Recent Trends in Oppression &

Mismanagement Disputes In India:

With Focus on dipute between the TATA
Group and the SP Group of Companies

INTRODUCTION

With the coming of force of the Companies Act, 2013, the law in
India has moved from ‘Corporate Majoritarianism’ or ‘Corporate
Democracy’ to ‘Corporate Governance’.

HISTORY IN ENGLAND

That the remedy of Oppression and mismanagement in hands of

minority shareholders of a company is a much recent
phenomenon. It arrived for the first time in English Law as
section 210 of the Companies Act, 1948 to provide an alternative
remedy to that of winding up to the minority shareholders. Prior
to this, the only recourse available to a minority shareholder, if
oppressed, by acts of majority shareholders were to seek winding
up of the said company under the “just and equitable clause” of
winding up provision.
The introduction of this novel approach (Oppression-
Mismanagement remedy as opposed to Winding-up) was based
on the recommendation made in the report of Lord Cohen
Committee. The rationale given in Lord Cohen Committee’s
report for providing an alternative to that of winding up of
companies is encapsulated in the following extract:
“…..In many cases, however, the winding up of the company will not
benefit the minority shareholders, since the break-up value of the
assets may be small, or the only available purchaser may be that
very majority whose oppression has driven the minority to seek
redress. We, therefore, suggest that the Court should have, in

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 addition, the power to impose upon the parties to a dispute whatever
settlement the Court considers just and equitable. This discretion
must be unfettered, for it is impossible to lay down a general guide
to the solution of what are essentially individual cases. We do not
think that the Court can be expected in every case to find and
impose a solution; but our proposal will give the Court a
jurisdiction which it at present lacks, and thereby at least empower
it to impose a solution in those cases where one exists……"1

That the word ‘Oppressive’ has never been statutorily defined.

However, the House of Lords in Scottish Coop. Wholesale
Society
Ltd. v. Meyer2 has interpreted it to mean “burdensome, harsh and
wrongful”.
HISTORY IN INDIA
In India, Companies Act 1913 originally did not contain any
provision with regard to oppression mismanagement, however,
section 153-C was introduced via amendment act 52 of 1951,
which contained the provision for oppression mismanagement.
Thereafter, sections 397 and 398 of the Companies Act, 1956 and
finally, sections 241 and 242 of the Companies Act, 2013 has
incorporated the remedy of Oppression and Mismanagement in
the Indian Corporate law parlance. That salient points of
similarity and distinction in the provisions of Oppression in the
aforementioned 3 Acts is enumerated on the table below:
1913 Act 1956 Act 2013 Act
(After the (with the amendment
amendment Act 52 made under Act 53 of
of 1951) 1963)

1
Extract from Paragraph No. 60 of the Cohen Committee Report
2
1959 AC 324 (HL)

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(1) Company’s affairs (1) Company’s affairs (1) Company’s
are being are being conducted affairs have been
conducted in a in a manner or are being
manner (a) Prejudicial to conducted in a
(a) Prejudicial to public interest; manner–
the company’ or (a) Prejudicial to
interest; (b) Oppressive to any any member or
Or member or members;
(b) Oppressive to members; (b) Prejudicial to
some part of the or public interest;
members; (c) Prejudicial to the or
and interests of the (c) Prejudicial to
(2) Winding up will company; the interests of
unfairly and and the company;
materially (2) Winding up will or
prejudice the unfairly prejudice (d) Oppressive to
interests of the such member or any member or
company’s or any members. members.
part of its (2) Winding up will
members. unfairly prejudice
(3) The object should such member or
be to bring to an members.3
end, the matters
complained of.

EVALUATION OF STATUTORY PROVISION(S)

UNDER COMPANIES ACT, 2013 vis-à-vis OLD
ACT

3
Table reproduced from TATA CONSULTANCY SERVICES LTD. v. CYRUS INVESTMENTS (P)
LTD., (2021) 9 SCC 537

Page No. 3 of 12
There are two limbs of the remedy of the oppression
mismanagement, namely the ‘Conditional Limb” and
“Substantive Limb”. To succeed and claim relief of Oppression,
the applicant must satisfy both the limbs cumulatively.

