Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
Whether mere non-compliance of
the provisions be construed as “Oppression” and “Mismanagement” under Company
Law?
It is known that section 397/398
of the Companies Act, 1956 enables the members to question the “oppression” and
“mismanagement” in the Company if any. The Company Law Board or the Tribunal
entertains the applications very carefully in view of the consequences of an
order against the Company and at times it is very very difficult to construe
“oppression” and “mismanagement”.
But, the interesting questions is
that as to whether mere non-compliance of the provisions of the Act or the
rules be construed as “mismanagement” or “oppression” enabling the Board to
pass orders against the Company or the majority as the case may be. After the
MCA scheme, filing statutory documents etc. with the Registrar of Companies
become very easy and earlier it was a risky procedure. Now, most of the big
companies or even the closely held public companies scrupulously file all the
necessary documents with the Registrar of Companies. Still, the private
companies or the closely held private companies may not be filing the necessary
documents with the Registrar of Companies as required under the Act and also
the rules. Whether such a non-compliance be construed as “oppression” or
“mismanagement”? is an interesting question to look into. Because,
non-compliance of the provisions, may enable the petitioners under section
397/398 of the Act to substantiate their version.
It is true that many private
companies may not be able to adhere to the good corporate governance. Many
private companies and even the public companies may not be complying with the
provisions of the Act in stricto senso. Even final accounts and annual reports
are not filed by some companies as required by law. Some companies do not hold
annual general body meeting as required. If mere irregularity or non-compliance
of the provisions of the Act is construed as ‘oppression’ and ‘mismanagement’,
then, most of the companies may not run the company smoothly as their actions
tend to give rise to an application under section 397/398 of the Act. Again,
there may be a question as to what happens if the Board or Tribunal passes
preventive orders and in what way the company or the management is going to be
prejudiced with the preventive order. It all may appear to be very simple, but,
passing an order against the majority in the company or the company, amounts to
interfering with the commercial wisdom of the company or the majority which goes
against the basic principle of ‘majority rule’ and the principle of ‘indoor
management’. Again, if we see the issue of construing the non-compliance of the
provisions as ‘oppression’ and ‘mismanagement’, it is very difficult to put the
issue straight. Normally, the ‘oppression’ and ‘mismanagement’ is construed
based on the circumstantial evidence and led by presumptions. It is also true
that, in many cases, there can not be any tangible evidence to support the
‘oppression’ and ‘mismanagement’, and, still, there can be “oppression” and
“mismanagement”. As such, it can not be said that very non-compliance of the
provisions of the Act is meant for “oppression” and “mismanagement”, but,
certainly, the non-compliance of the provisions of the Act may be construed as
“oppression” and “mismanagement” looking the same from evidentiary point of
view.
The following points to be noted
in this regard.
1. There can not be any rule like
non-compliance of the provisions of the Act can be construed as “oppression”
and “mismanagement”.
2. Certainly, where there is no
proper justification justifying the issue of non-compliance as unrelated to
oppression and mismanagement, certainly, the non-compliance of the provisions
of the Act can be construed as ‘oppression’ and ‘mismanagement’.
3. Event the issue of
non-compliance to be looked at the kind of the company, share holding pattern,
managerial personnel, the statutory provisions, corporate governance, track
record of the company, the practice adopted in the company and the probabilities,
to be considered while dealing with the issue of construing as to whether the
non-compliance of the provisions of the Act leads to ‘oppression’ and
‘mismanagement’.
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
