INTRODUCTION
CORPORATE GOVERNANCE
Corporate governance refers to the framework, rules and practices by which a company is directed and managed. This ensures transparency, accountability and fairness during management of the company and at the same time balances the interests of various stakeholders like shareholders, employees, etc.
The corporate governance system helps in preventing fraud, mismanagement and at the same time and maintains responsibility and transparency on the side of the company.
SHAREHOLDER RIGHTS
Shareholders are the owners of the company who have specific legal rights that allow them to influence the decisions made by the corporate decisions. These rights include the right to vote on key matters, the right to information about the financial reports and other critical company documents, the right to receive dividends and the right to sue for mismanagement or oppression if company affairs are done in a manner that pis prejudicial to their interests.
In cases where corporate governance fails due to misgovernance and oppression, legal remedies under the Companies Act,2013 to protect shareholder rights and restore corporate fairness.
The legal remedies offer protection to the minority shareholders, prevent mismanagement, enhance investor confidence, ensure compliance with corporate governance standards and promote long-term corporate stability.
DEFINITION OF OPPRESSION AND MISMANAGEMENT
OPPRESSION
In the corporate context, oppression refers to the actions taken by the majority shareholder or the management that unfairly prejudice the rights and interests of the minority shareholders. These acts are harsh and wrongful and lead to an unfair disadvantage for certain shareholders.
Some examples of oppression within the company can be withholding the dividends unfairly, denying shareholders access to the company information and unjustified removal of minority shareholders from decision making.
Under Section 241 of the Companies Act, a stakeholder who has been wronged can seek relief from the National Company Law Tribunal (NCLT) if the company’s affairs are conducted in an oppressive or prejudicial manner.
MISMANGEMENT
Mismanagement refers to the situation where the affairs of the company are mismanaged or handled recklessly, which leads to instability or harm to the stakeholders. It occurs when the top officials fail in their duties, which results to poor governance, corruption and financial mismanagement.
Some examples of mismanagement can be the misuse of company funds for personal gain, fraudulent transactions or reckless business decisions.
A shareholder can file a petition under section 241 of the Companies Act 2013 if the company is being mismanaged, which harms the interests of the stakeholders.
DIFFERENCE BETWEEN OPPRESSION AND MISMANGEMENT
Oppression refers to the unfair treatment of minority shareholders while mismanagement refers to the misconduct or poor governance harming the company.
Oppression protects the shareholder rights; on the other hand, mismanagement endangers the proper management of the company.
Oppression affects the minority shareholders, and mismanagement affects the company, shareholders, both major and minor.
STATUTORY PROVISIONS ON OPPRESSION AND MISMANAGEMENT
The Companies Act of 201 provides legal remedies through sections 241 and 245.
1. SECTION 241
This section deals with the ‘Application for relief in cases of oppression and Mismanagement’
A complaint regarding oppression and mismanagement can be made by
- Members (Shareholders) of the company
If the company’s affairs are being conducted in a prejudicial manner to the company’s or stakeholders’ interests.
There has been a substantial change in management or control of the company, which is against the interests of the stakeholders.s
- If the central government believes that the company’s affairs are being conducted in a prejudicial manner to the public interest.
2. SECTION 242-
This section deals with the power of the National Company Law Tribunal (NCLT) to provide relief if it is satisfied :
It can grant relief by regulating the company’s affairs, the purchase of shares by majority or minority shareholders, restricting share transfers, the appointment of directors and the winding up of the company.
3. SECTION 243
This section deals with the effect of the tribunal’s order
If the NCLT orders the removal of a director or managerial mismanagement or oppression, then that person cannot be reappointed in the company for 5 years until approved by the tribunal, and any action taken by the company against this order will be considered void.
4. SECTION 244
This section deals with the eligibility criteria for filing a petition.
This provision is included to prevent frivolous complaints under section 241
For companies with share capital- at least 100 member , 10% of the total members or members holding at least 10% of the paid-up share
For companies without share capital, at least 1/5th (20%) of the members must apply.
