1. Companies Act, 2013
Majority Rule
v
Minority Rights
By
Dhruv Seth
Partner at Seth & Associates
Chartered Accountants
dhruv@sethspro.com

2. •Jurisprudence
•What is a minority
•1956 v 2013
•Applicable sections of CA 2013
•Important Case laws
Content

3. Foss v Harbottle
Injuries caused to the corporation alone
and not to its members, must be
remedied not by the members but by
corporate action.
Jurisprudence

4. Principle of Majority Rule
•Majority should prevail
•Protection of the majority is supreme
Jurisprudence

5. Bhajekar v. Shinkar
•Board appointed some dubious agents
•Ratified by the house in AGM
•Minority directors filed a suit
•Held – It was company’s right to ratify any
type of agreement and no interference
required in the internal matters.
Jurisprudence

6. Rajahmundry Electric Supply Corpn Ltd.
v.
Nageshwara Rao
The Courts will not interfere in the internal affairs of the
Company or the management of the directors as long as
they act within the ambit of the powers conferred on them
under the Articles of Association of the company.
Jurisprudence

7. Shanti Prasad Jain v. Kalinga Tubes Ltd
(Supreme Court)
- Allotment of shares to outsiders to curtail the rights of
existing shareholders
- Held
• Mere fact of allotment does not constitute oppression.
• The court clarified that the facts should be there to
justify any potent mismanagement or oppression.
Jurisprudence

8. Miheer H. Mafatlal v. Mafatlal Industries Ltd
• Court cannot intervene if sanctioned by the
majority and it’s lawful.
• Court can only go through the scheme and
examine if it has complied with the requirements.
• Will interfere if the majority’s action affects the
class interest of other equity shareholders.
Jurisprudence

9. Needle Industries (India)
v.
Needle Industries Newey (India) Holding Ltd
• Foreign majority alleged oppression by the Indian
minority shareholders.
• The SC in this case rejected the plea of oppression.
• SC directed the minority Indian shareholders to purchase
the shares that were held by the foreign majority
shareholders.
Jurisprudence

10. Exceptions to Majority Rule
•Ultra Vires Act
•Special Majority is needed
•Personal rights are infringed
•Fraud is committed by those in control
Jurisprudence

11. Minority
100 members ;
OR
1/10th of the total
members;
whichever is less
any member or
members holding
not less than
1/10th of the
issued share
capital
Minority

12. Number of members Persons claiming Minority ?
1,000 80 Yes
500 125 No
11 2 No
10,000 150 No
10,000 150 with 20% share Yes
10,000 1 with 25% share with 2
calls unpaid
No
10,000 2000 members with 9.98%
shares
No
4 1 – Jointly by Mr. A and
Mrs. B with 25%
Yes
Minority

13. Comparative
Companies Act 1956 Companies Act 2013
Circumstances for oppression not
defined
Oppression and Mismanagement both
covered
Covers existing oppression only Covers past act of oppressions as well
Only shareholders covered Sec 245 includes depositors
Absence of Class Action Class action possible under Sec 245
Say in reconstruction and amalgamation
denied
Much better rights u/s 235 and 236
Small shareholders director and
Independent directors defunct
Stringent rules with regard to small
shareholder directors and independent
directors

14. Companies Act 2013
Small shareholders (Sec 151)
• Small shareholders (not minority) have a right to elect a
specific shareholder.
• To table a proposal with 1000 or 10% of small
shareholders (whichever lesser).

15. Companies Act 2013
Oppression and Mismanagement (Sec 241)
SC - Life Insurance Corpn. of India v. Escorts Ltd.
Doctrine of Legitimate expectation
(a) To elect directors and participate in the management.
(b) To enjoy the profits of the company.
(c) To apply for relief against oppression & mismanagement.
(d) To apply to Court for winding up of the company.
(e) To share the surplus on winding up of the company.

16. Companies Act 2013
Oppression and Mismanagement (Sec 241)
Affairs of the company have been or are being conducted in
- A manner prejudicial to public interest or
- In a manner prejudicial (wrongful, harsh, and
burdensome) or
- Oppressive to him or any other member or members or
- In a manner prejudicial to the interests of the company
OR

17. Companies Act 2013
Oppression and Mismanagement (Sec 241)
The material change has taken place
- In the management or control of the company,
- Whether by an alteration in the BOD or in the ownership
of the company‘s shares
- Or in any other manner whatsoever,
and that by reason of such change, it is likely that the
affairs of the company will be conducted in a manner
prejudicial to its interests or its members or any class of
members,

18. Companies Act 2013
Powers of NCLT (Sec 242)
It may pass an order which includes
• Regulation of the conduct of the affairs of the company
• Purchase of shares by other members
• Termination of prejudicial agreements
• Restriction on the transfer or allotment of the shares
• Removal of the managing directors, manager or any of
the directors of the company,
• Imposition of costs as may be deemed fit, etc.

19. Companies Act 2013
Class Action Suit (Sec 245)
Lawsuit where a group of persons with a common
interest approach NCLT against the company, its board or
the management.
- Can be filed by anyone
- To restrain an prejudicial or ultra vires transactions
- To claim damages from management, auditors, expert,
advisor or consultant or any other person

20. Companies Act 2013
Minority Squeeze out(Sec 235 & 236)
Section 235 and 236 offers protection to the interests of
minority shareholders. These are:
• On acquiring 90% of capital shall offer to minority for
buying equity shares at the determined value.
• The minority can make an offer to the majority
shareholders to buy their shares
• The transferor company will act as a transfer agent for
making payments to minority shareholders

21. Companies Act 2013
Minority Squeeze out(Sec 235 & 236)
AIG (Mauritius) LLC v. Tata Televentures (Holdings) Ltd.
• The price paid to 90% of the shareholders need not be
true to be applied blindly to the minority.
Cadbury India Ltd, Company Petition No 1072 of 2009
• Court held that before it could object to the scheme the
objector must show that the valuation is unreasonable.
Sterlite Industries & Sandvik Asia v. Bharat Kumar Padamsi
• the Act allowed companies to extinguish the share capital
thereby significantly impacting minority rights

22. Companies Act 2013
Other Miscellaneous protections
• Adoption of Fair valuation mechanism
• In case of members in excess of 1,000 e-voting is
mandatory to be done
• Sec 188 with regard to Related party transactions
• Sec 114 can help block special resolutions if minority
greater than 25%

23. THANK YOU
Dhruv Seth
dhruv@sethspro.com
Seth & Associates
Chartered Accountants
New Delhi | Lucknow