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The following are some of the provisions contained in the Companies Act, 1956 for protecting the interest of investors:- |
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Annual Accounts and Balance Sheet: Every company must present before its |
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members at every annual general meeting, the annual accounts of the company along with the director's report and the auditor's report. The investors can take suitable legal action in case the accounts disclose any irregularity. |
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| 2. |
Registration of Documents with Registrar of Companies: Every company must file |
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certain documents with the Registrar of Companies. These documents become public documents, which may be inspected by the public. The following are some of the matters in respect of which documents are required to be filed with ROC: - |
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| (i) |
Memorandum of Association and Articles of Association |
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| (ii) |
Filing of all special resolutions passed by the company |
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| (iii) |
Registration of charges |
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| (iv) |
All changes in Directors and their remuneration |
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| (v) |
Prospectus inviting public to subscribe shares in or debentures of the company |
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| (vi) |
Allotment of shares |
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| (vii) |
Annual accounts |
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| 3. |
Right to attend general meetings and to receive notices in respect thereof: Every |
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shareholder has the right to attend General Meetings and to receive notices in respect thereof. Notice of a general meeting must be given at least 21 clear days before the date of the meeting unless consent for shorter notice has been given in case of an Annual General Meeting by all the shareholders having right to vote and in case of general meetings by such of the shareholders as holding not less than 95% of the voting power. |
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| 4. |
Variation of investor's rights and obligations: No variation of the rights and obligations |
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can be made unless 75 % of the shareholders present at a general meeting agree to do so. In fact, if the rights attached to any class of shares are varied at any time, the members holding not less than 1 /10th of shares of that class may apply to the court to have the variation cancelled |
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| 5. |
In case a company is unable to pay off its debts, the court may wind up a company |
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| 6. |
Regulation of Payment of Dividend: Every company must under law pay the dividend |
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declared within 42 days from the date of declaration. |
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| 7. |
Right to have the affairs investigated: Under Section 235 of the Companies Act, 1956, |
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the Company Law Board may, on an application made to it by not less than 200 members or such number of members holding not less than 1/10th of the total voting power therein, may declare that the affairs of the company ought to be investigated. Suitable action may be taken on the basis of such investigation. |
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Prevention of Oppression and Mismanagement |
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Oppression : |
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Under section 397 of the Companies Act, 1956, members of a company who have a complaint that the affairs of the company are being conducted in a manner prejudicial to public interest or in manner oppressive to any member, they may make an application to the Company Law Board by way of a petition for relief provided the following conditions are satisfied: - |
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| 1. |
That the affairs of the company are being conducted: (a) in a manner prejudicial to |
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public interest; or (b) oppressive to any members. |
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| 2. |
That the facts justified the compulsory winding up order on the ground that it is just |
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and equitable that the company should be wound up. |
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| 3. |
That to wind up the company would unfairly prejudice the petitioners. |
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The Company Law Board must give notice of every such petition to the Central Government and to consider the representation made by the government in this behalf. |
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Mismanagement : |
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Under section 398, members may petition to the Company Law Board in case they have a complaint that the affairs of the company are being mismanaged. Such a petition will be allowed only if: - |
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| 1. |
The affairs of the company are being conducted in a manner prejudicial to the interest |
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of the company or public interest; or |
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| 2. |
By reason of the change in the management or control of the company, it is likely that |
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the affairs of the company will be conducted in a manner prejudicial to the interest of the company or public interest. |
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Members qualifying to apply for remedy against mismanagement or oppression |
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In case of a company having share capital not less than 100 members of the company or not less than 1/10 of the total number of members, whichever is less or any member holding not less than 1/10 of the issued share capital may apply to the Company Law Board in this matter. In other cases, not less than 1/10 of the total number of its members may apply. |
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Power of the Company Law Board: |
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This section provides that without prejudice to the generality of the powers of the Company Law Board, any order under Section may provide for: - |
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| 1. |
The regulation of the conduct of the company's affairs in future |
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| 2. |
The purchase of the shares or interest of any members of the company by other |
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members or by the company. |
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| 3. |
In the case of a purchase of its shares by the company, the consequent reduction of |
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its share capital. |
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| 4. |
The termination, setting aside or modification of an agreement between the company |
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and managing director, agreement between the company and managing director or any other director, and the manager. |
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| 5. |
The termination, setting aside or modification of any agreement with any person, |
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provided due notice has been given to him and his consent obtained. |
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| 6. |
Setting aside of any fraudulent preferences made within three months before the date |
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of the application. |
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| 7. |
Any other matter for which, in the opinion of the Company Law Board, it is just and |
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equitable that provision should be made. |
