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  1. 1. PREVENTION OF MISMANAGEMENT IN COMPANIES by : DR. T.K. JAIN AFTERSCHO☺OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india FOR – PGPSE PARTICIPANTS mobile : 91+9414430763 5 DECEMBER 09 www.afterschool.tk 1
  2. 2. SEC. 397, 398 Majority rules over company. There is a possibility that majority may adopt measures which are not favourable to others. Thus there is oppression.. The minority can then go to Tribunal for relief and the government will take steps to prevent oppression. 5 DECEMBER 09 www.afterschool.tk 2
  3. 3. Examples of oppression Now allowing voting rights taking decision which are against company changing objectives of company to more risky operations taking decisions, which are different from original path of company 5 DECEMBER 09 www.afterschool.tk 3
  4. 4. What is not oppression? Not declaring dividend carelessness not maintaining proper records etc. 5 DECEMBER 09 www.afterschool.tk 4
  5. 5. Mismanagement ? Mismanagement is the situaiton when there is gross misconduct and deviation from company's original course of action which leads to substantial failures of company / loss to public / to company 5 DECEMBER 09 www.afterschool.tk 5
  6. 6. What to do ? 1/10th of members (1/10 of shares) / or / 100 (whichever is less) can apply to Tribunal with petition. If the company doesnt have shares, 1/5th of shareholders can apply the central government can also apply to tribunal 5 DECEMBER 09 www.afterschool.tk 6
  7. 7. Powers of tribunal It can set aside any decision of company / transaction of company it can investigate the working of company on its recommendation, the govenrment can appoint directors of the company / takeover the management of a company (sec. 408) such directors will not be required to have qualification shares. 5 DECEMBER 09 www.afterschool.tk 7
  8. 8. Interim orders by Tribunal The tribunal will look into the management of company and issue interim orders, which will be binding on company 5 DECEMBER 09 www.afterschool.tk 8
  9. 9. COMPROMISE & ARRANGEMENTS Compromise is a type of settlement – where there is a settlement between company and its creditors arrangement is type of reorganisation of share capital. Compromise & arragements are undertaken when there is a dispute / conflict. (sec. 390 & 391) 5 DECEMBER 09 www.afterschool.tk 9
  10. 10. Sec. 391 Under this section, the court supervises arragnement / compromise between company and its creditor the court will take report of ROC before sanctioning the scheme 5 DECEMBER 09 www.afterschool.tk 10
  11. 11. Case : pioneer dyeing house (1967) The court will not approve a scheme just because it is to cover misdeeds of directors 5 DECEMBER 09 www.afterschool.tk 11
  12. 12. The scheme to be binding on all Scheme of compromise / arrangement will be binding on all the parties. 5 DECEMBER 09 www.afterschool.tk 12
  13. 13. Case : Travancore National and Quilion Bank (1939) The court may refuse to call a meeting when the scheme is having illegal contents thus it is at the discretion of the court whether to call a meeting for compromise or not. 5 DECEMBER 09 www.afterschool.tk 13
  14. 14. How does it work ? The court may fix meeting of creditors / class of members and ask them to have meeting, the court will also fix up quorum for the meeting, agenda and thus will make the ground for arrangement. As per sec. 393, all the provisions of the act must be followed and must be properly adhered to the court can further supervise implementation 5 DECEMBER 09 of scheme www.afterschool.tk 14
  15. 15. Four persons are the only members of a private company. All of them go for a pleasure trip in a car and due to an accident all the four die. Does the private company exist? Yes – the beautiful aspect of company law is that members and company are different, the legal status of company is different and thus company remains, even if all the members die. 5 DECEMBER 09 www.afterschool.tk 15
  16. 16. What are the powers of Inspectors appointed under Section 235 or 237 of the Companies Act, 1956? As per sec. 239,240,240A, the inspectors can check any documents, it is the duty of the company executives to produce all the documents before these inspctors. The inspectors can seize these documents. They will study, take statements from people and give their report to CLB and government. 5 DECEMBER 09 www.afterschool.tk 16
  17. 17. Discuss the provisions of Companies Act, 1956 which protects the employees of company during investigation. Sec. 635B: employees are protected when they make any disclosures during investigations under section 397,398, 235,237 or other laws. 5 DECEMBER 09 www.afterschool.tk 17
  18. 18. What is the rule given in Foss v. Harbottle In this case it was held that majority will always rule. If majority has taken a decision, which they can implement legally, it will be implemented. Now however, this rule is not very powerful as minority (at least 1/10) can also apply to government for their rights. 5 DECEMBER 09 www.afterschool.tk 18
  19. 19. What procedure must a company adopt to give effect to a compromise (with creditors) Prepare a scheme call a meeting with creditors request court to approve it inform ROC, Stock exchanges about it when the company is being wound up, the liquidator can give the scheme the court itself can make a scheme to revive the company 5 DECEMBER 09 www.afterschool.tk 19
  20. 20. THANKS.... GIVE YOUR SUGGESTIONS AND JOIN AFTERSCHOOOL NETWORK / START AFTERSCHOOOL SOCIAL ENTREPRENEURSHIP NETWORK IN YOUR CITY AFTERSCHOOOL@IN.COM PGPSE – WORLD'S MOST COMPREHENSIVE PROGRAMME IN SOCIAL ENTREPRENEURSHIP 5 DECEMBER 09 www.afterschool.tk 20

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