RIGHTS OF MINORITY SHAREHOLDER

INTRODUCTION

A shareholder usually referred to a person, business, or organization that has at least one share of company stock. Since shareholders are a company’s owners, they profit from its performance in the form of a rising stock valuation.

Individuals in an organization whose interest in democratic decisions made by the corporation is disregarded by majority law are known as minority investors. A minority shareholder is someone who has little control over how the business is run and whose interests are disregarded.  He is basically someone who has less than 50% ownership in firm’s equity capital and had no voting power wrt control of the firm.

Due to a lack of time or money, minority shareholders were unable to exercise their rights to protect their interests under the provisions of the Companies Act, of 1956. Their rights were ultimately never upheld. The Companies Act of 2013 provided a remedy to the issues that minority shareholders typically encounter. Although the definitions of minority shareholders are not stated in the Companies Act of 2013, under Sections 235 (Power to Acquire Shares of Dissenting Shareholders) and 244 (Right to Apply for the Oppression and Mismanagement), minority shareholders are given 10% of the shares or a minimum of one hundred shareholders, whichever is less, with share capital, and a one- third of the total number of its members in the case of companies without the share capital.

RIGHTS OF MINORITY SHAREHOLDER

  1. Right to Vote

A shareholder’s most important right is the right to vote. The Companies Act of 2013 recognizes the following voting methods: Voting with your hands, Voting done by polling place, voting is done electronically, and voting is done by postal ballot. This right allows shareholders to vote on corporate decisions. Their voting rights include the ability to appoint directors, make proposals, and vote on structural changes such as mergers and acquisitions or liquidation.When a shareholder is unable to attend a meeting, he or she may appoint a proxy on his or her behalf in accordance with the Companies Act 2013. Though the proxy is not permitted to be included in the meeting’s quorum during voting.

2. Legal Action Against Directors

According to the rules outlined in the Companies Act 2013, shareholders have the right to sue a director if the director acts in a way that is prejudicial to the company’s affairs, commits fraud, acts beyond the law or against the constitution, when the company’s assets are transferred at an undervalued rate, acts in bad faith, or when there is a diversion of the company’s funds..

3. Right to Call for General Meetings

Shareholders have a right to call for general meetings. An annual general meeting is a gathering of a company’s shareholders. The directors of the company present the annual report to the shareholders and comment on the company’s performance over the year. Shareholders can vote on new directors, discuss director compensation, and ask questions about the company’s future. They may also apply to the Company Law Board for the holding of a general body meeting if it is not done in accordance with the statutory requirements.

4. Right to The Dividend

 The Company’s shareholders have the right to a portion of the profit reflected in the annual, stand-alone financial statements audited by an independent auditor and approved by a General Meeting resolution to be distributed to the Company’s shareholders (the right to dividend).

5. Director Appointment

For the appointment of directors, the shareholders must pass an ordinary resolution. Shareholders can also challenge any resolution passed at the general body meeting for the appointment of a director.

6. The Right to Sell Shares

Shares may be disposed of by the Company’s shareholders. The sale (transfer of ownership) of Shares is one form of disposal, as is the establishment of a pledge, the right of use, or lease of shares

7. Right to Inspect Books, Registers, and Financial Records

Shareholders are the primary stakeholders in a company; they have the right to inspect the company’s accounts register and books, and they can ask questions about them if they so desire. Shareholders have the right to inspect the books and records of a company. This is done so that the shareholder is aware of the company’s performance. The company can accomplish this by distributing audited financial statements or financial reports to shareholders.

8. Pre-emptive Right

The Company’s shareholders have first priority to subscribe for new shares in the Company, even if the Company issues securities convertible into shares or incorporates the right to subscribe for shares. A resolution to increase the Company’s share capital should specify the date on which the Company’s shareholders’ pre-emptive right to new Shares will be determined (the pre-emptive right record date).

9. The Company’s Dissolution

Before the company is dissolved, it must notify all of its shareholders, and all credit must be given to all of its shareholders.

JUDICIAL PERSPECTIVE

In the case of Foss v. Harbottle, the Inception of Majority Rule harmed minority owners’ rights from the start. Although, through various other judgments, the Majority Shareholder powers have been limited in order to create an equal platform of representation for all members of the company. All of this came up in various judicial decisions as exceptions to the Majority Rule. Among the exceptions to judicial pronouncements are the following: The first exception is if the suspected behavior is deemed unconstitutional or exceeds the company’s powers. Taylor v. National Union of Mineworkers and Smith v. Croft No. 2 clearly show that a member can file a suit against a lawful act that is threatened in nature (as in Simpson v. Westminster Palace Hotel Co.) and also overturn an act that is unlawful in nature through the same course of action.

As a result, the rule established in Foss v. Harbottle cannot be applied if the action was brought to protect individual rights rather than the rights of the majority/union as a whole. The accused had violated the rights of the minority’s families and individual interests by infringing on Union rights.

The Indian judicial system has attempted to maintain a neutral stance in order to protect the interests of minority shareholders over those of dominant shareholders. In Bharat Insurance Co. Ltd v. Kanhaiya Lal, the plaintiff was a shareholder in the respondent firm. According to one of the object clauses, the complainant claimed that “several investments were made by the corporation without adequate protection and contrary to the terms of the memorandum and thus prayed for a permanent injunction to restrain it from making certain investments.”

Putting the company’s money to use, on the other hand, is more than just a matter of internal control. In Sri Ramdas Motor Transport Ltd. v. Tadi Adhinarayana Reddy and Ors., the Supreme Court ruled that any member who believes that the company’s operations are contrary to public order and interests or violates a member’s rights may file an appeal with the NCLT under Section 397 of the Companies Act. The majority is also not deprived of its powers and rights.

CONCLUSION                                                    

Minority shareholders were not considered a significant part of the company under the Companies Act of 1956 due to the suppression of majority rules and regulations in the company. However, the Companies Act of 2013 has taken several critical steps to protect the interests of minority shareholders’ rights in the company, regardless of the existence of oppression and mismanagement of the company affecting minority shareholders’ rights. As a result, this dual approach to minority rights enforcement ensures proper administration of corporate activities only when properly implemented by giving minority shareholders importance and rights in the company’s management. 

REFERENCES

  1. https://indianlawportal.co.in/rights-liabilities-of-shareholders/#:~:text=As%20a%20shareholder%2C%20you%20have,are%20separate%20from%20your%20own.&text=company’s%20constitution%20if%20it%20has%20one
  2. https://www.ijlmh.com/paper/minority-shareholder-rights-a-conundrum/
  3. Company Law by Avtar Singh
  4. The Companies Act, 2013

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