The protection of minority shareholders is fundamental to corporate governance in order to ensure equitable treatment and prevent oppression by majority stakeholders. A company functions through decisions made by its members and its Board of Directors. The appointment of directors is governed by a majority vote, which allows majority shareholders to effectively control the board and influence decisions of the company. Therefore, this often leads to situations where minority shareholders feel excluded or prejudiced. To address this imbalance and provide relief against oppressive conduct or mismanagement, the Companies Act, 2013 (Hereinafter “The Act”) sets out an elaborate legal framework. It acts as a safeguard to prevent prejudice, protect shareholder interests and maintain corporate integrity. The National Company Law Tribunal (NCLT) serves as the primary forum to adjudicate such disputes and grant appropriate relief to minority shareholders. It acts as a safeguard to prevent prejudice, protect shareholder interests and maintain corporate integrity.
What constitutes Oppression and Mismanagement
Oppression
Oppression’ is said to occur when the company’s conduct is contrary to public interest as well as the principles of fair dealing. The Act does not clearly define “oppression” or “mismanagement,” but judicial pronouncements have elaborated both concepts.
The principles relating to oppressive conduct were clearly articulated in S.P. Jain v. Kalinga Tubes Ltd., where the Supreme Court elaborated on the criteria for determining what constitutes oppression. The Court held that oppression involves conduct that is burdensome, harsh, and wrongful, and reflects a lack of fair dealing towards a shareholder with respect to their proprietary rights. The judgment also clarified that a mere breakdown of confidence between majority and minority shareholders is not sufficient unless that loss of confidence is the result of oppressive conduct by the majority in the management of the company’s affairs.
In Needle Industries India Ltd. v. Needle Industries Newey (India) Holdings Ltd., the Supreme Court held that an illegal act will not by itself be treated as oppressive unless it is accompanied by mala fide intention or is otherwise harsh, burdensome or wrongful. However, a wrongdoer (even if part of the majority) who has committed oppression cannot benefit from their wrongdoing by buying out the oppressed minority.
The Supreme Court further clarified the scope of “oppression” in V.S. Krishnan v. Westfort Hi-Tech Hospital Ltd., and this interpretation has been adopted in several subsequent rulings under the Companies Act. The Court held that oppression includes conduct lacking in probity or fair dealing, or actions undertaken in bad faith or for collateral purposes. Moreover, when considering an order for winding up, courts may apply equitable principles to determine whether the conduct in question is unjust, unfair, or inequitable.
This blog is a part of our The Complete Guide to NCLT in India: Powers, Structure, and Jurisdiction blogpost.
Mismanagement
When it comes to mismanagement, the acts are broad in scope and cannot be confined to rigid categories. Generally, it involves gross mismanagement of a company’s affairs and acts that are prejudicial to its interests, which have the potential to cause serious injury to the company and its stakeholders. Instances of mismanagement include gross negligence and inaction where clear action is required, serious violations of the company’s Memorandum or Articles, sale of assets at a throwaway price without compliance or justification, failure to keep accurate books of account, delays in issuing share certificates, etc.
In Malayalam Plantations India Ltd (1991) 5 Corpt LA 361 (Ker), it was held that selling a company’s assets at low prices without complying with Section 293 constituted mismanagement. The Court held the Board of Directors and the purchaser liable for the company’s losses.
Another significant ruling relating to oppression and mismanagement is Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd. Under the Companies Act, 2013, it is not enough for a shareholder to merely show that the affairs of the company are being conducted in an oppressive or prejudicial manner; there must be a demonstrated abuse of corporate powers. To obtain relief, the shareholders must also prove that the oppression is so serious that it would be just and equitable to wind up the company. If the circumstances are not grave enough to justify winding up, the NCLT does not have jurisdiction to grant relief under the oppression and mismanagement provisions. In the Tata Sons case, the Mistry Group attempted to demonstrate grounds for winding up the company. However, it was clear that the mere removal of Cyrus Mistry was not, on its own, a sufficient reason to justify winding up such a large and established company. The Court correctly noted that the removal of a director or executive chairman alone cannot constitute a ground for winding up. Accordingly, in the absence of such grave grounds, no relief for oppression and mismanagement could be granted. Even if the removal of a director is procedurally flawed, unless it is shown to be oppressive or prejudicial to shareholders, no remedy is available.