THE SUBSTANTIVE LIMB: SECTION 241(1)(a) & (b) OF

THE ACT, 2013.
That section 241 of the Act deals with oppression or prejudice of
shareholders and/or public in general and mismanagement of the
affairs of the Company as contained in clause(b) of section
241(1). As per the provision of section 241(1) of the Act, the
shareholders, the petitioner shareholder may show either of the
three conditions, i.e “oppression”, “prejudice” or
“mismanagement”.

OPPRESSION
That the Hon’ble Supreme Court of India in V.S. Krishnan v.
Westfort Hi-tech Hospital Ltd.4, expounded upon the meaning of
oppression. The relevant extract that encapsulates the gist of
oppression is produced below:
“From the above decisions, it is clear that oppression would be made out:
(a) Where the conduct is harsh, burdensome and wrong.
(b) Where the conduct is mala fide and is for a collateral purpose where
although the ultimate objective may be in the interest of the
company, the immediate purpose would result in an advantage for
some shareholders vis-a-vis the others.
(c) The action is against probity and good conduct.
(d) The oppressive act complained of may be fully permissible under
law but may yet be oppressive and, therefore, the test as to whether
an action is oppressive or not is not based on whether it is legally
permissible or not since even if legally permissible, if the action is
otherwise against probity, good conduct or is burdensome, harsh or
wrong or is mala fide or for a collateral purpose, it would amount to
oppression under Sections 397 and 398.
4
(2008) 3 SCC 363

Page No. 4 of 12
 (e) Once conduct is found to be oppressive under Sections 397 and 398,
the discretionary power given to the Company Law Board under
Section 402 to set right, remedy or put an end to such oppression is
very wide.
(f) As to what are the facts which would give rise to or constitute
oppression is basically a question of fact and, therefore, whether an
act is oppressive or not is fundamentally/basically a question of
fact.”

PREJUDICE
That the act of 2013 has introduced the concept of Prejudice with
respect to shareholders/Members for the first time, this was
absent from the Act of 1956. “Prejudice” has to be read
disjunctively and distinctly from “Oppression”. The standard to
satisfy the Court with respect to “Prejudice” is far lower than that
of “Oppression”. The genesis of “Prejudice” lies in section 994
of the English Companies Act, 2006. Companies Act, 2006 uses
the phrase “unfair prejudice”. That Indian Courts have not yet
conclusively interpreted the “Prejudice” vis-à-vis members of the
company/shareholders. However, the benefit of English
jurisprudence in this regard may be taken. In his paper,
“Unpacking the Scope of Oppression, Prejudice and
Mismanagement Under the Companies Act, 2013”5, Umakanth
Varotti explains that “Prejudice” is extension of the doctrine of
legitimate expectation.
“….it is the "unfairness" requirement that has been at play before the
English courts, which "is simply another way of putting the point that only
legitimate expectations are protected by the section, not every factual
expectation which the petitioner may entertain". Courts have embarked
upon considering whether the offending shareholders' conduct amounts to
"commercial unfairness". In order to constitute commercial unfairness, it is
necessary to consider whether the petitioning shareholders are entitled to
"something more" 55 than the legal rights they enjoyed under company law
as well as the memorandum and articles of association of the company.
While English courts initially treated these additional factors as "legitimate
expectations" of the petitioner shareholders, a term borrowed from public
5
(2020) 6 SCC J-1
Page No. 5 of 12
law, the more recent jurisprudence treats them as "equitable
considerations", thereby drawing from private law instead.li The existence
of these factors would enable the petitioner shareholders to succeed in
invoking the unfair prejudice remedy. The jurisprudence developed in
England focuses cumulatively on both the conduct of the offending
shareholders and its effect on the petitioning shareholders…..”

