Oppression and Mismanagement - Two Key Concepts Under Company Law

[A] INTRODUCTION

Imagine buying shares in a company you’ve always wanted to, becoming a shareholder, putting in all your time and hard-earned money along with your trust. But gradually, somewhere along the way, all those factors became zero due to a series of adverse events. Dividends that never came, meeting rooms where your chair was empty, where decisions were taken without you that affected you directly. The legislation in India gave this a name back in 1951[1]: “oppression”. And it’s not just a theoretical concept; it is enforceable.

Customarily, minority shareholders fail to realise their legal standing, which allows exploitation to continue longer than it should. Look for signs like:

· Not receiving what you’re owed - dividends are withheld habitually, and even if the company stays profitable, the money seems to flow elsewhere.

· Being kept in the dark - excluding you from board meetings, not letting you access the financial records, or simply not informing you about decisions that you have a right/say on.

·Your share gets shrunk without you knowing - routing opportunities to a separate body but ironically, the people controlling them remain the same.

·        Your stake is shrinking without your consent - new shares are issued, diluting your holding, often through processes you weren't properly consulted on.

[B] THE LEGAL BASIS

Under the Companies Act, 2013, this protection comes primarily from Sections 241(2) and 242(3), which allow an aggrieved shareholder to approach the National Company Law Tribunal (NCLT) when the affairs of a company are being conducted in a manner prejudicial to shareholders or the company itself. To bring such a claim, a shareholder must also meet certain eligibility criteria regarding minimum shareholding, as laid out in Section 244(4).

[C] WHAT DO WE MEAN BY OPPRESSION?

In plain terms, the term oppression is defined as the state of being subjected to unjust treatment or control[5]. The starting point for this area of law goes back to the English case of Foss v. Harbottle[6] (1843), which established the “rule of majority” — a resolution passed by the requisite majority of shareholders generally binds the company, and individual members can't ordinarily challenge it. For a long time, this gave majority shareholders wide latitude. This changed with Daniels v. Daniels [7], which carved out an exception in which the majority are, in effect, “wrongdoers in control”, laying the groundwork for the minority-protection principles that Indian company law later built on.

[D] WHAT QUALIFIES AS OPPRESSIVE IN THE EYES OF LAW?

Not all situations where things feel unfair will fit the requirements of oppression under law. Tribunals usually focus on conduct that is unreasonably burdensome, severe, or wrongful and not merely an inconvenience or disappointment.

The dispute involving the Tata Group [8] serves as a prominent example of a legal test focused on the treatment of an individual in their capacity as a shareholder. This case centred around Mr Cyrus Mistry, who, after being removed from his director positions in several Tata Group companies, escalated the issue from the National Company Law Tribunal (NCLT) to the National Company Law Appellate Tribunal (NCLAT). The NCLAT found his conduct oppressive and ordered his reinstatement before the matter ultimately reached the Supreme Court. It is an excellent example to study as it demonstrates how each time, the test has been applied – and at some point, narrowed down – in practice.

Examples of Such Conduct

Oppressive conduct is usually evident from certain common signs:

Ø  Yearly withholding of dividends, while diverting the profits elsewhere.

Ø  Dilution of minority shareholding by means of irregular or suspicious share allotment.

Ø  Excluding a shareholder from the meetings or decisions to which they have the right to contribute their opinion.

Ø  Transferring business opportunities to another company owned or controlled by the majority, etc.

Procedure-related violations are also important. According to NCLAT, matters of the kind of non-service of meeting notices, financial irregularities, and many more similar remain the subject of Tribunal jurisdiction and, importantly, of non-arbitration, even if there is an arbitration agreement in place between the parties.[9]

[E] WHAT DOESN’T QUALIFY AS OPPRESSION

It's equally necessary to understand where the limit lies. A bad business decision, a period of reduced profit margins, or even a disagreement among the shareholders can't be considered oppression. In the case of TCS v. Cyrus Investments[10], this is exactly what the Supreme Court ruled on appeal: dismissal from directorship alone is not enough for the establishment of oppression. At the same time, a simple loss of trust between the majority and minority shareholders won't make the cut, either. Furthermore, the Supreme Court ruled that sections 241–242 cannot be invoked to reinstate an individual to the position of director.

[F] WHAT TO DO IF YOU SENSE SUCH OCCURRENCE

However, what should you do in the case that you suspect yourself facing oppression? First, document the behaviour. Then, check whether you hold the required number of shares under section 244. Finally, it might be useful to consult a lawyer to determine whether the behaviour you observed constitutes oppression and whether the NCLT or another tribunal is the correct avenue for dealing with your issue; however, as shown by the Dhananjay Mishra case, oppression and mismanagement cases usually stay with the NCLT regardless of any shareholders' agreement made beforehand. 

