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CHAPTER XVI

 

PREVENTION OF OPPRESSION AND MISMANAGEMENT

 

 
 
241.Preservation of books and papers of amalgamated companies.

(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 in a manner prejudicial to the interests of the company;
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 244,
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.
 
 
 
242.Powers of Tribunal.

(1) If, on any application made under section 241, the Tribunal is of the opinion—
(a) that the company’s affairs have been or are being conducted in a manner
prejudicial or oppressive to any member or members or prejudicial to public interest
or in a manner prejudicial to the interests of the company; and
(b) that to wind up the company would unfairly prejudice such member or
members, but that otherwise the facts would justify the making of a winding-up
order on the ground that it was just and equitable that the company should be
wound up,
the Tribunal may, with a view to bringing to an end the matters complained of, make such
order as it thinks fit.
(2) Without prejudice to the generality of the powers under sub-section (1), an order
under that sub-section may provide for—
(a) the regulation of conduct of affairs of the company in future;
(b) the purchase of shares or interests of any members of the company by
other members thereof or by the company;
(c) in the case of a purchase of its shares by the company as aforesaid, the
consequent reduction of its share capital;
(d) restrictions on the transfer or allotment of the shares of the company;
(e) the termination, setting aside or modification, of any agreement, howsoever
arrived at, between the company and the managing director, any other director or
manager, upon such terms and conditions as may, in the opinion of the Tribunal, be
just and equitable in the circumstances of the case;
(f) the termination, setting aside or modification of any agreement between the
company and any person other than those referred to in clause (e):
Provided that no such agreement shall be terminated, set aside or modified
except after due notice and after obtaining the consent of the party concerned;
(g) the setting aside of any transfer, delivery of goods, payment, execution or
other act relating to property made or done by or against the company within three
months before the date of the application under this section, which would, if made or
done by or against an individual, be deemed in his insolvency to be a fraudulent
preference;
(h) removal of the managing director, manager or any of the directors of the
company;
(i) recovery of undue gains made by any managing director, manager or director
during the period of his appointment as such and the manner of utilisation of the
recovery including transfer to Investor Education and Protection Fund or repayment
to identifiable victims;
(j) the manner in which the managing director or manager of the company may
be appointed subsequent to an order removing the existing managing director or
manager of the company made under clause (h);
(k) appointment of such number of persons as directors, who may be required
by the Tribunal to report to the Tribunal on such matters as the Tribunal may direct;
(l) imposition of costs as may be deemed fit by the Tribunal;
(m) any other matter for which, in the opinion of the Tribunal, it is just and
equitable that provision should be made.
(3) A certified copy of the order of the Tribunal under sub-section (1) shall be filed by
the company with the Registrar within thirty days of the order of the Tribunal.
(4) The Tribunal may, on the application of any party to the proceeding, make any
interim order which it thinks fit for regulating the conduct of the company’s affairs upon
such terms and conditions as appear to it to be just and equitable.
(5) Where an order of the Tribunal under sub-section (1) makes any alteration in the
memorandum or articles of a company, then, notwithstanding any other provision of this
Act, the company shall not have power, except to the extent, if any, permitted in the order,
to make, without the leave of the Tribunal, any alteration whatsoever which is inconsistent
with the order, either in the memorandum or in the articles.
(6) Subject to the provisions of sub-section (1), the alterations made by the order
in the memorandum or articles of a company shall, in all respects, have the same effect as
if they had been duly made by the company in accordance with the provisions of this
Act and the said provisions shall apply accordingly to the memorandum or articles so
altered.
(7) A certified copy of every order altering, or giving leave to alter, a company’s
memorandum or articles, shall within thirty days after the making thereof, be filed by the
company with the Registrar who shall register the same.
(8) If a company contravenes the provisions of sub-section (5), the company shall
be punishable with fine which shall not be less than one lakh rupees but which may extend
to twenty-five lakh rupees and every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to six months or with fine which
shall not be less than twenty-five thousand rupees but which may extend to one lakh
rupees, or with both.
 
 
 
243.Consequence of termination or modification of certain agreements.

(1) Where an order made under section 242 terminates, sets aside or modifies an
agreement such as is referred to in sub-section (2) of that section,—
(a) such order shall not give rise to any claims whatever against the company
by any person for damages or for compensation for loss of office or in any other
respect either in pursuance of the agreement or otherwise;
(b) no managing director or other director or manager whose agreement is so
terminated or set aside shall, for a period of five years from the date of the order
terminating or setting aside the agreement, without the leave of the Tribunal, be
appointed, or act, as the managing director or other director or manager of the
company:
Provided that the Tribunal shall not grant leave under this clause unless notice of
the intention to apply for leave has been served on the Central Government and that
Government has been given a reasonable opportunity of being heard in the matter.
(2) Any person who knowingly acts as a managing director or other director or
manager of a company in contravention of clause (b) of sub-section (1), and every other
director of the company who is knowingly a party to such contravention, shall be punishable
with imprisonment for a term which may extend to six months or with fine which may extend
to five lakh rupees, or with both.
 
 
 
244.Right to apply under section 241.

(1) The following members of a company shall have the right to apply under
section 241, namely:—
(a) in the case of a company having a share capital, not less than one hundred
members of the company or not less than one-tenth of the total number of its
members, whichever is less, or any member or members holding not less than onetenth
of the issued share capital of the company, subject to the condition that the
applicant or applicants has or have paid all calls and other sums due on his or their
shares;
(b) in the case of a company not having a share capital, not less than one-fifth
of the total number of its members:
Provided that the Tribunal may, on an application made to it in this behalf, waive all
or any of the requirements specified in clause (a) or clause (b) so as to enable the members
to apply under section 241.
Explanation.—For the purposes of this sub-section, where any share or shares are
held by two or more persons jointly, they shall be counted only as one member.
(2) Where any members of a company are entitled to make an application under subsection
(1), any one or more of them having obtained the consent in writing of the rest,
may make the application on behalf and for the benefit of all of them.
 
