Section 242: Powers of Tribunal
This section gives the Tribunal the power to make orders to stop unfair or oppressive conduct by a company and to regulate its affairs, with the goal of protecting the interests of members and the public.
Penalty
(8) If a company contravenes the provisions of sub-section (5), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable 1*** with fine which shall not be less than twenty-five thousand rupees but which may extend to 2[one lakh rupees].
The section, clause by clause
What the section says
In plain terms
(1)If, on any application made under section 241, the Tribunal is of the opinion—
The Tribunal can make an order to stop unfair or oppressive conduct by a company if it thinks this is the best way to fix the problems, without winding up the company, if this would be unfair to some members.
(1)(a)that the company’s affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company; and
(1)(b)that to wind up the company would unfairly prejudice such member or members, but that otherwise 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, the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.
(2)Without prejudice to the generality of the powers under sub-section (1), an order under that sub- section may provide for—
The Tribunal's order can include things like regulating the company's affairs, buying or selling shares, restricting share transfers, terminating agreements, removing directors, and recovering undue gains made by directors.
(2)(a)the regulation of conduct of affairs of the company in future;
(2)(b)the purchase of shares or interests of any members of the company by other members thereof or by the company;
(2)(c)in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital;
(2)(d)restrictions on the transfer or allotment of the shares of the company;
(2)(e)the termination, setting aside or modification, of any agreement, howsoever arrived at, between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of the case;
(2)(f)the termination, setting aside or modification of any agreement between the company and any person other than those referred to in clause (e):
provisoProvided that no such agreement shall be terminated, set aside or modified except after due notice and after obtaining the consent of the party concerned;
(2)(g)the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under this section, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference;
(2)(h)removal of the managing director, manager or any of the directors of the company;
(2)(i)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;
(2)(j)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 made under clause (h);
(2)(k)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;
(2)(l)imposition of costs as may be deemed fit by the Tribunal;
(2)(m)any other matter for which, in the opinion of the Tribunal, it is just and equitable that provision should be made.
(3)A certified copy of the order of the Tribunal under sub-section (1) shall be filed by the company with the Registrar within thirty days of the order of the Tribunal.
The company must file a certified copy of the Tribunal's order with the Registrar within thirty days.
(4)The Tribunal may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company’s affairs upon such terms and conditions as appear to it to be just and equitable.
The Tribunal can make interim orders to regulate the company's affairs while the case is being heard.
(4A)At the conclusion of the hearing of the case in respect of sub-section (3) of section 241, the Tribunal shall record its decision stating therein specifically as to whether or not respondent is a fit and proper person to hold the officer of director or any other officer connected with the conduct and management of any company.]
(5)Where an order of the Tribunal under sub-section (1) makes any alteration in the memorandum or articles of a company, then, notwithstanding any other provision of this Act, the company shall not have power, except to the extent, if any, permitted in the order, to make, without the leave of the Tribunal, any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles.
If the Tribunal's order changes the company's memorandum or articles, the company cannot make any further changes without the Tribunal's permission, except to the extent allowed in the order.
(6)Subject to the provisions of sub-section (1), the alterations made by the order in the memorandum or articles of a company shall, in all respects, have the same effect as if they had been duly made by the company in accordance with the provisions of this Act and the said provisions shall apply accordingly to the memorandum or articles so altered.
The changes made by the Tribunal's order have the same effect as if the company had made them itself, following the normal procedures.
(7)A certified copy of every order altering, or giving leave to alter, a company’s memorandum or articles, shall within thirty days after the making thereof, be filed by the company with the Registrar who shall register the same.
The company must file a certified copy of the order with the Registrar within thirty days, and the Registrar will register it.
(8)If a company contravenes the provisions of sub-section (5), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable 1*** with fine which shall not be less than twenty-five thousand rupees but which may extend to 2[one lakh rupees].
If the company disobeys the Tribunal's order, it can be fined between one lakh rupees and twenty-five lakh rupees, and officers in default can be fined between twenty-five thousand rupees and one lakh rupees.
The right-hand column is written from the section text, not quoted from it, and it has no legal force. Where the two differ, the left-hand column is the law.
Amendment notes
- 1. Ins. by Act 22 of 2019, s. 33 (w.e.f. 15-8-2019).
- 1. Ins. by Act 22 of 2019, s. 34 (w.e.f. 15-8-2019).
- 1. The words “with imprisonment for a term which may extend to six months or” omitted by Act 29 of 2020, s. 43 (w.e.f. 21-12-2020).
- 2. Subs. by s. 43, ibid., for “one lakh rupees, or with both” (w.e.f. 21-12-2020).
- 3. Ins. by Act 22 of 2019, s. 35 (w.e.f. 15-8-2019).
- 4. Ins. by Act 22 of 2019, s. 35 (w.e.f. 15-8-2019).
- 5. The words “with imprisonment for a term which may extend to six months or” omitted by Act 29 of 2020, s. 44 (w.e.f. 21-12-2020).
- 6. Subs. by s. 44, ibid., for “five lakh rupees, or with both” (w.e.f. 21-12-2020).
This section refers to
Referred to by
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Reproduced from the official India Code print for reference. Check the current text on India Code before you rely on it, and read the section alongside its Rules. Nothing here is legal advice.