COMPANY LAW (UNIT-1)

MAJORITY POWER AND MINORITY RIGHTS

BRIEF INTRODUCTION
Minority shareholders are the persons in the company whose involvement in the companys
democratic decisions are overshadowed by the majority rule and to overcome this problem
companies act 2013 has come up to tackle the problems faced by the minority in companies act,
1956. However minority shareholders are not defined under any law but still under section
235(power to acquire shares of dissenting shareholders) and section 244(right to apply for
oppression and mismanagement) of companies act, 2013 have been given 10% shares or
minimum hundred shareholders whichever is less in companies with share capital and 1/3rd of the
total number of its members in case of companies without share capital.

RIGHTS OF MINORITY SHAREHOLDERS

Many provisions in companies act, 1956 deals with situations where minority shareholders are
affected and the same can be divided into various major heads:-

A. OPPRESSION AND MISMANAGEMENT OF THE COMPANY

Oppression is a means of exercising authority or power in a burdensome, cruel or unjust manner.

Example of oppression could be: -not calling a general meeting, depriving the member of right to
dividend etc.
It can be also filed in case there is any material change in the management or control of the
company such as:-
1. Alteration in the board of directors.
2. Manager.
3. In the ownership of companys share.
4. If it has no share capital in its membership.
5. In any other manner whatsoever.

Right to apply for application under section 241:- If a company having share capital:-
1. Not less than 100 members of the company.
2. Not less than one-tenth of the total number of its members.
Whichever is less shall have the right to apply under section 241.
However, any member or members holding not less than one-tenth of the issued share capital of
the company subject to the condition that the applicant has paid all calls, shall also have the right
to apply under section 241. In case a company is not having a share-capital not less than one-fifth
of the total number of its members shall have the right to apply under section 241.

Power of the tribunal on receiving the application (section 242):- On an application made under
section 241, the tribunal shall frame its opinion on two points:-

a.) That the companys affairs are being conducted in a manner prejudicial or oppressive.
b.) That to wind up the company would unfairly prejudice such member or members.

On the basis of above two points, the tribunal shall pass an order which includes:-

a.) The regulation of the conduct of the affairs of the company in future.
b.) The purchase of shares or interest of any member of the company by other members thereof.
c.)Restriction on the transfer or allotment of the shares of the company.
d.) Removal of the managing directors, manageror any of the directors of the company.
e.) Imposition of costs as may be deemed fit by the tribunal,etc.

Mismanagement means conducting the affairs of the company in a manner prejudicial to public
interest or in a manner prejudicial to the interests of the company. Instances which can be
considered as mismanagement in the company are:-
1.) Secret profit being made out of the companys accounts.
2.) Company doomed to trade unprofitably but the directors continue to draw their salary.
3.) Company affairs being given in the wrong persons hand who misuses it.
4.) Any resolution passed by the company which is violative of the companys memorandum or
articles or contrary to any provisions of law for the time being in force.
B.RECONSTRUCTION AND AMALGAMATION OF THE COMPANY

In case of reconstruction and amalgamation, minority shareholders may be suppressed in taking

decisions of the company and therefore the Courts, while approving the scheme must follow
judicial approach by making the public aware about the proposed scheme in newspapers to seek
any objections, against the scheme from the shareholders. If any objections are found, then any
interested person (including a minority shareholder) may appear before the court to initiate a
class action.

C.) RIGHTS OF SHAREHOLDERS TO BE INFORMED THROUGH CORRECT

DISCLOSURES

The right of the company members to attain the timely information must be expressed clearly in
the statute. The financial information and disclosures need to be provided to shareholders in a
simple format. This leads to informed investment decision making by the shareholders and help
increasing the credibility of the company.

D.) RIGHT OF MINORITY TO BE HEARD

An appropriate mechanism should be established for ensuring that provisions relating

toMinority Interest do not obstruct the Board or the management from performing
theirfunctions genuinely in interests of the company so that the Board and the management
should,be protected from undue and unjustified interference from unscrupulous
shareholdersacting in the guise of investors rights.

E.) RIGHTS OF MINORITY SHAREHOLDERS DURING MEETING OF THE COMPANY

Sometimes the minorities are deprived of an effective hearing because meeting of the company
are conducted in such a manner and therefore it must be ensured that they have the right to attend
the general meetings, right to direct the court for the appointment of a general meeting, to
appoint proxies so that they can attend and vote at general meeting, making proposal at
shareholders meeting.

F.) FAIR VALUATION AS A MEANS OF SAFEGUARDING MINORITY INTERESTS

For evaluating the shares of the company there must be an independent valuation mechanism for
safeguarding minority interests. The appointment of the independent valuer is required to be
appointed by the audit committee where such a committee would ensure that shareholders must
have the right to approach the tribunal if the process appears to be unfair.These principles for
valuation of shares could also applied in case of companies that are delisted and have a
shareholder base of 1000 or more.

G.) RIGHT OF MINORITY SHAREHOLDERS TO SEEK INFORMATION

Every individual shareholder has the right to know about all theinformation of the company. The
existing Act lays down the provision for fairness to all shareholders irrespective ofeach
individuals shareholdings. They have the right to receive Notice of General Meetings (the AGM
or the EGM), annual report and audited accounts and quarterly and annual accounts etc.

H.) CLASS ACTION

A class action suit is a law suit where a group of persons approach the company law tribunal to
represent a common interest. It may be filed either by the members or depositors of the company.
Class action suits help minority shareholders as a redressal tool to approach the company law
tribunal having the common interest.
The relief which the member or depositors(including minority shareholders) may get through
class action suits is to:-

1.) Restrain the company from committing an act which is ultravires of the company.
2.) Restrain the company from committing breach of any provisions of company including
memorandum or articles.
3.) Restrain the company from acting contrary to the provisions of any law for the time being in
force.
4.) Restrain the company from taking action contrary to any resolution passed by its members,
etc.

CONCLUSION

It may be concluded that though minority shareholder views were not being considered due to
suppression of the majority rule in the company in the previous companies act, 1956. But if we
see todays scenario in the companies act 2013, then various steps have been taken to protect the
minority rights of the shareholder in the company irrespective of the fact whether there is any
oppression or mismanagement or any other affected rights of the minority shareholders.