Application of Section 244: Remedies under NCLT
Sections 241–246 under Chapter XVI of the Companies Act provide relief and protection to members of a company against acts of oppression, mismanagement, and acts of the majority or management that are prejudicial to the interests of the company or public interest. Section 241 allows shareholders to approach the National Company Law Tribunal (NCLT) if they believe that a company’s affairs are mismanaged or are being conducted in a manner that is prejudicial or oppressive to the company or its shareholders. The right to make an application under Section 241 for minority oppression is subject to the requirements specified in Section 244.
Legal Threshold to Apply to NCLT
Section 244(1) of the Companies Act, 2013 specifies the minimum numerical threshold to file an application under Section 241 for oppression and mismanagement.
For companies with share capital:
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- At least 100 members, or
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- Not less than one-tenth of the total number of members (whichever is lower), or
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- Any member or group of members holding not less than 10% of the issued share capital, provided that such members have paid all calls and other dues on their shares.
For companies not having share capital:
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- Not less than one-fifth of the total number of members may apply.
Remedies and Reliefs
Since its inception, the NCLT has actively exercised its powers under Section 242(4) to safeguard companies during the pendency of proceedings. The Tribunal’s reliefs range from granting interim measures such as ordering forensic audits and freezing directors bank accounts, to more drastic actions such as suspending the Board of Directors.
If oppression or mismanagement is established, the NCLT possesses broad powers under Section 242 of the Companies Act, 2013, to issue a range of remedies aimed at rectifying the situation. Some notable remedies include:
- Mandating the purchase of shares of the minority by the majority or by the company;
- Nullifying any share transfers or allotments made with oppressive intentions;
- Mandating the company to buy back shares from any members;
- Termination or modification of agreements with management or third parties;
- Ordering the removal of directors or key managerial personnel;
- Recovery of undue gains made by directors or others in control;
- Appointment of independent observers or administrators;
- Regulation of future affairs of the company, including restrictions on asset transfers.
In Lokesh Kumar Bansal v. Adhunik Food Products Pvt. Ltd. (2025), the NCLAT clarified the application of Section 244. It held that if any one of the three conditions listed in Section 244 were fulfilled, a petition filed under Section 241 would be maintainable. In that case, the appellants met the requirement of holding at least one-tenth of the total number of members by including four of the thirty members. The NCLAT overturned the dismissal order and allowed the petition to proceed, ruling that the NCLT had erred in not considering the alternative conditions. This interpretation avoids excessive procedural hindrances and broadens the scope for minority shareholders to seek relief.
Under the proviso to Section 244(1), the Tribunal must decide whether the application merits a waiver of any of the requirements specified in clauses (a) and (b) of Section 244(1). This waiver provision is an extraordinary statutory exemption that allows otherwise ineligible members to avail themselves of the remedies under Sections 241 and 242.
The NCLAT in Cyrus Investments Private Limited & Another v. Tata Sons Limited & Others held that the Tribunal must consider the relevant facts and evidence pleaded in the waiver application and is required to record reasons reflecting its satisfaction.
In Adesh Gupta v. Liberty Shoes Limited (2024), the NCLAT emphasized that while granting a waiver under Section 244, the merits of the directorial complaint or the prima facie case should not be considered. The role of the Tribunal is only to determine whether the applicants are eligible or whether a waiver is justified. The NCLAT stated that a waiver “cannot be rejected on the assumption that the company petition may ultimately be dismissed on merits.”
Stakes may be smaller; but rights are not
In conclusion, the rights of minority shareholders under the Indian corporate regime have been protected under the Companies Act, 2013 through numerous reliefs that may be granted by the NCLT to address oppression and mismanagement. While minority shareholders may hold a smaller stake, their rights are not subordinate to those of the majority. The Act has expressly reinforced the duty to protect minority interests from oppressive conduct and mismanagement by the majority.
Section 244 of the Act provides a robust procedural gateway for securing protection against oppression and mismanagement. The waiver provision under Section 244(1) ensures that minority shareholders can seek redress even when they do not meet the eligibility criteria, provided that they present a compelling case. Judicial interpretations have reinforced the need for careful consideration of waiver applications, ensuring that the NCLT exercises its discretion judiciously.
