Question

In the following question, a Statement is followed by two Conclusions, I and II.
Statement: Allegations have been made by the Minority Shareholders that ABC's promoters sold the optionally convertible preference shares and redeemable preference shares to a trust controlled by ABC's promoters at prices significantly below their fair market value, thereby causing a financial loss to ABC and its shareholders. What is the recourse for minority shareholders under law?
Conclusion I: The Minority Shareholders can file for class action under Section 245 of the Companies Act, 2013, seeking directions from NCLT to either reverse the sale of optionally convertible preference shares and redeemable preference shares or to compensate the Minority Shareholders.
Conclusion II: The aggrieved members may proceed individually to protect their rights against acts of oppression or mismanagement under Section 241 of the Companies Act, 2013.
In the context of the above Statement and Conclusions, which one of the following is correct?

• A. Neither Conclusion I nor II follows
• B. Both Conclusions I and II follow
• C. Only Conclusion I follows
• D. Only Conclusion II follows

Hint:

Remember: "Class Action" (Section 245) is for collective redress, while "Oppression and Mismanagement" (Section 241) is a broader remedy for protecting minority interest. Both are powerful tools for shareholders against promoters!

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
This problem addresses remedies for minority shareholders against promoter malfeasance in corporate law under the Companies Act, 2013.

Step 2: Detailed Explanation:
- Conclusion I refers to Section 245, which provides the mechanism for "Class Action" suits. Shareholders can collectively approach the NCLT to claim damages or seek the reversal of acts that are prejudicial to the company or its members, which directly fits the scenario of undervalued share transfers by promoters.
- Conclusion II refers to Section 241, which allows members to apply to the NCLT for relief in cases of "oppression and mismanagement." This is a well-established remedy for minority shareholders who believe the affairs of the company are being conducted in a manner prejudicial to public interest or their own interests.
- Both sections are valid legal recourses available to minority shareholders in the given circumstances.

Step 3: Final Answer:
Since both legal avenues provided in the conclusions are accurate, option (B) is correct.

Answer 2

The question presents allegations that ABC's promoters sold preference shares to a promoter-controlled trust below fair market value, and asks whether Conclusion I (a Section 245 class action) and Conclusion II (a Section 241 oppression and mismanagement remedy) follow. Testing each conclusion, and each option, against what these two sections actually provide resolves this.

1. Neither Conclusion I nor II follows: This would only be correct if neither Section 245 nor Section 241 applied to facts involving promoters using their control to benefit themselves at the company's expense. Since both sections are specifically designed to address exactly this kind of prejudicial promoter conduct, saying neither remedy is available understates the protections available to minority shareholders.
2. Both Conclusions I and II follow: Section 245 allows members to bring a class action before the NCLT seeking damages or reversal of acts prejudicial to the company, which matches Conclusion I's request to reverse the undervalued sale or compensate shareholders. Section 241 separately allows members to seek relief against oppression or mismanagement, which matches Conclusion II's description of an individual or group of aggrieved members approaching the NCLT over promoter self-dealing. Both remedies are genuinely available on these facts, so both conclusions follow together.
3. Only Conclusion I follows: This would be correct only if Section 241's oppression and mismanagement remedy did not apply to promoter self-dealing of this kind, but promoters directing an undervalued sale to their own trust is a textbook example of conduct prejudicial to members' interests, which is precisely what Section 241 exists to address, so ruling out Conclusion II is not justified.
4. Only Conclusion II follows: This would be correct only if a class action under Section 245 could not be used for this kind of harm, but Section 245 is specifically meant for exactly this sort of collective grievance, promoters causing financial loss to the company and its shareholders through self-serving transactions, so ruling out Conclusion I is not justified either.

Because the facts fit squarely within both Section 245's class action remedy and Section 241's oppression and mismanagement remedy, both conclusions follow together, and none of the options ruling out either conclusion is supportable.

Therefore, the correct answer is Both Conclusions I and II follow.