5. SECTION 245
This section allows a group of shareholders, depositors, or members to file a class action suit against the company or its directors if they engage in fraudulent or unlawful conduct, false statements in financial reports or prospectus or breach of fiduciary duties
REMEDIES AVAILABLE UNDER THE COMPANIES ACT 2013
When a company’s affairs are conducted oppressively and mismanaged manner, the affected parties can seek remedies under sections 241 to 245. The following are the remedies:
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CORRECTIVE MEASURES ORDERED BY THE NCLT
- Under Section 242, the tribunal finds that oppression or mismanagement can pass corrective orders, including:
Regulation of future conduct of affairs- the tribunal can issue directions on how the company should be managed, which can include changing company policies, etc.
- Removal of directors or key managerial personnel
if the directors or executives are charged with accusation of mismanagement and oppression, then the tribunal can remove them from their office and also bar the, from reappointment
- Appointment of Independent Directors or Administrators
To restore confidence in the management, the tribunal can appoint independent directors or administrators to oversee the company’s affairs. This, in turn,helps withh being in neutral and professional oversight.
- Restrictions on Share Transfers
If shares have been transferred fraudulently in a way that harms the minority shareholders, then the tribunal can restrict such transfers, preventing dilution of ownership or unfair exclusion of certain shareholders.
- Cancellation or Modification of Agreements
The tribunal can declare contracts, resolutions, or agreements invalid if they are made in a fraudulent manner or against the interest of the shareholders.
This avoids oppressive or prejudicial transactions by nullifying them.
2. FINANCIAL REMEDIES FOR AGGRIEVED SHAREHOLDERS
If oppression has been suffered by the minority stakeholders, then the tribunal may order the majority shareholders to buy the minority shareholders at a fair value. This prevents forced exclusion of minority investors by ensuring that they get fair compensation.
If a shareholder or the company has suffered financial loss due to mismanagement, the tribunal can award compensation, which may include refunds, penalties or repayment of misused company funds.
3. STRUCTURAL CHANGES IN THE COMPANY MANAGEMENT.
The tribunal can modify the Articles of Association (AoA) or Memorandum of Association (MoA) to prevent further oppression and mismanagement, and this further ensures structural protection for the shareholder.s
In extreme cases the tribunal can order a merger, demerger or corporate restructuring to ensure proper management and protect stakeholder interests. This is useful in reviving financially unstable companies.
4. WINDING UP OF THE COMPANY
If the tribunal does not find another remedy or no other remedy, then as a last resort is sufficient it may order for the winding up of the company to avoid harm to public interest, shareholders or creditors.
5. CLASS ACTION SUITS
According to Section 245, the affected stakeholders, like shareholders, depositors, or members, can file a section suit against the company and its various administrators if their actions are fraudulent, illegal, or misleading.
The tribunal can direct compensation, penalty or rectification of any mistakes.
CHALLENGES IN ENFORCEMENT AND PRACTICAL LIMITATIONS
- Shareholders alleging the company with oppression and mismanagement must provide concrete evidence, and gathering official records and internal documents is challenging; hence, many cases fail because the petitioner cannot establish a clear statement.
- The prolonged and delayed legal proceedings and backlog reduce the effectiveness of immediate justice, which in turn allows mismanagement to continue.
- Minority shareholders often lack the adequate financial means to engage in lengthy battles against the company and its powerful and resource-backed management. The legal costs and fees discourage the shareholders from filing petitions.
- Even if the NCLT passes an order, enforcing the order against promoters and directors can be challenging, as there is no automatic mechanism to monitor compliance, which leads to difficulty in execution.
- Under section 244 of the Companies Act 2013 minority shareholders can only file petitions if they meet the minimum shareholding requirement (at least 10% of paid-up capital or 100 members)
CONCLUSION
The Companies Act, 2013, provides a strong framework to protect shareholders and ensure corporate governance through remedial provisions that address oppression and mismanagement. Sections 241 to 246 empower minority shareholders to seek remedies such as removal of directors, financial compensation, share buyouts, etc, to maintain fairness, transparency and accountability.
Though, practical enforcement still remains a challenge due to factors like financial constraints or high burden of proof. To strengthened the enforcement of such laws reforms should be made within NCLT justice expediting system, stricter compliance mechanisms and increased shareholder awareness to provide a more effective relief to the affected stakeholders and ensure that the companies operate in a more equitable and just manner.
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Rights of undertrial prisoners in India
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