CMA Final · Corporate and Economic Laws

Prevention of Oppression and Mismanagement: formula sheet

Full chapter guide

Key formulas

Ground 1: Section 241(1)(a): Affairs conducted in a manner prejudicial to public interest OR prejudicial or oppressive to any member(s) OR prejudicial to the interests of the company; Past or present conduct counts: affairs 'have been or are being' conducted. Any one limb is enough.
Ground 2: Section 241(1)(b): Material change in management or control (not brought about by or in the interests of creditors or any class of shareholders) + likely prejudicial conduct of affairs; Needs both the change and the likelihood of prejudice. The change may be by Board, manager, share ownership, membership or any other manner.
Who may apply: Member with a right to apply under Section 244; Eligibility details sit in Section 244. The Central Government may apply under Section 241(2) on public interest.
Tribunal's opinion: Section 242(1): (a) affairs prejudicial/oppressive AND (b) winding up would unfairly prejudice the member(s), but facts justify winding up on just and equitable ground → Tribunal may make such order as it thinks fit; Both conditions must be satisfied.
Fit and proper person: Section 241(3): Central Government may refer a case against a person to the Tribunal on fraud, misfeasance, persistent negligence, default, breach of trust, unsound business practice, serious injury to trade or industry, or intent to default or defraud; Tribunal decides if the person is fit and proper to be a director or hold any office connected with management of any company (Section 242(4A)). The person is joined as respondent (Section 241(4)).
Company with share capital: member count test: Applicants ≥ lesser of (100 members, or 1/10 of total number of members); Section 244(1)(a). The word 'whichever is less' means you take the smaller number.
Company with share capital: shareholding test: Member or members holding ≥ 1/10 of issued share capital; Alternative to the member count test. Applicants must have paid all calls and other sums due on their shares.
Company without share capital: Applicants ≥ 1/5 of total number of members; Section 244(1)(b).
Joint holders: Shares held jointly by two or more persons = counted as one member; Explanation to Section 244(1).
Waiver: Tribunal may waive all or any of the requirements in clause (a) or (b), on an application made to it; Proviso to Section 244(1). It is not automatic; the members must apply for it.
Application on behalf of others: One or more eligible members, with written consent of the rest, may apply for the benefit of all; Section 244(2).
Two conditions for Section 242(1): Prejudicial or oppressive conduct (or prejudicial to public interest or to the company) AND winding up would unfairly prejudice members, though just and equitable ground exists; Both must be satisfied before the Tribunal may pass an order as it thinks fit.
Orders under 242(2) (examples): Regulate future affairs; purchase of shares; consequent capital reduction; restrict transfer or allotment; terminate or modify agreements; set aside fraudulent preference; remove directors; recover undue gains; appoint reporting directors; costs; any other just matter; Not exhaustive. The general power in 242(1) is wider.
Agreements with persons other than directors: Termination, setting aside or modification only after due notice and with the consent of the party concerned; This proviso applies to clause (f). An agreement with the managing director, a director or the manager falls under clause (e), with no consent requirement. A firm or company owned by the managing director is a separate person, so an agreement with it falls under clause (f).
Fraudulent preference look-back: Transfer, payment or act within 3 months before the date of the application; Applies if it would be a fraudulent preference had an individual done it in insolvency.
Filing of order: Certified copy of order to the Registrar within 30 days; Same 30 days for orders altering or giving leave to alter the memorandum or articles.
Interim orders: On application of any party, Tribunal may make any interim order it thinks fit, on just and equitable terms; Covers regulating the company's affairs during the case.
Section 243 effects: Order terminates, sets aside or modifies an agreement: no claim for damages or compensation. Managing director, director or manager whose agreement is terminated or set aside: barred for 5 years without Tribunal leave. Fit and proper finding under 242(4A): barred for 5 years under 243(1A); Removal under 242(2)(h) alone does not trigger the 243(1)(b) bar. Leave for the 243(1)(b) bar needs notice to the Central Government. Contravention is punishable with fine up to ₹5,00,000.
Penalty for breaching alteration bar (242(8)): Company: fine ₹1,00,000 to ₹25,00,000. Officer in default: fine ₹25,000 to ₹1,00,000; Applies if the company alters the memorandum or articles against the order without leave. No imprisonment now.
Interim orders: Section 242(4): on application of any party, Tribunal may make any interim order it thinks fit, on terms just and equitable; Applicant can be any party, not only the complaining member.
Central Government application: Section 241(2): Central Government opinion that affairs are prejudicial to public interest → may itself apply to Tribunal; Proviso: prescribed companies or classes go to the Principal Bench.
Fit and proper person reference: Section 241(3)-(5) and 242(4A): Central Government refers case → Tribunal decides if respondent is fit and proper to be director or hold any office; The person is joined as respondent. Application is signed and verified as a plaint under the Code of Civil Procedure.
Filing of order: Section 242(3): certified copy of the order filed with Registrar within 30 days; section 242(7): same for orders altering memorandum or articles; The company files it.
Condition for main relief: Section 242(1): affairs prejudicial or oppressive AND winding up would unfairly prejudice members, though facts would justify just and equitable winding up; Both limbs must be met before the Tribunal makes a final order.
Restriction on later alteration: Section 242(5): after an order altering memorandum or articles, no inconsistent alteration without Tribunal leave; Contravention by the company: fine of ₹1,00,000 to ₹25,00,000; officer in default: ₹25,000 to ₹1,00,000 (section 242(8)).

