SUPREMACY OF MAJORITY AND PROTECTION OF MINORITY 1

• SUPREMACY OF MAJORITY AND PROTECTION OF MINORITY 1
  COMPANY LAW 2013
  MAJORITY POWERS AND MINORITY RIGHTS

1. THE ADMINISTRATION OF THE COMPANY IS VESTED WITH BOD AND OTHER OFFICIALS WHO ARE ANSWERABLE TO THE SHAREHOLDERS
2. IN ALL MEETINGS THE RESOLUTIONS/DECISIONS TAKEN BY THE MAJORITY IS FINAL AND BINDING ON ALL
3. SOMETIMES THE MAJORITY MAY VIEW AFFECT THE INTERESTS OF THE SHAREHOLDERS
4. MINORITY SHAREHOLDERS CAN PROTECT THEIR INTERESTS THROUGH LAW
5. THE AIM OF THE COMPANY LAW MUST BE TO STRIKE A BALANCE BETWEEN THE EFFECTIVE CONTROL OF THE COMPANY LAW AND THE INTERESTS OF THE SMALL INDIVIDUAL SHAREHOLDERS
6. THE PROTECTION OF THE MINORITY SHAREHOLDERS IS THE RESPONSIBILITY OF THE COMPANY LAW

• MAJORITY RULE OR THE RULE
  FOSS V, HARBOTTLE
• TWO SHAREHOLDERS COMMENCES LEGAL ACTION AGAINST THE PROMOTERS AND DIRECTORS OF THE COMPANY ALLEGING THAT THEY HAD MISAPPLIED THE COMPANY’S ASSETS AND HAD IMPROPERLY MORTGAGED THE COMPANY PROPERTY.
• THE MINORITY SHAREHOLDERS RAISED THAT MATTER IN GENERAL MEETING BUT THE MAJORITY RESOLVED NOT TO TAKE AN ACTION AGAINST THE DIRECTORS AND DECIDED THAT THE DIRECTORS WERE NOT RESPONSIBLE FOR THE LOSS,WHICH HAD BEEN INCURRED.
• THE COURT REJECTED THE SHAREHOLDER’S CLAIM AND HELD THAT BREACH OF THE DUTY BY THE DIRECTORS OF THE COMPANY WAS A WRONG DONE TO THE COMPANY FOR WHICH IT COULD ALONE SUE.
• THE PROPER PLAINTIFF WAS THE COMPANY AND NOT THE INDIVIDUAL SHAREHOLDERS.
• DERIVATION OF THE RULE FROM TWO GENERAL LEGAL PRINCIPLES OF THE COMPANY LAW

1. A COMPANY IS LEGAL ENTITY SEPARATE FROM ITS SHAREHOLDERS
2. THE COURT WILL NOT INTERFERE IN THE INTERNAL MANAGEMENT OF THE COMPANIES ACTING WITHIN THEIR POWERS. WHERE AN ORDINARY MAJORITY OF MEMBERS CAN RATIFY THE ACT THE COURT WILL NOT INTERFERE
3. THIS SIMPLY MEANS IF THE MAJORITY CAN RATIFY AN ACT,THE MINORITY CAN NOT SUE. THE RIGHT OF MAJORITY TO RULE
4. THE PREVENTION OF MULTIPLICITY OF ACTIONS. ONE OF REASON FOR THE RULE IN FOSS V HARBOTTLE IS THE UNDESIRABILITY OF MULTIPLICITY OF ACTIONS FOR THE SAME WRONG IF EVERY MEMBER OF THE MINORITY COULD PROCURE THE AID OF THE COURT
5. THE COURT’S ORDER MAY BE MADE INEFFECTIVE LEADING TO UNPRODUCTIVE LITIGATION.

• MEANING OF MINORITY SHAREHOLDER

1. THE GROUP OF SHAREHOLDERS WHO ARE NOT A PART OF THE MAJORITY CAN BE CALLED THE MINORITY. IT CAN BE SINGLE DISSIDENT SHAREHOLDER OR GROUP OF SHAREHOLDER
2. A MINORITY SHAREHOLDER IS DEFINED AS A SHAREHOLDER WHO DOES NOT EXERT CONTROL OVER A COMPANY EVEN THOUGH THEY OWN THE MAJORITY OF SHARES. THE MAJORITY SHAREHOLDER ALMOST ALWAYS EXERT AN ABSOLUTE CONTROL OVER THE COMPANY EVEN IF EFFECTIVELY THEY OWN MUCH LESS THAN THE MAJORITY OF SHARES.

• EXCEPTIONS TO THE RULE

·         IN THE FOLLOWING CIRCUMSTANCES THE WILL OF MAJORITY SHALL NOT PREVAIL AND INDIVIDUAL SHAREHOLDER OR MINORITY SHAREHOLDER MAY BRING AN ACTION TO PROTECT THEIR INTERESTS.

