MINORITY SHAREHOLDERS:

• To protect minority shareholders from misuse of authority, company law provides some rights to the minority which restricts the powers of the majority and allows the minority to express their grievances against the wrongdoing of the majority.
• The abovementioned rights are called minority rights which enable them to make an application to the Tribunal for the Redress of their grievances.
• Minority rights as given under company Law can be exercised only when the acts of majority are ultra vires or are not permissible under the statute or act.
• Hence, the Articles of the company protect Interests and Rights for the majority of shareholders.

FOSS V, HARBOTTLE:

The principle of non – interference has been explained in the case of

Foss v. Harbottle.

• Foss and Turton, two minority shareholders filed a complaint against the directors and alleged that property of the company had been misapplied and wasted and hence, adequate compensation should be paid to the company.
• Judge dismissed the case of shareholders on the grounds of “proper plaintiff rule” and “majority rule”.
• It was held that the company functions on the concept of a separate legal entity and it can sue and be sued on its name.
• Therefore, when the company is wronged by itsdirectors only the company has the right to sue, foss and Turton are not a proper party to the suit. And as per the concept of majority rule, if acts can be ratified by the majority members through a resolution in a general meeting, the court will not interfere in the same.
• Court will not usually intervene in the matters of internal administration of a company so long they are acting within the powers conferred on them under the articles of the company. Court follows the principle of non-interference in the matters of the company if they are within the scope of memorandum or articles of the company.

EXCEPTIONS TO THE RULE OF NON – INTERFERENCE

Following are some examples of cases in which the rule of majority will not apply, and they are termedas exceptional cases and those cases protect the interest of the minority.

1. ULTRA VIRES ACT
2. FRAUD ON MINORITY
3. RESOLUTION REQUIRING SPECIAL MAJORITY PASSED BY SIMPLE MAJORITY
4. BREACH OF DUTY
5. WRONGDOERS IN CONTROL
6. PERSONAL ACTIONS
7. PREVENTION OF OPPRESSION AND MISMANAGEMENT
    

This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.

Posted by:

CS Neetu Saini

AKGVG & Associates