[G] CONCLUSION: WHERE DOES THE LAW STAND?

If your situation meets the legal test, the National Company Law Tribunal (NCLT) has real, wide-ranging powers under the Companies Act, 2013 to step in, including the ability to:

Ø  Order your shares to be purchased at a fair value, giving you a clean exit;

Ø  Reverse or set aside share allotments or transactions carried out unfairly;

Ø  Remove directors involved in the oppressive conduct;

Ø  Regulate how the company is run going forward;

Ø  Recover gains made improperly by those in control.

This isn't about “getting even”; rather, it's about restoring the fairness you were entitled to as a shareholder from the start.

[1] Indian Companies (Amendment) Act 1951 (India), s 153-C.

[2] Companies Act 2013 (India), s 241.

[3] Companies Act 2013 (India), s 242.

[4] Companies Act 2013 (India), s 244.

[5] 'Oppression' (Oxford English Dictionary, online edn) https://www.oed.com accessed 4 July 2026.

[6] Foss v Harbottle (1843) 2 Hare 461, 67 ER 189.

[7] Daniels v Daniels (1978) Ch 406, [1978] 2 All ER 89.

[8] Tata Consultancy Services Ltd v Cyrus Investments Pvt Ltd (2021) 9 SCC 449.

[9] Dhananjay Mishra v Dynatron Services Pvt Ltd 2019 SCC OnLine NCLAT 163.

[10] Tata Consultancy Services Ltd v Cyrus Investments Pvt Ltd (2021) 9 SCC 449.

MISMANAGEMENT

UNDERSTANDING 'MISMANAGEMENT' UNDER COMPANIES ACT, 2013

Picture a company that, on paper, looks perfectly healthy. Revenue keeps flowing in the reports, meetings keep happening on schedule, and yet something beneath the surface has started to rot. Statutory dues pile up unpaid. Machinery falls into disrepair while directors draw funds for personal use. Decisions get made not for the company's benefit but for the benefit of whoever happens to be in the chair that week. This is not oppression in the classic sense — no single shareholder is necessarily being singled out — but the company itself is being run into the ground. The law has a separate word for this: “mismanagement,” and it sits right beside oppression in the same chapter of the statute, sharing its remedy but not its test.

What Constitutes Mismanagement? (Section 241)

Mismanagement, like oppression, is addressed under Sections 241 and 242 of the Companies Act, 2013[1], which allow a member — or, in appropriate cases, the Central Government — to approach the National Company Law Tribunal (NCLT) for relief. Specifically, Section 241(1)(b)[2] permits a member to apply where a “material change” has taken place in the management or control of the company — whether through an alteration in the board, a change of manager, a shift in shareholding, or any other manner — such that the company's affairs are likely to be conducted in a way prejudicial to its own interests or those of its members. Section 241(3)[3] further empowers the Central Government to act directly where those running a company are guilty of fraud, misfeasance, persistent negligence, or a departure from sound business and commercial practice. As with oppression claims, a member must also satisfy the eligibility thresholds under Section 244[4] before the Tribunal will entertain the application, though the Tribunal retains discretion to waive these requirements in deserving cases.

According to Section 241(1)(b), mismanagement occurs when:

• The affairs of the company are being conducted in a manner prejudicial to its interests, the public interest, or members.

• A material change has occurred in the management or control of the company (e.g., an alteration in the board of directors, an alteration in share ownership, or any other manner).

• Due to this material change, the company's affairs will likely be conducted in a manner prejudicial to its interests or its members.

The Companies Act, 2013 does not define “mismanagement” any more than it defines “oppression”; the term has instead been shaped by decades of judicial interpretation. In broad terms, it refers to the conduct of a company's affairs in a manner prejudicial to the interests of the company itself, its members, or the public — as distinct from oppression, which is specifically anchored in the unfair treatment of a shareholder.

The concept predates the 2013 Act by decades. Even under the 1913 and 1956 Companies Acts, courts recognised gross mismanagement as grounds for intervention. In the well-known case of Rajahmundry Electric Supply Corporation Ltd v A. Nageswara Rao[5], the Supreme Court found that directors had misappropriated company funds, allowed machinery to fall into disrepair, and left substantial dues to the government unpaid while a "powerful local junta" ran the company unchecked. The Court held that the phrase “just and equitable” governing winding-up was not to be read narrowly alongside the other statutory grounds, and that mismanagement of this kind could, on its own facts, justify the court stepping in. That reasoning — that mismanagement need not fit neatly into a closed list of categories, but is assessed on the facts of each case — continues to inform how tribunals approach Section 241(1)(b) today.