Quick revision

Section 241(1): a member may complain of conduct prejudicial to public interest, oppressive to any member, or prejudicial to the company's interests.
A material change in management or control can also be a ground, if it is likely to make the affairs prejudicial.
A change brought about by, or in the interests of, creditors, debenture holders or a class of shareholders is excluded from that ground.
The member must have a right to apply under Section 244.
The Central Government may itself apply to the Tribunal under Section 241(2) if affairs are prejudicial to public interest.
Section 241(3): the Central Government may refer a case asking whether a person is fit and proper to hold office as director or any other office connected with management.
The person named in a Section 241(3) reference is joined as a respondent.
The Tribunal is the NCLT, constituted by the Central Government under Section 408.
Appeals from the Tribunal's orders lie to the NCLAT, constituted under Section 410.
Under Section 273(2), the Tribunal may refuse a just and equitable winding up if another remedy exists and the petitioners act unreasonably.

Common mistakes

Treating oppression and mismanagement as two separate sections. Fix: Both sit in Section 241(1). Oppression and mismanagement both fall within the grounds listed there, and the Tribunal's powers come in Section 242.
Saying any shareholder can apply under Section 241. Fix: The member must have a right to apply under Section 244. Write this condition every time.
Using 100 members as a fixed requirement. Fix: Always compute one-tenth of total members and take the smaller of that and 100.
Applying the one-tenth test to a company without share capital. Fix: Remember: no share capital means one-fifth of total members; share capital means one-tenth tests.
Treating the list in 242(2) as the only orders the Tribunal can make. Fix: Remember sub-section (2) is without prejudice to the generality of sub-section (1), and clause (m) covers any other just and equitable provision.
Forgetting the second condition, that winding up would unfairly prejudice the members. Fix: Always state both conditions in your answer.
Saying only the complaining member can seek interim relief. Fix: Section 242(4) says on the application of any party to the proceeding.
Mixing up section 241(2) and 241(3). Fix: 241(2) is an application for relief where public interest is prejudiced. 241(3) is a reference asking whether a person is fit and proper to hold office.

Exam tips

Quote the exact phrase of Section 241(1)(a): prejudicial or oppressive to any member, prejudicial to public interest, or prejudicial to the interests of the company.
In case answers, always mention the Section 244 eligibility condition, then the Section 242(1) opinion.
Keep Section 241(2) (Government applies on public interest) apart from Section 241(3) (fit and proper person reference). MCQs test this.
Do not quote old Companies Act, 1956 sections or case names unless you are sure of them. Section numbers from the 2013 Act are enough for marks.
In case studies, first check whether the applicant is a member at all. A creditor is not covered by Section 244.
Write the formula with figures. Marks are given for showing one-tenth and the 'lesser of' step.
Always end an ineligibility answer with the waiver route, worded as 'may waive on application'.
Quote both sections: Section 241 gives the remedy, Section 244 gives the right to apply.