Companies Act Section 242 — Powers of Tribunal

CHAPTER XVI PREVENTION OF OPPRESSION AND MISMANAGEMENT

Commercial / Corporate

Summary

Sub-section (1) sets out the core power of the Tribunal. If a complaint is filed under section 241, and the Tribunal finds both that the company's affairs are being run in a way that is oppressive or prejudicial to any member, or prejudicial to public interest or to the company's own interests, and that winding up the company would unfairly harm those members even though the facts would otherwise justify winding up on just and equitable grounds, the Tribunal may pass any order it considers appropriate to end the problems complained of.

Sub-section (2) lists examples of what an order under sub-section (1) may include, without limiting the Tribunal's general powers. Under clause (a), the order may regulate how the company's affairs are conducted in the future. Under clause (b), it may provide for the purchase of shares or interests of any members by other members or by the company itself. Under clause (c), where the company buys its own shares, the order may provide for a consequent reduction of its share capital. Under clause (d), it may place restrictions on the transfer or allotment of the company's shares. Under clause (e), it may terminate, set aside, or modify any agreement between the company and its managing director, any other director, or manager, on terms the Tribunal considers just and equitable. Under clause (f), it may terminate, set aside, or modify any agreement between the company and any person other than those covered by clause (e), but only after giving due notice and obtaining the consent of the party concerned. Under clause (g), it may set aside any transfer, delivery of goods, payment, execution, or other act relating to property done by or against the company within three months before the application, if such act would be considered a fraudulent preference in the case of an individual's insolvency. Under clause (h), it may remove the managing director, manager, or any director of the company. Under clause (i), it may recover undue gains made by any managing director, manager, or director during their appointment, and decide how the recovered amount is to be used, including transferring it to the Investor Education and Protection Fund or repaying identifiable victims. Under clause (j), it may specify how the managing director or manager is to be appointed after an order removing the existing one under clause (h). Under clause (k), it may appoint a number of persons as directors who are required to report to the Tribunal on such matters as the Tribunal directs. Under clause (l), it may impose costs as the Tribunal deems fit. Under clause (m), it may make provision for any other matter that the Tribunal considers just and equitable.

Sub-section (3) requires the company to file a certified copy of the Tribunal's order under sub-section (1) with the Registrar within thirty days of the order being made.

Sub-section (4) allows the Tribunal, on the application of any party to the proceeding, to pass any interim order it thinks fit for regulating the conduct of the company's affairs, on such terms and conditions as appear just and equitable.

Sub-section (4A) states that at the conclusion of the hearing in respect of sub-section (3) of section 241, the Tribunal must record its decision, specifically stating whether or not the respondent is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.

Sub-section (5) provides that if an order of the Tribunal under sub-section (1) makes any alteration in the company's memorandum or articles, the company cannot, without the leave of the Tribunal, make any further alteration that is inconsistent with the order, except to the extent permitted by the order itself, notwithstanding any other provision of the Act.

Sub-section (6) states that, subject to sub-section (1), alterations made by the order in the memorandum or articles have the same effect as if they had been duly made by the company in accordance with the Act, and the relevant provisions of the Act apply to the altered memorandum or articles accordingly.

Sub-section (7) requires the company to file a certified copy of every order altering, or giving leave to alter, the company's memorandum or articles with the Registrar within thirty days, and the Registrar must register the same.

Sub-section (8) sets out the penalty for contravening sub-section (5). The company is punishable with a fine of not less than one lakh rupees but which may extend to twenty-five lakh rupees, and every officer of the company who is in default is punishable with a fine of not less than twenty-five thousand rupees but which may extend to one lakh rupees.

Official Text

(1) If, on any application made under section 241, the Tribunal is of the opinion—

(a) that the company’s affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company; and

(b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.

(2) Without prejudice to the generality of the powers under sub-section (1), an order under that sub-section may provide for—

(a) the regulation of conduct of affairs of the company in future;

(b) the purchase of shares or interests of any members of the company by other members thereof or by the company;

(c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital;

(d) restrictions on the transfer or allotment of the shares of the company;

(e) the termination, setting aside or modification, of any agreement, howsoever arrived at, between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of the case;

(f) the termination, setting aside or modification of any agreement between the company and any person other than those referred to in clause (e):

Provided that no such agreement shall be terminated, set aside or modified except after due notice and after obtaining the consent of the party concerned;

(g) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under this section, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference;

(h) removal of the managing director, manager or any of the directors of the company;

(i) recovery of undue gains made by any managing director, manager or director during the period of his appointment as such and the manner of utilisation of the recovery including transfer to Investor Education and Protection Fund or repayment to identifiable victims;

(j) the manner in which the managing director or manager of the company may be appointed subsequent to an order removing the existing managing director or manager of the company made under clause (h);

(k) appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal on such matters as the Tribunal may direct;

(l) imposition of costs as may be deemed fit by the Tribunal;

(m) any other matter for which, in the opinion of the Tribunal, it is just and equitable that provision should be made.

(3) A certified copy of the order of the Tribunal under sub-section (1) shall be filed by the company with the Registrar within thirty days of the order of the Tribunal.

(4) The Tribunal may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company’s affairs upon such terms and conditions as appear to it to be just and equitable. 1[

(4A) At the conclusion of the hearing of the case in respect of sub-section (3) of section 241, the Tribunal shall record its decision stating therein specifically as to whether or not respondent is a fit and proper person to hold the officer of director or any other officer connected with the conduct and management of any company.]

(5) Where an order of the Tribunal under sub-section (1) makes any alteration in the memorandum or articles of a company, then, notwithstanding any other provision of this Act, the company shall not have power, except to the extent, if any, permitted in the order, to make, without the leave of the Tribunal, any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles.

(6) Subject to the provisions of sub-section (1), the alterations made by the order in the memorandum or articles of a company shall, in all respects, have the same effect as if they had been duly made by the company in accordance with the provisions of this Act and the said provisions shall apply accordingly to the memorandum or articles so altered.

(7) A certified copy of every order altering, or giving leave to alter, a company’s memorandum or articles, shall within thirty days after the making thereof, be filed by the company with the Registrar who shall register the same.

(8) If a company contravenes the provisions of sub-section (5), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable 1*** with fine which shall not be less than twenty-five thousand rupees but which may extend to 2[one lakh rupees].