Powers of the Central Government :
Section 408 has vested some powers in the Central Government to prevent oppression or mismanagement. It can exercise these powers on an order of the Company Law Board which in turn will so order on the application of at least 100 members of the company or of members holding at least one tenth of the total voting power therein. But before exercising such powers, it must make such enquiry as it deems fit and be satisfied that it is necessary to exercise its powers in order to prevent the affairs of the company being conducted either in a manner oppressive to any members of the company or in a manner prejudicial to the interests of the company or to public interest.
(i) Appointment of the persons to safeguard the interest of company/ shareholders/public interest: Central Government may appoint such number of persons as the Company Law Board may, by order in writing, specify as being necessary to effectively safeguard the interest of the company, or its shareholders or the public interest, as directors thereof for such period not exceeding three years at one time as it may think fit [Section 408(1)].
(ii) Persons appointed by the Central Government shall hold office as additional directors: If the Company Law Board has not passed an order in the above manner, it may direct the company to provide for the proportional representation as per section 265 of the Act for the appointment of directors and make fresh appointment of directors with in the specified time [Proviso to section 408(1)], Till new directors are appointed pursuant to the aforesaid order, such number of persons as the Company Law Board may, by order in writing, specify as being necessary to effectively safeguard the interest of the company, or its shareholders or the public interest will hold office as additional directors. The Central Government shall appoint such Additional Directors. [section 408(2)].
(iii) Director/ Directors not liable to retire by rotation: The director or directors appointed under sub-section (1) or (2) of section 408 are not liable to retire by rotation as contemplated by section 255 [section 408(3)].
(iv) Directors so appointed by Central Government not to hold qualification shares nor retirement by rotation: These directors are not required to hold any qualification shares; nor are their tenure of office liable to termination by retirement of directors by rotation. These directors may, however, be replaced by some others by the Central Government [section 408(4)].
(v) No change in Board of directors after appointment unless confirmed by the C.L.B.: No change in the Board of directors, after a person has been appointed or directed to hold office of a director or additional director under section 408 shall so long as such director or additional director holds office, be effective unless confirmed by the Company Law Board [section 408(5)].
On appointing directors or additional directors referred to in the first two sub-sections above, the Central Government may issue such directions to the company as it may consider necessary or appropriate in regard to its affairs. Such directions can be issued notwithstanding anything contained in this Act or in any other law for the time being in force [section 408(6)]. The Central Government may require these directors or additional directors to report to it from time to time with regard to the affairs of the company [section 408(5)].
On a complaint being lodged by the managing or any other director or the manager, the Company Law Board is empowered under section 409 to prevent any change in the Board of Directors, which is likely to affect the company prejudicially. The power conferred by this Section, however, cannot be exercised in relation to a private company, unless it is a subsidiary of a public company.