In India we have corporate democracy which means certain decisions are to be taken by a simple majority that is shareholders holding 51% of the company’s shares and certain decisions are to be taken by a special majority. The provisions where special resolutions which includealteration of memorandum article or mergers or amalgamation will be required means 75% of the shareholders present in the meeting should vote in favor of the resolution then only the resolution can be carried forward minority shareholders neither have a veto power not have overriding powers. Therefore, the Companies Act 2013 addresses these concerns, providing them with rights and safeguarding the interests of the minority.

Who is a Minority Shareholder?

A minority shareholder refers to an individual or entity that holds a minority or less than a controlling interest in a company. In other words, a minority shareholder owns a portion of the company’s shares that is smaller than 50%. They do not have the power to control or influence major decisions within the company on their own since they do not hold a majority of shares minority shareholders have Limited voting rights in corporate decisions, they may not be able to sway the outcome of major resolutions or appointments without the support of other shareholders.

What is the Rule of Majority?

Rule of majority means the company will be managed by the majority and the shareholders including the management of the company. If they pass any resolution then it is binding on all the members of the company to follow that. Now as the minority shareholders own less than 50% of the total share, they do not have voting rights and they cannot single-handedly elect directors, the majority shareholders take advantage of this and pass the resolution for compulsory acquisition of minority shareholders.

Rights of the Minority Shareholders

1. Right to Information – Under section 101 of the Companie Act,2013 minority shareholders can access relevant and timely information about the company’s financial performance, operations, and strategic plan, as regular updates, on major corporate developments and decisions.

2. Voting rights – Under Section 108 of the Companies Act, 2013, the right to vote on important matters including the election of directors’changes of the company’s article of incorporation protections against dilution of voting power without proper notification. This right is protected under section 108 of the Companies Act (CA),2013.

3. Equal dividend– In the title the right to receive a share of the company’s profit in the form of dividends if declared by the board of directors fair and equal treatment in dividend distribution.

4. Preemptive rights- The right to maintain a proportion ownership stake in the company but have the first opportunity to purchase additional shares before their offer to external parties.

5. Right to sue- the ability to take legal action against the company or its management for action that may harm the interests of minority protection against unfair conduct by the majority shareholders on the management number.

6. Appointment of directors– Section 151 states who can elect a Director. This includes small shareholders whose shares of nominal value are not less than 20,000 rupees. They can nominate and vote for a director’s insurance representation on board protection against the may undermine the ability of minority measure holders to have faire in the director appointments number.

7. Exit option– The right to sell or transfer shares at a fair market value. The ability to exist the investment without facing unfair restrictions.

8. Right to inspect records – Certain corporate records including finance my needs of meeting and other element documents access to information that helps in understanding the company affairs.

9. Fair treatment in marginal and acquisition– The right to receive fair consideration and treatment in the event of acquisitions or other significant corporate transaction protection against a transaction that may be designed to unfairly benefit majority shareholders.

10. Right to share in surplus acid– In the event of liquidation the right to receive a share of the remaining acids after creditors have been satisfied.

OPPRESSION AND MISMANEGMENT

In the case Elder vs. Watson Ltd 1952 (Scotland), the shareholders committed a crime against the minority shareholders. The meaning of oppression is any act in the company that causes harshness and burdensome on the public interest and the minority shareholders if there is any breach of fiduciary duty by the majority shareholders. The negligence in management which causes loss to the shareholders and affects the management or the company is known as mismanagement.

Circumstances that can be classified as Mismanagement: Hindrance of company directors from carrying out their responsibilities, breaches of legal regulations, and non-compliance with the company’s Memorandum of Association (“MOA”) and Articles of Association (“AOA”). Misuse of financial resources.

Case laws: Shanti Prasad Jain Vs. Kalinga Tubes Ltd. There were three shareholders holding shares in equal proportion and equal representation on the board. They agreed mutually that when new shares will be issuedthey will first share it. Later, the company converted from private limited to public limited. Existing shareholders put allegations on the new shareholders that through malafide

intentions they have issued shares. The court held that it was perfectly justified on the part of the majority shareholders to offer new shares as it was not mentioned in the article so, the court cannot interfere.

