The classic pattern is familiar: board meetings you are not told about, a sudden rights issue you cannot fund, salary and consultancy payments to the majority, and no dividend. There is a specific remedy for this.
The provision
Section 241 of the Companies Act, 2013 allows a member to apply to the National Company Law Tribunal where the affairs of the company are being conducted in a manner prejudicial or oppressive to any member, or prejudicial to the public interest or to the interests of the company. Section 242 then gives the Tribunal very wide powers.
What the NCLT can order
- Purchase of your shares by the company or by the other shareholders, at a valuation the Tribunal determines
- Setting aside a share allotment or transfer made to dilute you
- Setting aside or modifying agreements between the company and any person
- Removal of directors, and appointment of directors or an administrator
- Regulation of the company's future conduct, and restraint on acts complained of
The threshold to apply
Ordinarily you need members holding not less than one tenth of the issued share capital, or not less than one hundred members or one tenth of the total members, whichever is less. Where the company has no share capital, one fifth of the members. Critically, Section 244 allows the Tribunal to waive this requirement in a fit case, and waiver applications are commonly made and granted where the complaint is serious.
Not every decision you disagree with is oppression. The conduct must be burdensome, harsh and wrongful, and a continuing course of conduct rather than a single act. Isolated mismanagement, or a business decision that turned out badly, will not succeed. Diversion of funds, exclusion from management in a quasi-partnership, and a rights issue engineered purely to dilute, will.
The other routes
- Class action under Section 245, where members or depositors sue the company, directors or auditors for wrongful conduct.
- Contract and arbitration, where a shareholders agreement gives you exit, pre-emption or buy-sell rights. Many disputes are resolved here first, and arbitration is often faster.
- Keep in mind that a claim that is purely about enforcing a contractual buy-out may belong in arbitration rather than before the NCLT.