5 Key Changes introduced by the Companies Amendment Act, 2019 and their implications for India Inc. Part IV

 

In this post we discuss the changes introduced to Section 241 of the Companies Act, 2013 (“Act”) by the Companies (Amendment) Act, 2019 (“Amendment”) and its impact on the operations of companies in India. 

Section 241: Application to Tribunal for relief in cases of oppression, etc.

Section 241 provides for the procedure to be followed for filing an application before the National Company Law Tribunal (“NCLT”) in cases of oppression.

·        Prior to the Amendment, Section 241(2) provided the Central Government with the right to file an application for oppression and mismanagement with the NCLT, if it is of the opinion that the affairs of the company have been conducted in a manner prejudicial to public interest. The Amendment, by way of a proviso added to Section 241 (2), empowers the Principal Bench of the NCLT, with exclusive jurisdiction with respect to such applications filed by the Central Government.

·        The Amendment also adds sub-sections 3, 4, and 5 after sub-section 2. Sub-section 3 provides a detailed list of circumstances in which the Central Government may file an application before the principal bench of the NCLT in the event of (a) management of company by any person who is or has been in convicted of fraud or breach of trust; (b) business of company not being managed in accordance with “sound business principles” or “prudent commercial practices”; (c) management of company in a manner likely to cause or having caused damage to interest of trade, industry or business in which company operates; or, (d) the company being managed in a manner which is to defraud the creditors or for an unlawful purpose or prejudicial to “public interest”.

·        The fresh sub-section 4 of Section 241 added by the states that the person against whom a case is referred to the NCLT under sub-section (3) of Section 241, shall be joined as a respondent to the application.

·        A further Amendment, adding sub-section 5 to Section 241, requires that every application in this respect comply with the requirements of:

o   a concise statement of circumstances and materials considered necessary by the Central Government; and

o   signature and verification of the application in accordance with the procedure for signature and verification of a plaint under the Code of Civil Procedure, 1908, for the.

The introduction of this new provision empowers the Registrars of Companies to bring such Directors or management personnel to NCLT, who, in the opinion of the Central Government are not “fit and proper” to hold a position in the management of the company. However, it is pertinent to note that the terms “public interest”, “sound business principles” and “prudent commercial practices” are not defined in the Act, and would require judicial evolution to reach a definition, which may leave ample discretion to such authorities to determine who may or may not be liable to be impleaded under such provision.