Examples of Mismanagement:

Where oppression asks whether a shareholder has been treated unfairly, mismanagement asks a broader question: is the company's own affairs, or the change of hands running it, likely to cause the company harm? Left unaddressed, such conduct doesn't just disadvantage a minority holder — it threatens the survival of the enterprise itself. Some warning signs to look out for:

• Funds vanishing without explanation - money drawn for purposes unconnected to the business, with no accounting trail.

• A boardroom reshuffled overnight - directors replaced, control quietly shifted, and the incoming group runs the show differently, and worse, than before.

• Statutory and financial obligations ignored - taxes, dues, or creditor payments left pending for so long that the company's own survival is put at risk. 

• Assets moving out the back door - key business or property quietly transferred out, often timed suspiciously close to a change in control.

Examples include: 

• Gross negligence or incompetence by directors leading to heavy losses.

• Siphoning or diversion of company funds for personal use.

• Sale of company assets at an undervalued price without proper authorisation.

• Violation of statutory provisions and bylaws (Articles of Association).

• Serious infighting among directors leading to a complete deadlock in management.

In Deloitte Haskins & Sells LLP v Union of India[6], arising out of a Central Government petition under Section 241(2) against Infrastructure Leasing & Financial Services and its subsidiary IFIN, the NCLAT permitted the government to implead the company's statutory auditors in the mismanagement proceedings — recognising that those who enabled or failed to catch the mismanagement could also be brought within the Tribunal's reach. Separately, in Dhananjay Mishra v Dynatron Services Pvt Ltd[7], the NCLAT held that matters such as non-service of meeting notices and financial irregularities fall squarely within the Tribunal's jurisdiction under Sections 241–242, and — notably — that such disputes remain non-arbitrable even where the parties have an arbitration agreement between them. Indian courts and tribunals have consistently treated mismanagement as a broader, more flexible remedy than oppression. Unlike an oppression claim, a mismanagement claim does not require the complainant to show that they, personally, were treated unfairly in their capacity as a shareholder, nor does it require a continuing pattern of conduct — a single material change that sets prejudicial consequences in motion can be enough.

What doesn’t qualify as Mismanagement?

Not every governance dispute or poor decision rises to the level of mismanagement. As with oppression, the Supreme Court in Tata Consultancy Services Ltd v Cyrus Investments Pvt Ltd[9] made clear that a director's removal, standing alone, does not establish oppression or mismanagement — and that Sections 241–242 cannot be used to compel reinstatement. Similarly, the Court held that winding up on the ground of mismanagement requires a genuinely justifiable lack of confidence in the conduct of the company's affairs; ordinary friction between majority and minority stakeholders, or a single unpopular commercial decision, will not meet that bar. A change in management is only actionable under Section 241(1)(b) where it is shown that the change itself is likely to cause the company's affairs to be run prejudicially — not merely that the complainant disagrees with the new direction.

What to do if you suspect Mismanagement?

If you believe a company you have invested in is being mismanaged, start by documenting what you’re observing — missed payments, board changes, unexplained fund movements, deteriorating assets — since Tribunals decide these matters on the facts placed before them. Next, check whether you meet the shareholding thresholds under Section 244, keeping in mind that the NCLT can waive these requirements where the circumstances justify it. It is also worth remembering that where the Central Government itself moves under Section 241(2) or 241(3), the ordinary shareholding thresholds don't apply at all — government-led mismanagement actions follow their own route. Finally, consult a lawyer to assess whether what you have observed meets the legal threshold for mismanagement, and whether the NCLT is the right forum.

Who Can File an Application? (Section 244)

• Not every shareholder can file a complaint. To prevent frivolous lawsuits, Section 244 sets the minimum eligibility criteria:

  • Company Type

  • Minimum Requirement to File a Complaint 

  • With Share Capital - At least 100 members OR 1/10th (10%) of the total number of members, whichever is less...OR Any member(s) holding not less than 1/10th (10%) of the issued share capital (provided all calls have been paid).

  • Without Share Capital - Not less than 1/5th (20%) of the total number of members.

Application by the Central Government

Under Section 241(2), if the Central Government is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the NCLT for an order.

Powers and Remedies by the NCLT (Section 242)

If the NCLT concludes that mismanagement has occurred, it has vast powers to bring the situation to an end. The Tribunal can pass orders for:

• Regulation of Conduct: Regulating the future conduct of the company’s affairs.

• Purchase of Shares: The purchase of shares of any members by other members or by the company itself.

