Section 408 - Powers of Government to prevent oppression or mismanagement. - Companies Act, 1956

B. Powers of Central Government Powers of Government to prevent oppression or mismanagement [1] . 408. [2] [(1) Notwithstanding anything contained in this Act, the Central Government may appoint such number of persons as the [3] [Tribunal] may, by order in writing, specify as being necessary to effectively safeguard the interests of the company, or its shareholders or the public interests to hold office as directors thereof for such period, not exceeding three years on any one occasion, as it may think fit, if the 1[Tribunal] on a reference made to it by the Central Government or on an application of not less than one hundred members of the company or of the members of the company holding not less than one-tenth of the total voting power therein, is satisfied, after such inquiry as it deems fit to make, that it is necessary to make the appointment or appointments in order to prevent the affairs of the company being conducted either in a manner which is oppressive to any members of the company or in a manner which is prejudicial to the interests of the company or to public interest: Provided that in lieu of passing an order as aforesaid, the 1[Tribunal] may, if the company has not availed itself of the option given to it under section 265, direct the company to amend its articles in the manner provided in that section and make fresh appointments of directors in pursuance of the articles as so amended, within such time as may be specified in that behalf by the 1[Tribunal]. (2) In case the 1[Tribunal] passes an order under the proviso to sub-section (1), it may, if it thinks fit, direct that until new directors are appointed in pursuance of the order aforesaid, such number of persons as the 1[Tribunal] may, by orders specify as being necessary to effectively safeguard the interests, of the company, or its shareholders or the public interest, shall hold office as additional directors of the company and on such directions, the Central Government shall appoint such additional directors]. (3) For the purposes of reckoning two-thirds or any other proportion of the total number of directors of the company, any director or directors appointed by the Central Government under sub-section (1) or (2) shall not be taken into account. [4] [(4) A person appointed under sub-section (1) to hold office as a director or a person directed under sub-section (2) to hold office as an additional director, shall not be required to hold any qualification shares nor his period of office shall be liable to determination by retirement of directors by rotation; but any such director or additional director may be removed by the Central Government from his office at any time and another person may be appointed by that Government in his place to hold office as a director or, as the case may be, an additional director. (5) No change in the Board of directors made after a person is appointed or directed to hold office as a director or additional director under this section shall, so long as such director or additional director holds office, have effect unless confirmed by the [5] [Tribunal]. [6] [(6) Notwithstanding anything contained in this Act or in any other law for the time being in force, where any person is appointed by the Central Government to hold office as director or additional director of a company in pursuance of sub-section (1) or sub-section (2), the Central Government may issue such directions to the company as it may consider necessary or appropriate in regard to its affairs [7] [and such directions may include directions to remove an auditor already appointed and to appoint another auditor in his place or to alter the articles of the company, and upon such directions being given, the appointment, removal or alteration, as the case may be, shall be deemed to have come into effect as if the provisions of this Act in this behalf have been complied with without requiring any further act or thing to be done.] (7) The Central Government may require the persons appointed as directors or additional directors in pursuance of sub-section (1) or sub-section (2) to report to the Central Government from time to time with regard to the affairs of the company.] -------------------------------------- Notes:- [1] Fees prescribed is Rs. 2500, w.e.f. 1-4-2000. On notification of the commencement of the amendment, power will be transferred to the National Company Law Tribunal. [2] Substituted by the Companies (Amendment) Act, 1988, section 53, w.e.f. 15-6-1988 for sub-sections (1) and (2) which read as under: "(1) Notwithstanding anything contained in this Act, the Central Government may appoint such number of persons as the Central Government may, by order in writing, specify as being necessary to effectively safe guard the interests of the company, or its shareholders or the public interest to hold office as directors thereof for such period, not exceeding three years on any one occasion, as it may think fit, if the Central Government of its own motion or, on the application of not less than one hundred members of the company or of members of the company holding not less than one-tenth of the total voting power therein, is satisfied, after such inquiry as it deems fit to make, that it is necessary to make the appointment or appointments in order to prevent the affairs of the company being conducted either in a manner which is oppressive to any members of the company or in a manner which is prejudicial to the interests of the company or to public interest: Provided that in lieu of passing an order as aforesaid, the Central Government may, if the company has not availed itself of the option given to it under section 265, direct the company to amend its articles in the manner provided in that section and make fresh appointments of directors in pursuance of the articles as so amended, within such time as may be specified in that behalf by the Central Government. (2) In case the Central Government passes an order under the proviso to sub-section (1), it may, if it thinks fit, direct that until new directors are appointed in pursuance of the order aforesaid, such number of persons as the Central Government may, by order in writing, specify as being necessary to effectively safeguard the interest of the company, or its shareholders or the public interest specified by the Central Government shall hold office as additional directors of the company." [3] Substituted for Company Law Board by the Companies (Second Amendment) Act, 2002, w.e.f. a date yet to be notified. Earlier the quoted words were substituted for Court by the Companies (Amendment) Act, 1988, w.e.f. 15-6-1988. [4] Inserted by the Companies (Amendment) Act, 1960, Act 65 of 1960, section 155. [5] Substituted for Company Law Board by the Companies (Second Amendment) Act, 2002, w.e.f. a date yet to be notified. Earlier the quoted words were substituted for Court by the Companies (Amendment) Act, 1988, w.e.f. 15-6-1988. [6] Inserted by the Companies (Amendment) 1974, Act 41 of 1974, section 31, w.e.f. 1-2-1975. [7] Inserted by the Companies (Amendment) Act, 1988, section 53 w.e.f. 15-6-1988.