JUDICIARY ON “OPPRESSION” U/S.397 OF THE COMPANIES ACT, 1956
By Sahil M Shah,
Fourth Year, Gujarat National Law University, Gujarat.
Section 397 of the Companies Act gives a right to members of a company who comply with the conditions of Section 399 to apply to the Court for relief under Section 402 of the Act or such other reliefs as may be suitable in the circumstances of the case, if the affairs of a company are being conducted in a manner oppressive to any member or members including any one or more of those applying.  The Court then has power to make such orders under S. 397 read with S. 402 as it thinks fit, if it comes to the conclusion that - (1) the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members; and (2) the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up, and (3) the winding up order would unfairly prejudice the applicants.
In Elder v. Elder & Watson Ltd., S.210 of the English Act, which is similar to S.397 of the Companies act, has been very elaborately explained. In that case it was held that “(1) The oppression of which a petitioner complains must relate to the manner in which the affairs of the company concerned are being conducted; and the conduct complained of must be such as to oppress a minority of the members (2) It follows that the oppression complained of must be shown to be brought about by a majority of members exercising as shareholders a predominant voting power in the conduct of the company's affairs. (3) Although the facts relied on by the petitioner may appear to furnish grounds for the making of a winding up order under the 'just and equitable' rules, those facts must be relevant to disclose also that the making of a winding up order would unfairly prejudice the minority members (4) Although the word 'oppressive is not defined, it is possible, by way of illustration, to figure a situation in which majority shareholders, by an abuse of their predominant voting power, are' treating the company and its affairs as if they were their own property' to the prejudice of the minority share-holders.
The law, however, has not defined what oppression for purposes of this section is, and it is left to Courts to decide on the facts of each case whether there “oppression” under S.497 has been committed or not. Certain English cases can be referred to understand the meaning of the term “oppression.” In Scottish Cooperative Wholesale Society Pvt. Ltd. v. Mayor the dictionary meaning of the term “oppression” was used and it was held that the conduct should be “burdensome, harsh and wrongful.” Whereas in Elder’s case the meaning of the term “oppression” has been explained as “…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 Re. Jermin Street Turkish Bath Ltd it was held that “what is to be considered is whether the affairs of the company are being conducted in a manner oppressive to some part of members of the company. Oppression occurs when shareholders having a dominant power in the company, either (1) exercise that power to procure that something is done or not done in the conduct of the company's affairs or (2) procure by an express or implicit threat exercising of that power that something is not done in the conduct of the company affairs and such acts are burdensome, harsh and wrongful and lacks the degree of probity which they are entitle to expect in the conduct of company's affairs.”
Oppression has been very lucidly and elaborately stated In the Halsbury's Laws of England, wherein it is stated that, "…'oppressive' means burdensome, harsh and wrongful. It does not include conduct, which is merely inefficient or careless. Nor does it include an isolated incident: there must be a continuing course of oppressive conduct, which must be continuing at the date of the hearing of the petition. Further, the conduct must be such as to be oppressive to the petitioner in his capacity as a member: whatever remedies he may have in respect of exclusion from the company's business by being dismissed as an employee or a director, he will have none under the provisions relating to oppression. On the other hand, these provisions are not confined merely to conduct designed to secure pecuniary advantage to the oppressors; they cover the case of wrongful usurpation of authority, even though the affairs of the company prosper in consequence."
In Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad the Apex Court held that 'Oppression' complained of, thus, must relate to the manner in which the affairs of the company are being conducted and the conduct complained of must be such as to oppress the minority members. By reason of such acts of oppression, it must be shown that the majority members obtained a predominant voting power in the conduct of the company's affairs. The Court also held that the acts complained of may either be designed to secure pecuniary advantage to the detriment of the oppressors or wrongful usurpation of authority. In Binani Metals Ltd. and Triton Trading Co. Pvt. Ltd. Vs. Gallant Holdings Ltd. and Ors. it was held that it is settled law that in a case of oppression, a member has to specifically plead on five facts - (a) what is the alleged act of oppression; (b) who committed the act of oppression; (c) how it is oppressive; (d) whether it is in the affairs of the company; (e) and, whether the company is a party to the commission of the act of oppression.
The Indian Supreme Court in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. has held that the person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as shareholder. In that case it was also held that oppression should be a continuous act continuing till the date of filing of the petition. In Chatterjee Petrochem (Mauritius) Company and Ors. Vs. Haldia Petrochemicals Ltd. and Ors.it was held that “relief against oppression can be invoked only when a shareholder feels aggrieved or oppressed that his rights as shareholder are being affected. A shareholder has certain rights conferred by the Companies Act, which are statutory rights…certain rights are conferred by the Articles….In both these cases, if the shareholders rights are affected, they can allege oppression.” In Shanti Prasad Jain case it was categorically held that the conduct complained of must relate to the manner of management of the affairs of the company and must be such so as to oppress a minority of the members including the petitioners qua shareholders. The burden to prove oppression or mismanagement is upon the petitioner. The Court, however, will have to consider the entire materials on records and may not insist upon the petitioner to prove the acts of oppression.
In Chatterjee Petrochem (Mauritius) Company & Ors. case it was held that provisions of Section 397 seeking relief against oppression can be invoked only when a shareholder feels aggrieved or oppressed that his rights as shareholder are being affected. A shareholder has certain rights conferred by the Companies Act which are statutory rights. Sometimes, certain rights are conferred by the Articles also like preemption rights in case of transfer of shares, non rotational directorship etc. In both these cases, if the shareholders rights are affected, they can allege oppression. Sometimes, certain rights accrue to a shareholder on the basis of agreements to which the company is a party and there are cases wherein, even though the company is not a party, it has acted upon the said agreement or has derived benefits out of the private agreements. There could be instances, wherein without any written documents, certain rights might have been enjoyed for a long time and when the same is subsequently denied, the affected shareholders may allege oppression. In the last three cases, whether the breach of the terms of the agreements or understandings could be considered to be an act of oppression will depend on the facts of each case.
Hence, the meaning of the term oppression u/s.397 of the Companies Act has been very clearly explained by the Courts and has filled the gap of the lack of definition by the Legislature. However, what amounts to oppression depends upon facts and circumstances of each case and a straight-jacket formula has aptly not been laid down by the Courts.
 Shanti Prasad Jain v. Kalinga Tubes Ltd AIR 1965 SC 1535 at para 14
 Hanuman Prasad Bagri v. Bagress Cereals Pvt. Ltd. AIR 2001 SC 1416
 1952 SC 49
 Referred to in Shanti Prasad Jain v. Kalinga Tubes Ltd AIR 1965 SC 1535
 1958 3 AER 66
 Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad AIR 2005 SC 809
 1971 AER 184
 4th Edition, Volume 7, para 1011 cited in Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad AIR 2005 SC 809
 AIR 2005 SC 809
 AIR 1981 SC 1298
 Shanti Prasad Jain v. Kalinga Tubes Ltd AIR 1965 SC 1535