 
 
245.Class action.

(1) Such number of member or members, depositor or depositors or any class
of them, as the case may be, as are indicated in sub-section (2) may, if they are of the
opinion that the management or conduct of the affairs of the company are being conducted
in a manner prejudicial to the interests of the company or its members or depositors, file an
application before the Tribunal on behalf of the members or depositors for seeking all or
any of the following orders, namely:—
(a) to restrain the company from committing an act which is ultra vires the
articles or memorandum of the company;
(b) to restrain the company from committing breach of any provision of the
company’s memorandum or articles;
(c) to declare a resolution altering the memorandum or articles of the company
as void if the resolution was passed by suppression of material facts or obtained
by mis-statement to the members or depositors;
(d) to restrain the company and its directors from acting on such resolution;
(e) to restrain the company from doing an act which is contrary to the provisions
of this Act or any other law for the time being in force;
(f) to restrain the company from taking action contrary to any resolution passed
by the members;
(g) to claim damages or compensation or demand any other suitable action from
or against—
(i) the company or its directors for any fraudulent, unlawful or wrongful act
or omission or conduct or any likely act or omission or conduct on its or their part;
(ii) the auditor including audit firm of the company for any improper or
misleading statement of particulars made in his audit report or for any
fraudulent, unlawful or wrongful act or conduct; or
(iii) any expert or advisor or consultant or any other person for any incorrect
or misleading statement made to the company or for any fraudulent, unlawful or
wrongful act or conduct or any likely act or conduct on his part;
(h) to seek any other remedy as the Tribunal may deem fit.
(2) Where the members or depositors seek any damages or compensation or demand
any other suitable action from or against an audit firm, the liability shall be of the firm as well
as of each partner who was involved in making any improper or misleading statement of
particulars in the audit report or who acted in a fraudulent, unlawful or wrongful manner.
(3) (i) The requisite number of members provided in sub-section (1) shall be as under:—
(a) in the case of a company having a share capital, not less than one hundred
members of the company or not less than such percentage of the total number of its
members as may be prescribed, whichever is less, or any member or members holding
not less than such percentage of the issued share capital of the company as may be
prescribed, subject to the condition that the applicant or applicants has or have paid
all calls and other sums due on his or their shares;
(b) in the case of a company not having a share capital, not less than one-fifth of
the total number of its members.
(ii) The requisite number of depositors provided in sub-section (1) shall not be less
than one hundred depositors or not less than such percentage of the total number of
depositors as may be prescribed, whichever is less, or any depositor or depositors to whom
the company owes such percentage of total deposits of the company as may be prescribed.
(4) In considering an application under sub-section (1), the Tribunal shall take into
account, in particular—
(a) whether the member or depositor is acting in good faith in making the
application for seeking an order;
(b) any evidence before it as to the involvement of any person other than directors
or officers of the company on any of the matters provided in clauses (a) to (f) of subsection
(1);
(c) whether the cause of action is one which the member or depositor could
pursue in his own right rather than through an order under this section;
(d) any evidence before it as to the views of the members or depositors of the
company who have no personal interest, direct or indirect, in the matter being proceeded
under this section;
(e) where the cause of action is an act or omission that is yet to occur, whether
the act or omission could be, and in the circumstances would be likely to be—
(i) authorised by the company before it occurs; or
(ii) ratified by the company after it occurs;
(f) where the cause of action is an act or omission that has already occurred,
whether the act or omission could be, and in the circumstances would be likely to be,
ratified by the company.
(5) If an application filed under sub-section (1) is admitted, then the Tribunal shall
have regard to the following, namely:—
(a) public notice shall be served on admission of the application to all the members
or depositors of the class in such manner as may be prescribed;
(b) all similar applications prevalent in any jurisdiction should be consolidated
into a single application and the class members or depositors should be allowed to
choose the lead applicant and in the event the members or depositors of the class are
unable to come to a consensus, the Tribunal shall have the power to appoint a lead
applicant, who shall be in charge of the proceedings from the applicant’s side;
(c) two class action applications for the same cause of action shall not be allowed;
(d) the cost or expenses connected with the application for class action shall be
defrayed by the company or any other person responsible for any oppressive act.
(6) Any order passed by the Tribunal shall be binding on the company and all its
members, depositors and auditor including audit firm or expert or consultant or advisor or
any other person associated with the company.
(7) Any company which fails to comply with an order passed by the Tribunal under
this section shall be punishable with fine which shall not be less than five lakh rupees but
which may extend to twenty-five lakh rupees and every officer of the company who is in
default shall be punishable with imprisonment for a term which may extend to three years and
with fine which shall not be less than twenty-five thousand rupees but which may extend to
one lakh rupees.
(8) Where any application filed before the Tribunal is found to be frivolous or vexatious,
it shall, for reasons to be recorded in writing, reject the application and make an order that the
applicant shall pay to the opposite party such cost, not exceeding one lakh rupees, as may be
specified in the order.
(9) Nothing contained in this section shall apply to a banking company.
(10) Subject to the compliance of this section, an application may be filed or any other
action may be taken under this section by any person, group of persons or any association
of persons representing the persons affected by any act or omission, specified in
sub-section (1).
 
 
246.Application of certain provisions to proceedings under section 241 or section 245.

The provisions of sections 337 to 341 (both inclusive) shall apply mutatis mutandis,
in relation to an application made to the Tribunal under section 241 or section 245.
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