• Termination of Agreements: Terminating or modifying agreements between the company and its managing director, directors, or managers.

• Removal of Management: Removing the managing director, director, or manager of the company.

• Recovery of Funds: Recovery of undue gains made by any managing director, director, or manager (and their replacement).

• Appointment of New Directors: Appointing new directors who report directly to the NCLT.

Consequences of Termination of Agreements (Section 243)

If the NCLT terminates or sets aside an agreement of a director or manager due to mismanagement:

• The affected person cannot claim damages or compensation for loss of office.

• They cannot act as a managing director or manager of any company for a period of 5 years from the date of the order without the explicit leave (permission) of the Tribunal.

Some important Case Laws

Vikram Bakshi v Connaught Plaza Restaurants Ltd (the McDonald's India dispute), NCLT, 13 July 2017

This one matters because it shows the flip side of mismanagement, where the allegation itself is the problem, not the underlying conduct. McDonald's India removed Vikram Bakshi as Managing Director of their 50:50 joint venture, citing financial mismanagement and a conflict of interest. But when the NCLT actually reviewed the company’s own audit reports, it found the allegations baseless and concluded that the real goal was to force Bakshi out and buy his shares cheaply. It reinstated him and appointed a retired Supreme Court judge as administrator.

Rajahmundry Electric Supply Corporation Ltd v A. Nageswara Rao (1956)

This is the doctrinal starting point, established under the 1913 Act, long before “mismanagement” became a distinct statutory term. It established that gross mismanagement, misappropriation of funds, neglected statutory dues, and a small group “riding roughshod” over shareholders could justify the court stepping in on “just and equitable” grounds, without being confined to a narrow, closed list of misconduct. It's the origin point for treating mismanagement as a flexible, fact-driven inquiry, which is exactly how NCLT/NCLAT approach Section 241(1)(b) today.

Deloitte Haskins & Sells LLP v Union of India (2020)

This shows how far the remedy for mismanagement can reach once it's established. It's not just about removing the directors who ran the company badly; the NCLAT allowed even the company's auditors to be pulled into the proceedings, because they were positioned to have caught or enabled the mismanagement. It illustrates that a mismanagement petition can cast a wider net of respondents beyond the boardroom.

Dhananjay Mishra v Dynatron Services Pvt Ltd (2019)

This case defines what counts as mismanagement at a procedural level: failing to send meeting notices or financial irregularities are treated as falling within Section 241–242, not as minor housekeeping lapses. It also confirms these disputes can't be diverted to arbitration, reinforcing that mismanagement is treated as a matter of statutory, public-interest jurisdiction rather than a private contractual dispute.

Union of India v Delhi Gymkhana Club (2022/2024)

This shows who can bring a mismanagement claim and against what kind of company. It wasn't a shareholder complaining; it was the government, using its independent power under Section 241(2), against a non-profit members' club. It confirms mismanagement isn't limited to commercial, profit-driven companies, and that government-led actions don't need to meet the shareholding thresholds ordinary members do.

TCS v Cyrus Investments (2021)

This is the boundary-setting case, it shows what does not count as mismanagement. Removing a director, without more, isn't enough. The Supreme Court insisted on a genuine, justifiable loss of confidence in how the company is being run, not just a falling-out at the top. It stops the remedy from being stretched to cover ordinary governance disagreements.

Conclusion

Where mismanagement is established, the NCLT's powers under Section 242 are the same broad, corrective toolkit available in oppression cases: it can remove and replace directors, regulate how the company is run going forward, set aside prejudicial transactions, and — in the most serious cases — treat the conduct as grounds that would otherwise justify winding up. The underlying philosophy is the same one that runs through the whole of Chapter XVI: correction, wherever possible, is preferable to the corporate death sentence of liquidation. For a company being quietly run into the ground, that distinction can be the difference between a fresh start and a total loss.

[1] Companies Act 2013 (India), ss 241–242.

[2] Companies Act 2013 (India), s 241(1)(b).

[3] Companies Act 2013 (India), s 241(3).

[4] Companies Act 2013 (India), s 244.

[5] Rajahmundry Electric Supply Corporation Ltd v A. Nageswara Rao AIR 1956 SC 213.

[6] Deloitte Haskins & Sells LLP v Union of India, arising from Union of India v Infrastructure Leasing & Financial Services Ltd, NCLAT.

[7] Dhananjay Mishra v Dynatron Services Pvt Ltd, 2019 SCC OnLine NCLAT 163.

[8] Ministry of Corporate Affairs v Delhi Gymkhana Club, NCLT.

[9] Tata Consultancy Services Ltd v Cyrus Investments Pvt Ltd (2021) 9 SCC 449.