Cases of oppression and mismanagement are commonplace in the realm of corporate and commercial law, and most lawyers or law firms practising in NCLT, NCLAT, or higher courts generally have a brush with such cases in their careers. The Companies Act does not provide a strict definition for the term ‘oppression’; this has resulted in the period being developed jurisprudentially by courts of law over time. A landmark judgment where the purpose of oppression was sought to be outlined was the case of Elder v. Elder & Watson, wherein it was noted that merely a loss of confidence or a deadlock within a company would not be equivalent to oppression; in another case, namely Scottish Co-operative Wholesale Society Ltd. v. Meyer, the term oppression was interpreted according to its dictionary definition, i.e. the act of doing wrongful and harsh acts towards some shareholders while managing a company was held to be oppression. While proceeding to understand what kind of circumstances may be required for a party to be able to demonstrate the act of oppression, the Supreme Court in Rajahmundry Electric Company v. Nageshwara Rao noted that the general lack of integrity and fair dealing, especially in prejudice to some or more shareholders and members of the company, while handling the affairs of a company would qualify as oppression.   Originally the jurisdiction for entertaining oppression or mismanagement application about corporate law vested with Company Law Boards, and now the same vests with jurisdictional NCLTs at Ahmedabad, Mumbai, Delhi or Bangalore Bench.

 

In the case of V.S. Krishnan v. Westfort Hi-tech Hospital Limited, the Supreme Court laid down general elements which would make out an offence of oppression. These include:

  • The act committed was harsh, wrongful, and offensive in nature,
  • The act benefits certain shareholders while being completely mala fide to other shareholders, and
  • The act is generally classified as bad conduct.

In the same case, the Supreme Court noted that if these elements were satisfied, the offence of oppression would be valid and attract a broad scope of remedies. 

A question that arose in outlining the precise measurement of oppression was whether any illegal and offending act by any company member would automatically classify it as oppressive. In response to this question, the Gujarat High Court, in the case of Mohanlal Ganpatram V. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd., reasoned that the question that would need to be asked was whether the act was committed in the best interests of the company in mind, i.e. even if the act was illegal, if it were done to better the position of the company, the show would not be considered to be oppressive. 

Another obvious question is when an act, which is not expressly illegal, is deemed overpowering, especially in cases where the act is prejudicial to the interests of certain company members?

Additionally, it is also essential to understand if an act needs to be repetitive in nature to fall under oppression. In dealing with these aspects, the Company Law Board and the Supreme Court have concurred that there should be an element of continuity in the acts, especially till the date that the matter is presented before the court, for the actions to be considered oppressive; however, the NCLAT departed from this line of reasoning in the case of Power Finance Corporation Limited v. Shree Maheshwar Hydel Power Corporation Limited and adopted a narrow view by opining that only the acts which were continuing when the matter was presented to the court would be considered under oppression, not the acts which had come to an end before the case being presented.

Yet another pertinent question that arises is whether oppression could only be sustained towards shareholders of the company or could be committed against anyone involved in the company? 

In the cases of Sangramsingh Gaekwad v. Shantadevi P. Gaekwad and Vikram Bakshi v. Connaught Plaza Restaurants Limited.

Per the judgment delivered In Re H.R. Harmer Ltd., it was noted that while members could claim oppression, directors would not be able to do so.

SideMenu