MISMANGEMENT

The “Mismanagement” condition as contained under section

241(1)(b) of the Companies Act, 2013. The mismanagement
remedy applies when two conditions are fulfilled. First, there
must be a material change in the management or control of the
company, which could occur in various ways including alteration
of the board, manager or ownership of the company Second, such
change must be the reason that the company conducts its affairs
in a manner that is prejudicial to the interests of the company or
its shareholders (the effect). The courts have observed that the
mismanagement remedy is wider than the oppression remedy.
This is not only evident from the language of Section 241(1)(b),
but also the rationale for the introduction of mismanagement as a
distinct remedy. In comparison with Section 398 of the 1956 Act,
which applied only if the change was prejudicial to the interest of
the company, Section 241(1)(b) of the 2013 Act expands the
effect to include a change that is prejudicial to the shareholders
or any class thereof.
Unlike the 1956 Act, under which mismanagement was a
standalone remedy, the 2013 Act incorporates a material change
by which cases involving mismanagement are subject to the
conditional limb by which, in order for petitioning shareholders
to successfully invoke the remedy, they must also establish the
existence of the grounds for just and equitable winding up.6
6
ibid

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THE CONDITIONAL LIMB: “JUST AND EQUITABLE”
GROUNDS UNDER SECTION 242(1)(b)

That the Oppression Mismanagement remedy has developed

originally as an alternative to winding-up remedy. That winding-
up of a company in cases of Oppression-mismanagement is like
invoking the “nuclear option.” Therefore, in the alternative,
Company Courts/Tribunal has been given powers under section
242 of the Act, 2013 to pass orders with a view to end the matters
complained of. It becomes incumbent on the applicant to justify
why the conduct of the Company would be so that would justify
winding-up.
Following acts could be considered as justifying the winding up
of the Company7:
a) Functional deadlock- where the inability of the members
of the company to cooperate in the management of the
company's affairs leads to an inability of the company to
function at Board or shareholder level.
b) Irretrievable breakdown in trust and confidence- if a
corporate quasi partnership and an irretrievable breakdown
in trust and confidence between the participating members
has taken place.
c) Probity- Lack of probity in the conduct of the directors
would justify winding up of the Company. There must be a
justifiable lack of confidence on the conduct of the
Directors, however, A mere lack of confidence between
the majority shareholders and minority shareholders would
not be sufficient, to invoke winding up.
7
TATA CONSULTANCY SERVICES LTD. v. CYRUS INVESTMENTS (P) LTD., (2021) 9 SCC 537

Page No. 7 of 12
In the first type of these cases, where there is a complete
functional deadlock, winding up may be ordered regardless
whether the company is a quasi-partnership or not. But in the
second type of cases, a breakdown of trust and confidence is not
enough even if there is not a complete functional deadlock.
Therefore, for invoking the just and equitable standard, the
underlying principle is that the court should be satisfied either
that the partners cannot carry on together or that one of them
cannot certainly carry on with the other.

CONCLUSION: 2013 ACT VIS-À-VIS 1956 ACT IN

VIEW OF STATUTORY PROVISIONS OF
OPPRESSON & MISMANAGEMENT

While the 2013 Act substantially tracks its predecessor in the

form of Sections 397 and 398 of the Companies Act, 1956 ("the
1956 Act"), it has also deviated, and that too in material fashion,
on some counts. The 2013 Act has the effect of both expanding
as well as contracting the shareholder remedies. The upshot here
is that Section 241 of the 2013 Act considerably expands the
scope of the substantive limb, thereby ensnaring within it
conduct that was previously excluded. By introducing the
concept of "prejudice" caused to a member as objectionable
conduct apart from "oppressive" behaviour, Parliament has
arguably lowered the standard of conduct that a petitioning
shareholder must satisfy before it can invoke the remedy.
However, by remaining steadfast in its insistence that petitioners
must satisfy the conditional limb no matter what the nature of the
conduct of the offending shareholders, the 2013 Act retains a
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considerable burden on petitioning shareholders. Moreover,
while conduct involving mismanagement was not subject to the
conditional limb under the 1956 Act, the 2013 Act alters the
position and introduces the cumulative nature of the two limbs
even for mismanagement, thereby narrowing the scope of the
remedies. The 2013 Act, therefore, offers a mixed bag.8

TATA CONSULTANCY SERVICES LTD. v.

CYRUS INVESTMENTS (P) LTD.