PROTECTION AGAINST OPPRESSION AND MISMANAGEMENT

Sections 241 and 244 of the Companies Act, 2013 make it clear that the right to complain lies with the “members”, subject to the requirement under Section 244 in respect of holding share capital and the word used in these sections is “members”. The applicability of Section 241 of the Companies Act, 2013 is an equitable jurisdiction that is intended to protect the Minority Shareholders of the company from any Oppression and Mismanagement at the hands of Majority members. In case of operation and mismanagement, they can approach the NCLT (National Company Law Tribunal) its quasi-judicial authority that settlescorporate debates. Section 408 of the Company Act gives control to NCLT to undertake advisory law. Requisition for General Meeting a request to the board of directors to call for a General Meeting by those shareholders who hold 10% of the company’s voting power. Institution of class action suits beneath section 245 of Companies Act 2013 with the NCLT on an application at a request of a hundred members of the company or 5% of the add up to members which even is lesser or in case of an unlimited company any individual of the company owning at least 5% of the company’s issued share capital. A class of action suit is an opportunity given to a group of people who are having common interest to reach out to NCLT

Ways to safeguard the interest of minority shareholders

Protecting the interest of minority shareholders is crucial for maintaining fairness and equity within a company here are several ways to save the rights and interests of minority shareholders:

1. Transport corporate governance– Implement strong corporate governance practices that emphasize the transfer in accountability and fairness and clearly define the roles and responsibilities of the Boards of Directors, committees, and Management.

2. Equal treatment– Ensure that all shareholders regardless of their ownership percentage are treated fairly and equally and avoid any discriminatory practices that may disadvantage minority shareholders.

3. Information transparency– Provide kind and comprehensive information to all shareholders including financial reports, strategic plans, and major decisions. Foster an open communication channel to address concerns and keep minority shareholders informed.

4. Independent Directors– Appoint independent directors to the board who can represent the interests of minority shareholders. Independent Directors can act as a check on management decisions and ensure a balanced perspective.

5. Legal Protections- Comply with relevant laws and regulations related to shareholder rights. Provide a mechanism for a minority shareholderto seek legal redress in case of any unfair treatment or violation of their rights.

6. Exit Strategies– Offer fair and reasonable exit options for minority shareholders such as buyback programs or fair market for their sharesand ensuring that they are exiting on fair terms.

7. Fair Dividend Policies- Establish a clear and fair dividend distribution policy that considers the interests of all shareholders. Avoid that disproportionately benefits majority shareholders.

CASE LAWS

TATA CONSULTANCY SERVICE VS. CRYUS INVESTMENT PVT LTD.

The Shapoorji Pallonji Group (SP Group), under the leadership of Cyrus Mistry, held 18.37% of Tata Sons Limited’s total paid-up share capital. In 2012, Cyrus Mistry was appointed as the Executive Deputy Chairman of Tata Sons for a five-year term. By the year’s end, the Board of Directors elevated Cyrus to the position of Executive Chairman of Tata Sons, effective December 29, 2012, while Ratan Tata took on the role of Chairman Emeritus. On October 24, 2016, the Tata Sons Board of Directors passed a resolution to remove Cyrus from his position as Executive Chairman of the company. Subsequently, Cyrus was ousted from the board of Tata Industries Limited, Tata Consultancy Services Limited, and Tata Teleservices Limited, after separate shareholder votes. The SP Group, Cyrus Investment Ltd., and Sterling Investment Corporation Pvt Ltd. filed a petition under sections 241, 242, and 244 of the Companies Act 2013, making allegations of mismanagement, oppression, and discrimination. The National Company Law Tribunal(NCLT) determined that Cyrus Mistry’s removal as Executive Chairman was unconstitutional and ordered his reinstatement. In January 2020, the Supreme Court upheld the NCLAT order, postponing the verdict until December 17, 2020. The Supreme Court ultimately ruled that the actions of Tata Sons did not constitute persecution or mismanagement of minority shareholders. The judgment favoured the Tata Group. The bench, led by Justice S.A. Bobde along with Justices V. Ramasubramanian and A.S. Bopanna, delivered the ruling. The court concluded that dismissing an individual as a chairman of the company is not a matter under section 241 of the Companies Act unless it can be shown to be oppressive or detrimental. Sections 241 and 242 of the Companies Act of 2013 do not grant restoration powers to the person who was alleged for mismanagement. Consequently, on December 18, 2019, the Supreme Court reversed the order of the National Company Law Appellate Tribunal that had reinstated Cyrus Mistry as the executive chairman of Tata Sons.

CONCLUSION

The Companies Act 2013 provides a strong legal framework to protect the interests of minority shareholders. While the provisions are designed to ensure fairness and transparency, challenges remain that can hinder the effectiveness of these protections. It is crucial for minority shareholders to be aware of their rights and the mechanisms available to them under the Companies Act. By staying informed and engaged, they can better protect their interests and contribute to a more equitable corporate environment. As we move forward in an increasingly complex corporate landscape, the importance of safeguarding minority shareholders cannot be overstated. Whether you are a minority shareholder or a corporate leader, understanding these protections is essential for fostering a fair and transparent business ecosystem.

Submitted By:: Ruchira Deb

ACADEMIC YEAR: First year, BBA.LLB(H)

(Top 25 Blogs) Techno India University, Kolkata, BlogCompetition In India 2024 by The Law Literates