• Exit of the company on the basis of the valuation of the company

Good afternoon,

I have filed a petition before the CLB Chennai as a shareholder,
for oppression and mismanagement from the second shareholder.( we are only 2 shareholders)

My advocate had advised me, as a final Prayer,  to ask my exit of the Company, based on the valuation of it.

My question is the following:

In case oppression and mismanagement is made out from the second shareholder, 
can the judge make me exit on a valuation, while i have mentioned in the petition that i have never received any financials, nor notice to AGM, and hence don t know the value of it.

You can understand that this would be a big injustice, having invested the totality in this company , have not been paid my fees as per a contract with the company,  and having being oppressed!!!!

Thank you to give me your response and recommendations.
Asked 6 months ago in Business Law from France
1) , a compulsory buy-out is the most  common and ‘usual’ order sought in oppression cases so as to achieve a ‘clean  break between the parties.’

2) you have in your petition sought your exit based on valuation of your  shares   in  company 

3) court can determine valuation of shares of pvt ltd company based on profit earning method 

4) This method may be applied by taking the dividends as reflecting the profit earning capacity of the company on a reasonable commercial basis but if it is found that the dividends do not correctly do not correctly reflect the profit earning capacity because only a samll proportion of the profits is distributed by way of dividends and large amount of profits is systematically accumulated in the form of reserves, the dividend menthod of valution may be rejected and the valuation may be made by reference to the profits. The profit- earing method takes into account the profits which company has been making and the valuation, according to this method, is based on the average maintainable profits."

5) court can  grant you exit on valuation 
Ajay Sethi
Advocate, Mumbai
23079 Answers
1212 Consultations
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In case oppression and mismanagement is made out from the second shareholder, 
can the judge make me exit on a valuation, while i have mentioned in the petition that i have never received any financials, nor notice to AGM, and hence don t know the value of it.

The court after hearing both the sides, going through all the documents submitted by both,shall pass a judgment on the basis of its findings  and merits of the case.










You can understand that this would be a big injustice, having invested the totality in this company , have not been paid my fees as per a contract with the company,  and having being oppressed!!!!

Prove the same before court with substantial proofs from your side so that you will certainly get justice.
T Kalaiselvan
Advocate, Vellore
13902 Answers
127 Consultations
5.0 on 5.0
Hi 
1) You are correct and your advocate is wrong. 

2) Actually you are right and you should ask the tribunal to appoint independent auditors and get the financials of the company audited as of date. 

3) You should also ask the tribunal to penalize the Director and the auditor/ company secretary of the company if they have acted in tandem and violated your (2nd share holder rights) and also the statutory laws in force. 

Oppression as defined by Various Courts under Companies Act.
a. Not calling a general meeting and keeping shareholders in dark.
b. Non-maintenance of statutory records and not conducting affairs of the company in accordance with the Companies Act.
c. Depriving a member of the right to dividend.
d. Refusal to register transmission under will.
e. Issue of further shares benefiting a section of shareholders.
f. Failure to distribute the amount of compensation received on nationalisation of business of company among members, where required to be so distributed.

Acts held as Mismanagement
The following are the few acts which are said to be as mismanagement through various judgments
a. Where there is serious infighting between directors.
b. Where the Board of Directors is not legal and the illegal is being continued.
c. Diversion of funds of the company for the benefit of majority group.
d. Where bank account was operated by unauthorized persons.
e. Where the directors take no serious action to recover amounts embezzled.
f. Where the managing directors of the company continued in office even after their term was expired and no meeting was held to reappoint them.
g. Violation of Memorandum.
h. Company doomed to trade unprofitably.
i. Violation of statutory provisions and its Articles.
j. Sale of assets at low price and non compliance of the Act


Request you to pursue the following sections of Companies Act 2013: 
4)  CA 2013 provides for provisions relating to oppression and mismanagement under Sections 241-246. Section 241 provides that an application for relief can be made to the Tribunal in case of oppression and mismanagement. Section 241 of CA 2013 and accordingly applications for relief in cases of oppression, mismanagement etc. will have to be directed to the Tribunal.

5) Class Action - Section 245 of Companies Act  2013 provides for class action to be instituted against the company as well as the auditors of the company. The Draft Companies Rules allow for this class action to be filed by the minority shareholders under Clause 16.1 of Chapter-XVI (Number of members who can file an application for class action). On close reading of Section 245 of the Companies Act, 2013, it can be seen that the intent of the section is not only to empower the minority shareholder and/or members of the company but also the depositors

CA 2013 granted additional powers to the Tribunal including to:
(a)	restrictions on the transfer or allotment of the shares of the company; 
(b)	removal of the managing director, manager or any of the directors of the company; 
(c)	recovery of undue gains made by any managing director, manager or director during the period of his appointment as such and the manner of utilisation of the recovery including transfer to Investor Education and Protection Fund or repayment to identifiable victims; 
(d)	the manner in which the managing director or manager of the company may be appointed subsequent to an order removing the existing managing director or manager of the company; 
(e)	appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal on such matters as the Tribunal may direct; and 
(f)	imposition of costs as may be deemed fit by the Tribunal.

Hope this helps.
Rajgopalan Sripathi
Advocate, Hyderabad
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43 Consultations
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you should challenge this order before the company law board. this order is infructuous and passed in deviod of jurisdiction. 
Shivendra Pratap Singh
Advocate, Lucknow
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41 Consultations
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1. A member of the company can approach the Company Law Board/Tribunal complaining that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to the member(s). The Company Law Board/Tribunal can grant various reliefs where a petition for oppression and mismanagement is filed by a member of the company. It may also pass any order which in its opinion is just and equitable.

2. Since you have sought the prayer it can be granted but the prayer can/should be pursued only as a last resort.
Ashish Davessar
Advocate, Jaipur
18049 Answers
445 Consultations
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