International Indexed & Refferred Research Journal, October 2012, ISSN 0975-3486, RNI- RAJBAL 2009/30097: VoL IV *ISSUE- 37
Research PaperLaw
Protection of Minority Rights Under Company's Affairs:
* Aparajita Bhargava October,2012 * Law Student BA.LL.B IX Semester , Shri Vaishnav Institute of Law, Indore M.P.
A B S T R A C T
The rise of the minority the past few years have witnessed a silent revolution in Indian corporate governance where managements have woken up to the power of minority shareholders who vote with their wallets. In response to this power, the more progressive companies are voluntarily accepting tougher accounting standards and more stringent disclosure norms than are mandated by law. They are also adopting more healthy governance practices. It is evident that these tendencies would be strengthened by a variety of forces that are acting today and would become stronger in years to come. Keywords: oppression and mismanagement, corporate house, minorities' interest, Company Law Tribunal
Introduction: The origin of the rights of minority in Foss Vs Harbottle1 case where the court held that the minority share holders does not have any right to sue the directors. The administration of the company shall be conducted on the basis of democratic principle of majority. There are certain exceptions to this rule for which minority shareholders can sue successfully as representatives of the corporate interest. The rule of this recognizes the majority rule and its exceptions recognize judicial as well as administrative remedies against oppression and mismanagement as the minority rights. Minority Rights The corporate governance framework should ensure the equitable treatment of all shareholders, including minority shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights. The main challenges in ensuring equitable treatment of minority shareholders include: 1. Ensuring that the Board adopts a shareholders' perspective when making decisions and ensuring minority shareholders' interests are protected; 2. Improvements to the corporate governance; 3. Concerns of stakeholders at large vs. sharehold ers of the Company; 4. Improving communications and interactions be tween minority shareholders, Board members and management; All these concerns of minority shareholders will be met substantially if a corporate house is able to ensure that the basic rights of the minority are met. These basic rights with their constituents are mentioned below: I. Equitable Treatment II. The right to seek information III.The right to voice opinion IV Disclosure and Transparency .
V The right to seek redress . Legislative Measures I. Protection of minority shareholders: Company law provides for remedy if the minority shareholders can show that the company's affairs are being conducted in a manner prejudicial to the interests of the company or its shareholders to such an extent as to make it just and equitable to wind it up. Instead of approaching the Court, they can approach the Company Law Tribunal under section 433of the companies act of 1956. The Tribunal could also provide for some directors of the company to be appointed by the Central Government, or by proportional representation. II. Special majority: Another safeguard in the com pany law is the requirement that certain major deci sions have to be approved by a special majority of 75% or 90% of the shareholders by value. III. Information disclosure and audit: Company law provides for regular accounting information to be supplied to the shareholders along with a report by the auditors. IV Voting Rights: The approval of at least 10% of the . shareholders is required for the requisition of an extraordinary general meeting for an application to the Company Law Board (CLT) for relief. V Qualified Minority According to section 399 of the . Act, a qualified minority consists of at least one hundred shareholders or one tenth of the total num ber of shareholders, whichever is less, or any shareholder(s) holding one-tenth of the issued share capital of the company fully paid-up. VI. Company Law Tribunal (CLT): The Indian company law shields minorities' interest by providing an ad equate platform at CLT to raise grievances in case of oppression or mismanagement by the majority shareholders of a company.
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RESEARCH ANALYSIS AND EVALUATION
International Indexed & Refferred Research Journal, October 2012, ISSN 0975-3486, RNI- RAJBAL 2009/30097: VoL IV *ISSUE- 37
VII.
Minority Representation It is important for Cor porations to ensure that board membership re flects the interest of minority shareholders. In this regard, the Independent Directors (IDs) have an important role to play in ensuring minority shareholders' interests are protected. Jurisprudential View Indian jurisprudence has taken a balanced view by ensuring that the minority interest is protected while maintaining the privileges that the majority enjoy. S.C. held in Sri Ramdas Motor Transport Ltd. and Ors. Vs. Tadi Adhinarayana Reddy and Others2 that under Section 397 of the Companies Act any member of a company who complains that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members may apply to the CLB for an order under that section. However the Apex court has also seen to it that the majority shareholders are not deprived of their democratic rights due to minority activism. This was ensured in the case of Shanti Prasad Jain Vs. Kalinga Tubes Ltd3 Where in a case of a fight between two groups of business magnates for control of a certain company the appellant chairman of com-
pany alleged that affairs of company were conducted in manner oppressive to him and his group of members. The appellant contended that allotment of new shares to outsiders was for defeating rights of existing shareholders and amounting to oppression. Minority Protection - Further Steps 1. Disclosure of Holding of Majority Shareholders 2. Disclosure of the Control Structure 3. Good Practices for Compliance 4. Financial Institutions as Gate Keepers 5. Debt Holder Vigilance 6. Well Functioning Capital Market 7. International Accounting Standards Conclusion: Thus the minority share holders have a right to participate in the indoor management of the company. The minority shareholders has two relives - either to apply for winding up of a company under section 433 or apply under section 397 and 398 of the companies act of 1956. Under section 397 and 398 is a preventive remedy. These are intended to avoid winding up of a company and at the same time to give the remedies to the minority shareholders.
R E F E R E N C E
1. 2. 3. (V-C1843) AIR 1997 SC2189(1965) 1 COMP LJ 193
RESEARCH ANALYSIS AND EVALUATION
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