The two grounds
A petition under Section 241 can be brought on either of two broad grounds: that the affairs of the company are being conducted in a manner prejudicial to public interest, oppressive to any member or prejudicial to the interests of the company; or that there has been a material change in the management or control of the company that is prejudicial to its interests or to those of its members. In the first ground, the Tribunal must also be of the opinion that winding up on just and equitable grounds would be justified but would unfairly prejudice the members.
Eligibility under Section 244
In a company with share capital, the applicants must be at least 100 members or one-tenth of the total members, whichever is less, or hold at least one-tenth of the issued share capital, having paid all calls due. In a company without share capital the requirement is one-fifth of the total number of members. The Tribunal may waive these requirements on application. Eligibility is normally decided early, so the share register and records of members should be checked before a petition is drafted.
What the petition should show
- specific acts of the company or those in control, with dates and documents, rather than a general sense of unfairness;
- why those acts are oppressive or prejudicial — for example exclusion from the board in a company run as a partnership, or allotments that dilute a shareholder without commercial reason;
- why winding up would not be an appropriate answer, and what relief would be;
- that the petitioner has come to the Tribunal without undue delay.
Reliefs
Section 242(2) lists the Tribunal’s powers, which include regulating the conduct of the company’s affairs, directing the purchase of shares by the company or other members, restricting or setting aside transfers and allotments, setting aside or modifying agreements and transactions, removing or appointing directors and ordering recovery of undue gains. Under Section 242(4) it may pass interim orders that it considers just and equitable.
Appeal
An order of the NCLT may be appealed to the NCLAT under Section 421 within 45 days of the date the order is received, and the Appellate Tribunal may allow a further period of up to 45 days if sufficient cause is shown. A further appeal on a question of law lies to the Supreme Court under Section 423 within 60 days, extendable by up to 60 days.
Documents to organise
- articles of association and any shareholders’ agreement;
- share certificates, register of members and allotment and transfer records;
- minutes and notices of board and general meetings, and relevant resolutions;
- financial statements and annual returns for at least three years;
- correspondence showing exclusion, refusal of information or the disputed transactions.
General information on the law as it stands, not advice on any matter. See the practice note on shareholder oppression and mismanagement.