Company Law: Meaning and Prevention of Oppression

In a company, the majority of shareholders always have an edge over the minority. It is often noticed that when a person gets hold of a majority of the shares of a company, he may run the company to fortify individual interests rather than safeguard the interests of all the shareholders in the company. A company and its board of directors should have total clarity about the rights of the majority and minority shareholders. Also, complying with company law will ensure its smooth functioning.

Company Law: Meaning of Oppression

In a landmark case of Elder v. Elder and Watson Ltd., (1952) S.L.T. 112 Lord Cooper, the term ‘oppression’ was defined in the following words, “the essence of the matter seems to be that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to the company is entitled to rely.”

In simple words, oppression can be explained as, not complying with the accepted standard of integrity and fair play that a company is expected to follow. It also includes showing disregard to the interests of the minority shareholders. An unfair behavior is considered as oppression if it persists for long.

Company Law: Prevention of Oppression by Asking for Relief from NCLT

Under section 397 of company law, the member of a company may ask for relief against oppression from the NCLT i.e. National Company Law Tribunal. However, the NCLT is authorized to wind up the company in case oppression is proved but this remedy may not be the best practice for a company’s interests.

Several times, the term ‘public interest’ comes up in the context of the common welfare of the society in a way that it facilitates public benefit. Let’s understand clearly that public interest emphasizes that a company must work towards the interest of the public as a whole rather than for the benefits of shareholders alone.

Company Law: Grounds for Relief by NCLT

Company law indicates that the NCLT may grant relief to an applicant on following grounds:

• The company affairs are being carried out in a way that is harmful to public interest or oppressive to an associate or associates.
• If the NCLT feels that it is justified and fair to wind up the company.
• If it feels that winding up the organization will cause injustice to the complainants.

If the above-mentioned requirements are met, an order can be passed by the Company Law Board. Such an order will end the matter reported by the applicants.