Section 242 of CA 2013 : Section 242: Powers Of Tribunal

Explanation using Example

Imagine a situation where a minority shareholder, Mr. A, holds 10% of the shares in XYZ Pvt. Ltd. He feels that the majority shareholders are making decisions that are harmful to the company's interests and are also unfairly excluding him from important discussions, effectively oppressing his rights as a shareholder.

Mr. A decides to file an application under Section 241 of the Companies Act, 2013, alleging that the affairs of the company are being conducted in a manner prejudicial and oppressive to him as a minority shareholder.

The Tribunal hears the case and agrees with Mr. A. It finds that while the company is profitable and winding it up would unfairly prejudice Mr. A and other minority shareholders, the majority's actions justify intervention.

Applying Section 242, the Tribunal orders:

• A change in the company's articles of association to include provisions for the protection of minority shareholders;
• Appointment of an independent director to the board to ensure fair decision-making;
• Restrictions on the majority shareholders from making any further decisions without the consent of the minority shareholders;
• Mr. A to be bought out by the company at a fair value determined by an independent valuer, with the shares subsequently cancelled, thus reducing the company's share capital.

The Tribunal's order aims to rectify the prejudicial conduct and ensures that Mr. A is not left at a disadvantage. XYZ Pvt. Ltd. must then file a certified copy of this order with the Registrar of Companies within thirty days.