Protection of Minority Shareholders against Oppression and Mismanagement under the Companies Act, 2013

Author- Samriddhi Kesharwani, Assistant Professor, Faculty of Law, Kalinga University, Nawa Raipur.

Email id- samriddhi.kesharwani@kalingauniversity.ac.in

A company is governed democratically, just like any other organization, and its affairs are managed in accordance with a resolution made by a majority of the shareholders at the legally called general meeting of the Board of Directors. The majority vote of the shareholders determines the issues on which the members disagree. Therefore, a company’s ability to operate effectively depends heavily on its ability to achieve a majority. Accordingly, “Tribunal will not generally intervene at the instance of the shareholders in matters of internal administration, and will not interfere with the management of a company by its Board of Directors so long as they are acting within the powers conferred on them under the articles of the company.[1]

In a public limited company, the owners of paid-up equity shares have the ability to cast a ballot on any issue brought forward at general meetings. A member’s right to vote has been recognized as a property right, and he or she is free to exercise it whatever he or she chooses. Ordinarily, the firm and the minority shareholders are bound by the resolutions that get majority support[2].

Ordinary majority resolutions approved at the meeting are used to decide on regular general issues relating to internal administration of a firm, while special majority approval is needed for crucial decisions. As a result, the majority of the members have absolute ability to exercise the company’s rights and usually to govern its activities, and minority shareholders are required to accept the majority’s decision. However, this could result in the chance that the majority-voting members abuse their power to be repressive toward the minority shareholders, mismanaging the business as a result. It has been stated that “the protection of the minority” is important because of this. Striking a balance between the company’s effective control and the interests of the small individual shareholders[3] must be the goal. I made the following observation regarding the rights of the minority and the powers of the majority: “A proper balance of rights of majority and minority shareholders is essential for the smooth functioning of the Company.” Ample provisions are made in the Companies Act to ensure that those in charge of the company’s affairs exercise their authority in accordance with the established principles of natural justice in order to protect the interests of investors and minority shareholders from the oppressive decisions of the majority shareholders[4]. These provisions are incorporated in Sections 241 to 243 of the Companies Act, 2013.

References

1. Taxmann’s Company Law and Practice, Dr. G. K. Kapoor and Dr. Sanjay Dhamija, 23^rd Edition 2018.
2. jstor.org

[1] Observations made by Venkatarama Ayyer, J. in Rajmundry Electric Supply Corporation v. Nageshwara Rao, AIR 1956 SC 213 (217).

[2] North-West Transportation Co v. Beatty, (1887) LR 12 AC 589.

[3] N.A. Bastin: Minority Protection in Company Law, (1968) JBL 320.

[4] Wedderburn, K.W.: Unreformed Company Law, (1969) 32 Mad. LR 688.