MINORITY SHAREHOLDERS
Although the term “minority shareholder” is not defined anywhere in Companies Act, 2013, it’s widely referenced to any shareholder who owns less than 50 percent of the total voting rights of the company and is not involved in any direct/indirect management control of the company. So technically, a minority shareholder doesn’t have:
1) Voting rights over the company, and
2) control over the management of the company
RIGHTS PROVIDED TO MINORITY SHAREHOLDERS AND THEIR POWERS TO EXERCISE SUCH RIGHTS
The Rights of Minority Shareholders have been taken care of in the Companies Act, 2013. There have been mentioned certain provisions in the Act which empower the minority shareholders to exercise those rights.
These are as follows-
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PROTECTION FROM OPPRESSION AND MISMANAGEMENT
The terms Oppression and Mismanagement also have not been properly defined anywhere in the Companies Act, 2013, and are left to be decided by the court on the facts and merits of the case.
Oppression basically explains subjecting someone (a minority, usually) to ill-treatment and abusing them and troubling them with inconveniences. It is the use of authority or power in a troublesome, barbarous, or unfair manner. It is a situation in which a person is caused by mental or physical uneasiness or trouble which may lead to adverse conditions and anxiety. Whereas, Mismanagement, alludes to poor management of the issues or matters of the company with the incorporation of conceivable preference and biasness.
The two terms are not mentioned in The Companies Act, 2013[1] but it states it as a situation when “the affairs of the company have been or are being conducted in a manner prejudicial to the public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company.” If the conduct of the officials of the company is discretionary and biased, it is oppression and mismanagement.
The judiciary defines oppression in the Hon’ble Apex Court’s judgement as “lack of probity and fair dealing in the affairs of the company to the prejudice of some portion of its members.”
A clear illustration of mismanagement was in RAJAHMUNDARY ELECTRIC CORPORATION v. NAGESHWARA RAO[2] in which the Vice-Chairman mismanaged affairs and drew the amount from the company for his personal use. In order to discourage such abuse of powers, the Act sets out a range of guidelines.
In case any minority shareholder believes that there has been oppression and mismanagement in the company, he/she may file an application in the tribunal to seek relief.
Sections 241[3]and 242 of the Companies Act, 2013 provides for relief in cases where oppression is done. The first step is making an application to the tribunal. The Act provides that U/S 241, an application may be made to the tribunal in case any of the following conditions are fulfilled-
- If any member claims, that the affairs of the company are carried out in a manner that is detrimental or prejudicial to the public interest or interests of a specific member.
- If there is a material change in interests of creditors, debentures, or any shareholders of the company by the action of a board of directors which is likely to be arbitrary and prejudiced.
- One of the landmark cases which increased the scope of rights of minority shareholders who are oppressed by other shareholders was VIKRAM BAKSHI AND ORS. v. CONNAUGHT PLAZA RESTAURANTS LIMITED AND ORS[4].
- If The central government suspects that the behavior of the company is hindering the general public’s interest.
2. RECONSTRUCTION AND AMALGAMATION
There are questions about the rights of minority shareholders being ignored in mergers, amalgamations, and reconstructions. To resolve these concerns, the new Act, by Sections 235 and 236, provides protection for the rights of minority shareholders. These are-
a) The acquirer on becoming the holder of 90% or more of issued equity share capital shall offer minority shareholder for buying equity shares at the determined value[5];
b) The minority shareholders can make an offer to the majority shareholders to buy their shares[6], and
c) The transferor company will act as a transfer agent for making payments to minority shareholders[7].
3. E-VOTING PROCESS
Section 108 of the new Act requires all corporations to have an e-voting platform for shareholders to vote on shareholder meetings. This provision empowered minority shareholders residing in or outside the country to exercise their voting rights without having to attend the meeting in person. This has resulted in an increase in the participation of minority shareholders in meetings and they say on important issues related to their companies.
4. CLASS ACTION SUITS
The Company Act, 2013 introduced a new provision, i.e. class action U/S 245 of the Act. It provides for class action suits by a specified number of members or depositors against a company except for banking companies. According to Section 245(1), Class action cases may be brought before the tribunal in case-specific number of members, depositors or any class of them, are of the opinion that the affairs of the company and their management are being conducted in a manner that is prejudicial to the company, its investors and its depositor’s interests.
According to Sec.245(3), the class-action suit can be brought by-
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245(3)(i)(a) in the case of a company having a share capital, not less than 100 members of the company or not less than such percentage of the total number of members as may be prescribed, whichever is less, or any member or members holding not less than such percentage of the issued share capital of the company as may be prescribed, subject to the condition that the applicant or applicants has or have paid all calls and other sums due on his or their shares;
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245(3)(i)(b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members.
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The requisite number of depositors provided in sub-section (1) shall not be less than one hundred depositors or not less than such percentage of the total number of depositors as may be prescribed, whichever is less, or any depositor or depositors to whom the company owes such percentage of total deposits of the company as may be prescribed.[8]
REMEDIES PROVIDED UNDER CLASS ACTION SUITS U/S 245 OF THE ACT
(a) to restrain the company from committing an act which is ultra vires the articles or memorandum of the company;
(b) to restrain the company from committing a breach of any provision of the company’s memorandum or articles;
(c) to declare a resolution altering the memorandum or articles of the company as void if the resolution was passed by suppression of material facts or obtained by misstatement to the members or depositors;
(d) to restrain the company and its directors from acting on such resolution;
(e) to restrain the company from doing an act which is contrary to the provisions of this Act or any other law for the time being in force;
(f) to restrain the company from taking action contrary to any resolution passed by the members;
(g) to claim damages or compensation or demand any other suitable action from or against—
(i) the company or its directors for any fraudulent, unlawful or wrongful act or omission or conduct or any likely act or omission or conduct on its or their part;
(ii) the auditor including audit firm of the company for any improper or misleading statement of particulars made in his audit report or for any fraudulent, unlawful or wrongful act or conduct; or
(iii) any expert or advisor or consultant or any other person for any incorrect or misleading statement made to the company or for any fraudulent, unlawful or wrongful act or conduct or any likely act or conduct on his part;
(h) to seek any other remedy as the Tribunal may deem fit.[9]
CONCLUSION
After a thorough review of the provisions of the Companies Act 2013, it can be identified that the key purpose of the law is to safeguard the interests of minority shareholders, but it requires the implementation of those provisions to safeguard and give due consideration to their valuable rights. The Companies Act 2013 has taken a number of important steps to protect the interests of the minority rights of shareholders of the company, regardless of the presence of oppression and mismanagement of the company affecting the rights of minority shareholders which have been mentioned earlier. Thus, the minority shareholders can now raise a voice against the company in case their rights have been infringed.
[1]https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf
[2] AIR 1956 SC 213
[3]https://www.mca.gov.in/SearchableActs/Section241.htm
[4] (1983) 4 SCC 625
[5]Section 236 (1) and (2), Companies Act, 2013
[6]Section 236 (3), Companies Act, 2013
[7]Section 236 (5), Companies Act, 2013
[8] Companies Act, 2013
[9]Ibid pt.5
This article is authored by Rishab Bhalla, Third-Year, B.A. LL.B student at JEMTEC, School of Law, Affiliated to GGSIP University.
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