy & Court Craft
Art of Advocacy & Court Craft

Preparing a case, knowing the law and the precedents are not
sufficient to present the case before the Tribunal. This requires a
lot of human skills apart from technical and procedural skills.

Some of the key points to be considered while appearing &


pleading the case before Tribunal.

1. Leaving a good impression : Remember that you are


always being observed.
Appearance, Art of Advocacy & Court Craft
Art of Advocacy & Court Craft

2. Observe mannerism : Be polite but firm in your conduct.

3. Be on time & well prepared : Reach early so there is time to


speak to opposing counsel for a last minute resolution . The court
appreciates orderly conduct which creates a long lasting
impression.

4.Be friendly to the opposing counsel: Introduce yourself to


opposing counsel and initiate a small conversation.
Appearance, Art of Advocacy & Court Craft
Art of Advocacy & Court Craft

5.Keep your client informed : Talk to your client in language


they understand. A well-informed client seems to be a much more
settled client.

6. Know your audience: Every Tribunal is different. Therefore,


tailor your advocacy style to suit the forum.

7. Service of documents: While tendering documents/ citations


to Tribunal, ensure to have enough copies to
circulate to other side.
Appearance, Art of Advocacy & Court Craft
Art of Advocacy & Court Craft

8. Believe in Submission: Regardless of the case, believe in your


submissions. Tribunal observes when there is a half hearted
submission.

9. Be clear & slow: Speak slowly and clearly because the


Presiding member generally takes notes.

10. Be honest with the Tribunal: About your case and


timeframes.
ART OF ADVOCACY & COURT CRAFTS
11. Last-minute basics:

• Turn your phone to silent

• Face the bench and bow from the waist whenever you enter or

leave a sitting courtroom.

• Have the phone numbers of all of the persons connected with

the case including opposing counsel.

• Stand when addressing the court.


ART OF ADVOCACY & COURT CRAFTS

•State brief facts of the case.

•Formulate issues/points.

•Take each point and state relevant facts.

•Submit a list of citations to the Tribunal & hand over the Xerox

copies of binding decisions to the Court Master/opposing

counsel.
Practical & Procedural Aspects Of
Drafting Petition /Pleading
KNOWING THE LEGAL MAXIMS
 Ubi jus ibi remedium: No right without remedy
 Stare decisis : To stand by decisions (precedents)
 Ratio decidendi: Reason for deciding
 Audi alteram partem: Hear the other side
 Nemo debet esse judex in propria causa: No one can be a judge in
his own cause.
 Volenti non fit injuria: An injury is not done to one that consents to
it.
 Verbatim : Word by word, exactly.
KNOWING THE LEGAL NOMENCLATURE

PETITIONER/APPELLANT
REPLY

PETITION / RESPONDENT
APPLICATION/
APPEAL

REJOINDER PETITIONER/APPELLANT

SUR-REJOINDER
(WITH PERMISSION RESPONDENT
OF COURT)
PREPARATORY POINTS
• Take minute facts from the client.

• Lend your complete ears to the client.

• Put question to the client.

• Convey to the client about exact legal position.

• Give correct picture of judicial views.


DRAFTING OF PLEADINGS
• Quote relevant provisions in the petition.

• Do not suppress facts.

• Highlights material facts, legal provisions and Court


decisions, if any.

• State important points together with reference.


PROFESSIONAL ETIQUETTES

1. Dressing Etiquettes

• Navy Blue suit and white shirt.


• Saree or any other dress of a sober colour with a
Navy Blue jacket.

2. Handshake Etiquettes

3. Communication Etiquettes
CONDUCT AND ETIQUETTE
DUTY TO THE TRIBUNAL - Conduct yourself with dignity
and self-respect.

DUTY TO CLIENT - Don’t withdraw from engagements


once accepted, without sufficient cause.

DUTY TO OPPONENT - Do your best to carry out promises


made to the opposite-party.
TIME MANAGEMENT

1. Being busy isn’t the same as being effective.

2. Spend more time on specific activities.

3. Use your free time wisely.

4. Attempt the assignment on priority basis.


MYTHS
• Only lawyers can draft.

• I have been practicing as a Company Secretary


for 10-20 years. It’s difficult to venture into a new
arena.

• Drafting is a burden.

• I have not studied the subject(s).


HISTORIC COURT
DECISIONS
NOTEWORTHY RULINGS
Some of the principles evolved over the years by historical
judgements delivered by Apex Court on oppression and
mismanagement are :

Shanti Prasad Jain Versus Kalinga Tubes Limited

In the present case , the major point of dispute raised by Appellant i.e.
Shanti Prasad Jain is that the affairs of the Company were being
conducted in a manner oppressive to him and his group of members.

The scope of the Section 397 of Companies Act 1956 (‘Act’) is


wel well explained by SC in the present case

Contd...
NOTEWORTHY RULINGS
 Court held, undoubtedly, there has to be a oppressive conduct
of the majority shareholders over minority .However , acts of
oppression must be continuous acts on the part of the majority
shareholders, continuing up to the date of petition.

 Mere lack of confidence b/w shareholders is not enough ,


unless oppression of a minority involves lack of an element of
fair dealing to a minority member in the matter of his
proprietary rights as a shareholder.
NOTEWORTHY RULINGS
Sangramsinh P. Gaekwad & Ors. Vs Shantadevi P. Gaekwad

In the present case, dispute was regarding issue of additional shares


and issues concerning fiduciary duties of directors.

Apex Court while interpreting S. 397 read with S. 402 of Act


and principles governing jurisdiction of court , observed that
There are wide powers to the court while exercising
jurisdiction under S 402, but it is not in all cases that relief can
be provided. Relief must be provided depending upon
exigencies of the situation.

