Section 242(2)(a) of the Companies Act, 2013 ("the Act") empowers the NCLT to regulate the conduct of the company's affairs upon a finding of oppression or mismanagement. The power is broad, but it is not unlimited. It is a remedial power, exercised to bring an end to the matters complained of, not a licence for the Tribunal to substitute its own commercial judgment for that of the board.
The Scope of the Power
The NCLT has used the Section 242(2)(a) power to restrain the board from taking specified actions, to require the holding of meetings, to direct the appointment of observers, and to set aside transactions that were entered into in breach of the company's articles or the Act. The NCLT Chennai has held that the Tribunal can approve a settlement under Section 242(2) that provides for the company's purchase of shares, without a separate capital reduction application under Section 66.
The power is not confined to the specific orders listed in Section 242(2)(b) to (g). It is a general power to regulate the conduct of the affairs, and it can be moulded to the facts of the case.
The Limits
The power is remedial, not punitive. It is exercised to protect the company and its members from the oppressive conduct that has been found, not to punish the oppressor. The Tribunal cannot use the power to rewrite the company's commercial contracts, to replace the board with its own nominees, or to order a transaction that the company has no power to enter into.
The power is also subject to the Section 242(1) condition. The Tribunal must first find that the affairs of the company are being conducted in an oppressive or prejudicial manner, and that winding up would unfairly prejudice the member. Without that finding, the Section 242(2) powers are not available.
The Practical Significance
The Section 242(2)(a) power is the most flexible of the remedies. It allows the Tribunal to craft an order that addresses the specific oppression without resorting to the more drastic remedies of buy-out or winding up. A petitioner who can identify a specific act of oppression and a specific corrective measure is more likely to obtain an effective remedy than a petitioner who seeks a broad order to regulate the company's affairs.
Call to Action
Anuj Desai & Associates advises petitioners and companies on the scope of the Section 242(2)(a) power—from the identification of the specific oppression to the drafting of the corrective order and the defence of the board's autonomy. If you are seeking or opposing a regulation-of-affairs order, we can help you frame the relief.
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