Issues in Oppression and Mismanagement

I have written two posts on Indian Corporate Law, discussing issues arising under Section 399 of the Companies Act, 1956. The first post deals with issues under Section 399(1); the second deals with Section 399(3). In the latter post, I mentioned that “One area where the Companies Bill does introduce a change is in the substantive provisions of oppression and mismanagement.” The proposed Section 212 of the Companies Bill, 2009, states:

212. (1) Any member of a company who complains that—

(a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members; or

(b) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has 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, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members,

may apply to the Tribunal, provided such member has a right to apply under section 215, for an order under this Chapter.

(2) The Central Government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter.

The basic difference is that the proposed Section 212 allows actions in cases where the affairs of the company are being conducted in a manner “prejudicial” to the public interest or “prejudicial or oppressive” to the shareholders. Under the present Act, the acts complained of must be “prejudicial” to the public interest or “oppressive” to the shareholders (and not “prejudicial or oppressive”). The effect of this – whether this indeed changes the legal position or whether it is clarificatory of existing judicial practice in India – is something which will be considered in subsequent posts.