• ULTRA VIRES THE ACT: WHERE THE ACT IS ILLEGAL OR ULTRA VIRES THE COMPANY ANY INDIVIDUAL MEMBER MAY SUE BECAUSE THE ACT CAN NOT BE CONFIRMED BY THE MAJORITY. CASE BHARAT INSURANCE CO LTD VS KANAHYA LAL ONE OF THE OBJECT OF THE COMPANY WAS TO ADVANCE MONEY AT INTEREST ON THE SECURITY OF SPECIFIED ASSETS SITUATED IN INDIA. A SHAREHOLDER  FILED THE CASE THAT SEVERAL INVESTMENTS WERE MADE BY THE COMPANY WITHOUT ADEQUATE SECURITY. THE COURT GRANTED TH INJUNCTION AND HELD THAT UNDER THESE CIRCUMSTANCES A SINGLE MEMBER CAN MAINTAIN THE SUIT.
• FRAUD ON THE MINORITY:-THE MAJORITY RULES DOES NOT APPLY IF MAJORITY OPPRESS THE MINORITY SHAREHOLDERS. FRAUD MEANS A DISCRIMINATORY ACTION. A SPECIAL RESOLUTION WOULD LIABLE TO BE IMPEACHED IF THE EFFECT WAS TO DISCRIMINATE BETWEEN MAJORITY SHAREHOLDERS AND MINORITY SHAREHOLDER.
• CASE COOK VS DEEK
• THREE DIRECTORS OF A RAILWAY CONSTRUCTION COMPANY OBTAINED A CONTRACT IN THEIR OWN NAME TO CONSTRUCT A RAILWAY LINE. THE DIRECTORS HAD USED THEIR POSITION AS DIRECTORS TO OBTAIN THE CONTRACT. IT AMOUNTED TO BREACH OF TRUST BY THEM WHO USED THEIR VOTING POWERS TO PASS A RESOLUTION OF THE COMPANY DECLARING THAT THE COMPANY HAD NO INTEREST IN THE CONTRACT.IT WAS HELD THAT THE DIRECTORS MUST ACCOUNT TO THE COMPANY FOR THE PROFIT THEY MADE WHICH WAS AT THE EXPENSE OF THE MINORITY
• ACTS REQUIRING SPECIAL RESOLUTIONS:-SOME DECISIONS ARE VALID BY SIMPLE MAJORITY WHILE OTHERS ARE VALID BY THE SPECIAL” 75%. IF A DECISION IS TAKEN BY SIMPLE MAJORITY INSEAD OR SPECIAL MAJORITY IN THE MANNER REQUIRED BY LAW. THE MAJORITY RULE DOES NOT APPLY
• CASE EDWARD V HALLIWEL,” THE CONSTITUTION OF A TRADE UNION PROVIDED THAT ALTERATIONS OF THE CONTRIBUTIONS OF EMPLOYED MEMBERS COULD ONLY BE MADE BY A BALLOT VOTE OF THE MEMBERS AND OBTAINING TWO THIRD MAJORITY. TWO MEMBERS FILED THE CASE. THE COURT HELD THE RESOLUTION WAS INVALID
• WRONG DOER IN THE CONTROL:-GENERAL RULE THAT FOR WRONG DONE TO COMPANY THE COMPANY ITSELF MUST SUE AND MUST ACT THROUGH MAJORITY BUT IF THE WRONG IS ALLEGED TO BE COMMITTED BY THOSE WHO ARE CONTROLLING THE AFFAIRS.
• GLASS V ATKIN,”A COMPANY WAS CONTROLLED BY THE TWO DEFENDANTS AND TWO PLAINTIFF, THE PLAINTIFF BROUGHT AN ACTION AGAINST DEFENDANT ALLEGING THEY HAD FRAUDULENTLY CONVERTED THE ASSETS OF THE COMPANY FOR THEIR PRIVATE USE. THE COURT ALLOWED THE ACTION
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• INFRINGEMENT OF INDIVIDUAL RIGHTS:- AS PER PROVISIONS OF THE COMPANY ACTS,EVERY SHAREHOLDER HAS CERTAIN PERSONAL RIGHTS AGAINST THE COMPANY AND SHAREHOLDERS. THESE RIGHTS HAVE BEEN CONFERRED UPON THE SHAREHOLDERS BY THE ACT ITSELF AND SOME OF THEM MAY ALSO ARISE OUT OF THE ARTICLES OF ASSOCIATION. THE RULE OF MAJORITY DOES NOT OPERATED AS FAR AS SUCH INDIVIDUAL MEMBERSHIP RIGHTS ARE CONCERNED. THESE RIGHTS INCLUDE THE RIGHT TO VOTE,RIGHT TO RECEIVE THE DIVIDEND,RIGHT TO RECEIVE DIVIDEND ETC

• WHERE THERE IS AN OPPRESSION  OF MINORITY OR MISMANAGEMENT:-SECTION 241 AND 242 OF THE COMPANIES ACT PROVIDE FOR THE OPPRESSION AND MISMANAGEMENT
• THE EXCEPTIONS TO THE RULE IN FOSS V HARBOTTLE ARE NOT LIMITED TO THOSE COVERED ABOVE. FURTHER EXCEPTION MAY BE ADMITTED WHERE THE RULE OF JUSTICE REQUIRE THAT AN EXCEPTION TO THE RULE SHOULD BE MADE