Practical Aspects of Oppression and Mismanagement

What is oppression? The term oppression relates to the affairs of the company have been or being conducted in a manner which is prejudicial to the interest of any member or to the public or members of the company or to the company itself.

Common factors for Oppression and Mismanagement: There may be numeral factors which might be oppressive to the members but there are certain common incidents we practically found those are as follows:

1. Change in the composition of the Board of Directors by way of illegal removal from the position of the Directorship or by way of illegally inducting new Directors in the Board to get the majority.

2. Alteration of Paid up capital of the Company by way of  illegal allotment of equity share capital in favor of a particular section of the shareholders to get the controlling power in the company.

3. Misappropriation of the Company's fund by way of related party transactions or by way of opening the new bank account without the knowledge of the other Board members etc.

However, in addition to the above common factors, there may be several other reasons which might create oppression and mismanagement.

Remedies available against Oppression and Mismanagement: The aggrieved shareholder(s) may file an application before the National Company Law Tribunal (NCLT) under section 241,242 and other related sections of the Companies Act 2013 to get relief.

In Kolkata National Company Law Tribunal consisted with two court namely court I which consisted of single bench member (Judiciary) and deals with the companies having paid up share capital less than Rs.50 lac and court II consisted two bench members one from judiciary and another technical deal in the matters related to companies having paid up capital of Rs.50 lakhs or more than it.

Who can file the application before the NCLT: In case company having share capital any member(s)  holding not less than ten percent of the paid up share capital of the company or one hundred members whichever is less and companies not having the share capital then at least one-fifth of the total number of members.

Procedure to prepare the application: The application to be drafted as per format is given in the  Form NCLT-1 with details facts and figures. It shall be accompanied by the index, list of dates of events and the synopsis of the facts. Every allegation shall be supported with proper attachment. Like if the allegation is for illegal removal of the Director then the copy of the Form DIR12 along with the attachments of the said Form are required to be annexed. Every application shall be accompanied by an affidavit and that should be as per the format of Form NCLT-6. Every application shall be accompanied with Form NCLT-2 which is notice of admission.

Every page of the application shall be numbered and all the Annexures shall be named like A-1,A-2 etc.

The application along with all Annexures and other documents shall be printed on legal paper.

The facts of the matter shall be described in the application in details along with proper evidence and dates of events. To prove the requisite shareholding in the company the applicant either shall attach the copy of the latest annual return or the copy of the share certificates. The relief (s)sought in the application shall be mentioned precisely along with the interim relief if any. If there are more than one applicants then the petition shall be signed either by all applicants or by if it is signed by a particular applicant then a power of attorney is required to be issued in favor of that applicant by the others and the said power of attorney shall be part of the petition.

Servicing of the application: Once the petition is completed then the copy of the petition shall be served to all the respondents:

Fees of the Application: The application shall consist a demand draft in favour of pay and accounts officer, Ministry of Corporate Affairs, Kolkata of Rs…..(depends upon the number of sections are covered in the petition. However minimum fees are required to be paid Rs.12500, for Section 241 and 242).

Filling of the petition before the NCLT: Once the servicing of the petition among the respondents are completed then three copies of the petition, one original and two photocopies along with the proof of service to the respondents shall be filed before the Registrar of the NCLT. A court fee stamp of Rs.20 shall be affixed on the original copy of the petition. The Registrar shall verify the petition and if it is technically correct then it will be considered for the admission otherwise it will write to the counsel of the petitioner to rectify the same.

Notice of Mentioning: The petitioner shall give the notice of mentioning to the NCLT at least forty-eight hours before of the date of the mentioning after giving intimation of the same to the respondents. There is no specific format of mentioning, it can be served in the form of letter.

Who can appear before the NCLT: The petitioner himself/herself can appear to make the submission on his / her behalf or he may engage any practicing Company Secretary/ Chartered Accountant/ Cost Accountant or an Advocate to appear on his behalf. If the Petitioner engages any professional to appear on his behalf then a power of attorney / Board resolution (in case company is a petitioner) shall be issued in favour of the professional and Form NCLT-12 (Vakalatnama in the case of Advocate) along with the power of attorney shall be filed at the NCLT.

Powers of the Tribunal: The Tribunal may pass following orders in respect of Oppression and Mismanagement:

• The regulation of conduct of affairs of the company in future.
• Purchase of shares or interest of any member(s) of the company by other member(s) or by the company.
• If shares are purchased by the company then consequent reduction of the share capital.
• Restrictions on the transfer or allotment of the shares of the company.
• To terminate or modification of any contract.
• Removal of any Director(s) of the company.
• Recovery of undue gains made by any Director(s) during his tenure.
• Appointment of new Director(s) to report the Tribunal.
• Imposition of costs as may be deem fit by the Tribunal.
• Any other order which in the opinion of the Tribunal is just and equitable.

Time Limit to dispose a matter: As per section 422 of the Companies Act 2013 NCLT shall dispose the matter within a period of ninety days from the date of admission and the said period may extend for a further  period  not exceeding ninety days. So any matter of oppression and mismanagement shall be disposed by NCLT within a period of maximum six months. However this time limit does not applicable to old matters filed under Section 397 and 398 under the Companies Act 1956 and transferred from Company Law Board.

Procedure at the NCLT: on the date of admission the Bench will allow both the parties to make their submission and after hearing both the parties either it may pass the interim order or may direct the respondent to  file it's reply within a certain period and direct the petitioner to file it's rejoinder within a certain period. Both the respondent and the petitioner are required to serve the copy of the reply and rejoinder to each other. In case the respondent or the petitioner failed to file the reply or rejoinder within the given time limit then the bench may extend the time of filling after imposing a cost.

Applicability of Limitation Act in oppression and Mismanagement: Before filling any petition at the NCLT, one should take care that the application is within the time period as prescribed under the Limitation Act 1963 and the first cause of action has been arose within a period of Three years from the date of filling petition at the NCLT. If any matter which is beyond the limitation period then the Bench may reject the same on the ground of time barred under the Limitation Act 1963. I have got an favorable order at NCLT Kolkata Bench  in a matter filed under section 397 & 398 of the Companies Act 1956, on the ground of limitation. The matter was filed before the Company Law Board, Kolkata Bench in the year of 2015 whether the cause of action was arose in the year of 2007.(CP No-57/2015 Nirakar Das & Ors Vs Durgapur Bio Garden Private Limited & Ors ). So before drafting the petition, one must assure that the matter is not barred under the Limitation Act.