FACTUAL BACKGROUND:
Tata Sons Ltd. was a public company incorporated in the year
1917, under the Companies Act, 1913. The shareholding of the
various factions in Tata Sons Ltd. is described below:
S. No. Shareholder(s) Shareholding
1. Two Tata Trusts 65.89%
2. SP Group (Shapoorji Pallonji 18.37%
Group)
3. Shares held by Operating 12.87%
Companies
TOTAL 97.13%

Vide an Extraordinary General Meeting CPM (Cyrus Pallonji

Mistry) was removed the post of the Executive Chairman of Tata
Sons Ltd. By a subsequent meeting he was removed from the
position of Directorship. Following this, other Tata Group
companies like TATA Industries Ltd., TCS, TATA teleservices
Ltd. etc also removed CPM as its director. Before the same

8
Unpacking the Scope of Oppression, Prejudice and Mismanagement Under the Companies
Act, 2013, Umakanth Varotti in (2020) 6 SCC J-1

Page No. 9 of 12
resolutions could be brought in board of directors of other group
companies like Tata steel etc. CPM himself resigned. Thereafter,
Tata Sons Ltd. was converted from a public company to private
company. Further, the Petitioner (Cyrus Investment Pvt. Ltd.)
before NCLT/NCLAT also sought reliefs regarding misuse of the
some of the clauses of Article of Association of Tata Sons Ltd,
most notably Article 75, which gave the Company powers to
transfer share, wherein the company by way of a special
resolution could force any ordinary shareholder to sell its
ordinary shares. These are some of the reliefs that was allowed
by the Hon’ble NCLAT, however, for most the other relief(s) as
sought by SP Group, NCLAT did not allow it.

DECISION:
The Hon’ble Supreme Court held that:
1. That the removal of anyone (CPM) from the post of director
and executive chairman could not be a justifiable ground to
invoke the “just and equitable clause” and hence it does not
satisfy the conditions laid down in section 242 of the 2013
Act.. Further, board was justified in removing CPM from
his official position as he has lost the faith of the Board of
Directors. Supreme Court further held that under section
241 and 242 of the new Act, the Tribunal cannot ask the
question whether the removal of a Director was legally valid
and/or justified or not. The question to be asked is whether
such a removal tantamount to a conduct oppressive or
prejudicial to some members. Even in cases where the
Tribunal finds that the removal of a Director was not in
accordance with law or was not justified on facts, the

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 Tribunal cannot grant a relief under Section 242 unless the
removal was oppressive or prejudicial.
2. Failed business decisions of RNT (Ratan Naval Tata), even
if any, do not come under the purview of “Oppressive”,
“Prejudicial” and/or “Mismanagement”.
3. So far as question of draconian Article 75 of the Article of
Association is concerned. Supreme Court held that NCLAT
was wrong in whittling down the said provision under its
power under section 242 of the new Act on equitable
grounds. Court held that Article 75 pre-existed CPM or his
father becoming members/shareholders of Tata Sons Ltd.
The SP Group joined Tata Sons Ltd. with all eyes open and
being acutely aware about the Article 75, however, did not
challenge it ever till they finally challenged it in 2016.
4. Tata Sons Ltd is not a listed company and hence is not
under a statutory obligated to have a director, who is the
representative of minority shareholders on board. The
requirement under Section 149(4) to have at least one-third
of the total number of Directors as independent Directors
applies only to every listed public company. The
requirement under Section 151 to have one Director elected
by small shareholders is also applicable only to listed
companies. The requirement to constitute an Audit
Committee in terms of Section 177(1), a Nomination and
Remuneration Committee and the Stakeholders Relationship
Committee in terms of Section 178(1) are also only on listed
public companies. Therefore, SP Group claims for
proportional representation as well as against the
Affirmative voting rights of the Trusts was also rejected.

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5. So far as reconversion of Tata Sons Ltd. into a private
company from a public company is concerned, the Supreme
Court held Tata Sons Ltd. qualifies as “Private Company”
as per section 2(68) of the new Act and therefore, the act of
ROC to grant the certificate was completely justified.

KUMAR BHASKAR
210630144039

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