Centre Can File Oppression, Mismanagement Cases Only For Ongoing Public Interest Prejudice: NCLT Mumbai

The National Company Law Tribunal's (NCLT) Mumbai Bench has held that the Central Government can initiate proceedings for oppression and mismanagement under Section 241(2) of the Companies Act, 2013, only when a company's affairs are presently being conducted in a manner prejudicial to public interest.

A bench comprising Judicial Member Lakshmi Gurung and Technical Member Hariharan Neelakanta Iyer observed that the use of the words "are being", instead of "have been", indicates that the alleged prejudicial conduct must be ongoing.

"We are of considered view that the conspicuous absence of the words “have been” in section 241(2) of the Companies Act, 2013 and the usage of the words “are being” clearly indicates that the affairs of the Company leading to oppression or mismanagement should be in praesenti," the bench observed.

The bench dismissed a company petition filed by the Union of India, through the Ministry of Corporate Affairs, against Birla Cotsyn (India) Limited and several individuals associated with its former management. The Central Government had alleged diversion and siphoning of funds, including public deposits, and mismanagement. It sought recovery of the amounts involved in the alleged financial fraud and compensation for depositors.

The dispute arose from complaints against Birla Cotsyn dating back to 2013, primarily over non-repayment of matured fixed deposits. The Company Law Board had passed an order on April 27, 2016, directing the company to reschedule repayment of the deposits. However, the company allegedly failed to comply with that order and other directions issued earlier for repayment of the deposits.

The statutory auditors reported outstanding depositor dues of ₹62.01 lakh as of March 31, 2018.

On January 7, 2019, the Central Government ordered an investigation by the Serious Fraud Investigation Office (SFIO) into the company's affairs.

The respondents contended that the outstanding principal amounted to ₹8.78 crore, along with ₹92.99 lakh in interest, payable to 1,821 depositors for the period between FY 2011-12 and FY 2018-19.

Distinguishing between Sections 241(1) and 241(2), the bench observed that members can approach the tribunal over both past and ongoing prejudicial conduct. The Central Government, however, can initiate proceedings only when the company's affairs are presently being conducted in a manner prejudicial to public interest.

“It can be seen that though under sub-section (1) of section 241, a petition can be filed by a member on complaints that the affairs of the Company have been or are being conducted in a manner prejudicial to public interest, etc. which indicates that even for past conduct of the Company, a petition under section 241(1) can be filed. However, under section 241(2), a petition can be filed against the Company by the Central Government when the affairs of the Company are being conducted in a manner prejudicial to public interest.”, the tribunal observed. 

The bench also noted that the company entered the Corporate Insolvency Resolution Process (CIRP) on November 20, 2018, following which its affairs were managed by a Resolution Professional. A liquidation order was passed on September 24, 2019, placing the company under the Liquidator's control.

By the time the Central Government filed its petition on April 8, 2022, the erstwhile management no longer controlled the company's affairs. The fixed deposit holders had also filed their claims before the Liquidator.

The bench was not satisfied that the requirement under Section 241(2) had been met. It observed that the provision could not be invoked against a company whose affairs were being conducted by a Liquidator under the supervision of the tribunal.

The bench also noted that the petition was based on a Registrar of Companies (RoC) report dated September 27, 2018, and the Central Government's consequential order dated January 7, 2019, directing an SFIO investigation.

The Bombay High Court had quashed both the RoC report and the investigation order on April 8, 2026. It held that the RoC report had not been prepared following an inspection or inquiry under Section 206 of the Companies Act and was ex-facie illegal.

The parties agreed before the NCLT that the petition was based on these two documents. With their foundation having been set aside by the High Court, the bench observed that nothing survived in the proceedings.

Accordingly, the company petition was dismissed. 

For Petitioner: Advocates Atishay Jain i/b Kunal Kanungo & Gaurav Jaiswal, Public Prosecutor.

For Respondents: Advocates Nidhi Faganiya i/b Vidhii Partners, Aamir Attari i/b Avyaan Legal