Contd...
NOTEWORTHY RULINGS
Sangramsinh P. Gaekwad & Ors. Vs Shantadevi P. Gaekwad

 It was further observed that the jurisdiction of the court to


grant appropriate relief under S. 397 is wide. Court is not bound
by the terms contained in S. 402 if a particular situation
warrants further relief(s).
NOTEWORTHY RULINGS
Chatterjee Petrochem (I) (P.) Ltd. vs. Haldia Petrochemicals
Ltd.
In this case, the company was in dire need of funds the Chatterjee
Group had failed to keep its promise of providing funds as it
obtained a loan raising the debt equity ratio of the company.

 It was held that, relief against oppression can be invoked only


when a shareholder feels that his rights as shareholder are being
affected.
NOTEWORTHY RULINGS
Chatterjee Petrochem (I) (P.) Ltd. vs. Haldia Petrochemicals
Ltd.
A shareholder has certain rights conferred by the Companies
Act, which are statutory rights and certain rights are conferred by
the Articles. In both these cases, if the shareholders rights
are affected, they can allege oppression.

Apex Court held that , pure enforcement of shareholders’


contracts is outside scope of section 397. The rights of the
company gets hindered through agreements that infringes
company’s statutory power. However, legitimate expectation
arises only through such agreements. Thus, it is important for
courts to reconsider the enforceability of such agreements.
NOTEWORTHY RULINGS
Dale and Carrington Invt. (P) Ltd. v. P.K. Prathapan and
Ors.

In the present case, Apex Court set aside the judgement of the
Board that allowed the appellant to buy the shares, hence giving
him a chance to benefit from his own wrong and getting the
control of the company. Therefore, a proper remedy was given
to the respondents and the allotment of shares to the appellant
was set aside , on the principle i.e. ‘wrongdoer should not be
enabled by law to take any advantage from his actions.
NOTEWORTHY RULINGS
Dale and Carrington Invt. (P) Ltd. v. P.K. Prathapan and
Ors.
It was observed that the appellant had neither placed on record
anything to justify issue of further share capital nor proper
procedure was followed in allotting the additional share capital.
Therefore, neither the allotment of additional shares in favour of
Ramanujam was bonafide nor it was in the interest of the
company nor a proper and legal procedure was followed to make
the allotment. The motive for the allotment was malafide, the
only motive being to gain control of the company. Therefore, the
court set aside allotment of shares to the appellant.
NOTEWORTHY RULINGS
M S D C Radharamanan Vs. M S D Chandrasekara Raja

In the present case, Respondent No. 1 filed an application purported to


be under Sections 397 and 398 of the Act alleging several acts of
oppression on the part of appellant before the Company Law Board
(‘CLB’).

The CLB opined that there exists a deadlock in the affairs of the
company. It directed the appellant to purchase 2,84,000 shares held by
the first respondent at a value to be determined by a chartered valuer.
NOTEWORTHY RULINGS
M S D C Radharamanan Vs. M S D Chandrasekara Raja
 The Observation laid down in Gaekwad & Ors vs
Shantadevi P. Gaekwad were reiterated. It was therefore
held that the Company Law Board is at liberty to pass such
further orders under Section 402 of the Act, for the smooth
running of the company.

 There are wide powers to the court while exercising


jurisdiction under S 402 , but it is not in all cases that relief can
be provided
NOTEWORTHY RULINGS
GIRDHAR GOPAL GUPTA AND ORS. VS AAR GEE
BOARD MILLS PVT. LTD. AND ORS.
 Considering the nature of the controversy Apex Court did not
consider this to be a fit case where any interference under Article
136 of the Constitution is called for.

It is true that there was some factual controversies and the
allotment of shares is different from receipt of share application
money but the conduct of the parties and their understanding
of the situation largely determines the basic issue and upheld
decision of CLB of valid allotment.
NOTEWORTHY RULINGS
Cyrus Investments Pvt. Ltd. v. Tata Sons Ltd.

 The Hon’ble National Company Law Appellate Tribunal,


while deciding the issue of waiver under section 244 (proviso),
allowed the appeal and held that the following factors are
required to be noticed namely:

1. Whether the appellants are member of the Company?


2. Whether the application under section 241 pertains to
“Oppression & Mismanagement” ?
3. Whether the similar allegation of oppression &
mismanagement was earlier made and decided?
4. Whether there is an exceptional circumstance made out to
grant waiver?
NOTEWORTHY RULINGS
Cyrus Investments Pvt. Ltd. v. Tata Sons Ltd.

 The Appellate Tribunal held that the NCLT is not required to


decide the merit of application at this stage but required to record
grounds to suggest that the application has made out some
exceptional case for waiver of all or any of the requirements
specified in clauses (a) and (b) of sub-section (1) of Section 244
and such opinion required to be formed on the basis of
application and to form an opinion whether application pertains
to oppression & mismanagement.

The merit cannot be decided till the NCLT waives the


requirement and enables the members to file application under
section 241.
NOTEWORTHY RULINGS
Cyrus Investments Pvt. Ltd. v. Tata Sons Ltd.

 The Appellate Tribunal noted that there is clear departure from


earlier provision i.e. sub-section (4) of Section 399 whereunder
the Central Government was empowered to permit to the
ineligible members to file an application by its executive power.
Now, the NCLT is required to decide the question of waiver by an
order which is judicial in nature and therefore, the same can be
passed only by speaking a reasoned order.

To form an opinion as to whether the application merits waiver,


the NCLT is not only required to form its opinion objectively but
also required to satisfy itself on the basis of pleadings as to
whether the application merits consideration.
Nesar Ahmad csnesar367@gmail.com
Nesar & Associates 9810044367

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