Tag Archives: Oppression and Mismanagement

Petition for Oppression and Mismanagement – Object of Qualifying Percentage of Shares

 In J.P. Srivastava & Sons Pvt. Ltd. and Ors. v. M/s. Gwalior Sugar Co. Ltd. and Ors. AIR 2005 SC 83, the Hon’ble Supreme Court considered the object of prescribing a qualifying percentage of shares to entertain petition under sections 397 and 398 of the Companies Act, 1956. It was held that the object is to ensure that frivolous litigation is not indulged in by persons, who have no legal stake in the company. If the Court is satisfied that the petitioners represents the body of shareholders holding the requisite percentage, the Court may proceed with the matter. It was held as under:

“The object of prescribing a qualifying percentage of shares in petitioners and their supporters to file petitions under sections 397 and 398 of the Companies Act, 1956 is clearly to ensure that frivolous litigation is not indulged in by persons who have no real stake in the company. However, it is of interest that the English Companies Act contains no such limitation. What is required in these matters is a broad commonsense approach. If the Court is satisfied that the petitioners represent a body of shareholders holding the requisite percentage, it can assume that the involvement of the company in litigation is not lightly done and that it should pass orders to bring to an end the matters complained of and not reject it on a technical requirement. Substance must take precedence over form. Of course, there are some rules which are vital and go to the root of the matter which cannot be broken. There are others where non-compliance may be condoned or dispensed with. In the latter case, the rule is merely directory provided there is substantial compliance with the rules read as a whole and no prejudice is caused. (See Pratap Singh v. Shri Krishna Gupta (AIR 1956 SC 140). Aruna Oswal v. Pankaj Oswal, (2020) SCC Online SC 570.

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Penalty for Frauds – By an Officer of the Company

Under Section 241(2) of the Companies Act, 2013, 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, may apply itself to the Tribunal for orders under the said Chapter, which is headed “prevention of Oppression and Mismanagement”. Apart from the vast powers that are given to the Tribunal under Section 242, powers under Sections 337 and 339 are also given in aid of this power, which will apply mutatis mutandis.         Section 337 of the Companies Act refers to penalty for frauds by an officer of the Company in which mismanagement has taken place. Likewise, Section 339 refers to any business of the company which has been carried on with intent to defraud creditors of that company. Obviously, the persons referred to in Section 339(1) as persons who are other than the parties “to the carrying on of the business in the manner aforesaid” which again refers to the business of the company which is being mismanaged and not to the business of another company or other persons. Usha Ananthasubramanian v. Union of India, (2020) 4 SCC 122.

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