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If the Company Law Board orders any alteration of the memorandum or articles of the company, the company shall not be at liberty to introduce any provision inconsistent with the order. If the order sets asides or modifies any agreement with any managerial personnel, it will not give rise to any claim for damages or compensation for loss of office. Further any managerial personnel whose appointment is so set aside shall not be capable of serving the company in any managerial capacity for the period of five years except with the leave of the Company Law Board. |
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Procedure for obtaining relief against oppression or Mismanagement
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| 1. |
A petition under Section 397 or 398 by the members shall be made to the Principal |
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Bench of the CLB in Form No. I to CLB Regulations, accompanied by a fee of rupees five hundred alongwith the following documents: |
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| (i) |
Documentary and/or other evidence in support of the statements made in the petition |
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as are reasonably open to the petitioner(s); |
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| (ii) |
Documentary evidence in proof of the eligibility and status of the petitioner(s) with the |
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voting power held by each of them; |
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| (iii) |
Where the petition is presented on behalf of members,the letter of consent given by |
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them; |
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| (iv) |
Statement of particulars showing names, addresses, number of shares held and |
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whether all calls and other moneys due on shares have been paid in respect of members who have given consent to the petition being presented on their behalf; |
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| (v) |
Where the petition is presented by a member or members authorized by the Central |
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Government under Section 399(4) the order of the Central Government authorizing such member or members to present the petition shall be similarly annexed to the petition; |
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| (vi) |
Affidavit verifying the petition; |
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| (vii) |
Bank draft evidencing payment of application fee; |
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| (viii) |
Memorandum of appearance with copy of Board resolution or executed vakalatnama, |
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as the case may be; |
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| (ix) |
Three copies of the petition. |
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| 2. |
The notice of every petition made to the Company Law Board shall be given by the |
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CLB to the Central Government. The copy of the petition shall be served by the petitioner upon the concerned Registrar of Companies, as well as on the Central Government. The Company Law Board should take into consideration the representation, if any, made to it by the Government before passing a final order. |
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| 3. |
A petition under Section 397 or 398 shall not be withdrawn without leave of the |
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Board, and where the petition has been presented by a member or members authorized by the Central Government, notice for the application for leave to withdraw shall be given to the Central Government |
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On receipt of the order of the CLB, any of the directions given by the CLB must be implemented |
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Powers of the Central Government to Prevent Oppression or Mismanagement |
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The Central government may appoint such number of persons as is necessary to effectively safeguard the interest of the company, its shareholders or public interest as directors of the company for a period not exceeding 3 years at one time if the Company Law Board considers it necessary and fit to do so to prevent the affairs of the company being conducted in a manner prejudical to the interest of the company or its members or to the public at large. |
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In such a case: - |
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| 1. |
Not less than 100 members of the company or members holding not less than 1/10 of |
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the total voting power may apply to the Company Law Board in this matter. |
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| 2. |
On receipt of such application or on a reference made to it by the Central Government |
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may make such enquiry as it deems fit. |
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The directors so appointed by the Central government cannot be removed by the company and are not liable to retirement by rotation. Such directors need not hold qualification shares. Their remuneration is fixed by the Central Government and they can be removed only by the Central Government |
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Alternatively, instead of appointing directors, the Central government may direct the company to amend its articles so as to provide for a proportional representation for appointment of directors so that minority interest may be properly represented. |
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Power to prevent changes in the Board of Directors :
The manager, managing director or any other director of a company is empowered to complain to the Company Law Board that as a result of a change which has taken place or is likely to take place in the ownership of any shares held in the company, a change in the Board of directors is likely to take place which if allowed would effect prejudicially the affairs of the company. The Company Law Board may make such enquiry as it deems fit on the complaint made to it and after such enquiry if satisfied that it is just and proper so to do, by order, direct that no resolution passed or that may be passed or no action taken or that may be taken to effect that a change in the Board of directors after the date of the complaint shall have effect unless confirmed by the Central Government. |
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The Company Law Board has the power when any such complaint is received by it to make interim order before making or completing the necessary inquiry. These powers cannot be exercised in the case of a private company unless it is a subsidiary of a public company.
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Procedure for applying to the Central Government to prevent oppression and mismanagement |
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| 1. |
An application is required to be made to the principal bench of the CLB in Form No. 1 |
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to the CLB Regulations with a fee of Rs. 500. The application is to be accompanied with the following documents |
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| (i) |
Documentary and/or other evidence in support of the statements made in the petition |
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as are reasonably open to the petitioners |
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| (ii) |
Documentary evidence in proof of the eligibility and status of the petitioner(s) with the |
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voting power held by each of them. |
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| (iii) |
Affidavit verifying the petition |
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| (iv) |
Bank draft evidencing payment of application fee. |
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| (v) |
Memorandum of appearance with copy of the Board resolution or the executed |
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Vakalatnama, as the case may be. |
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| (vi) |
Three copies of the petition. |
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| 2. |
A copy of the petition shall be served by the petitioner upon the concerned Registrar |
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of companies, as well as the Central Government |
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| 3. |
It may be noted that any reference to the Board by the Central Government is to be made Form No. 3 in Annexure II of the CLB Regulations, 1991. |
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