MINORITY PROTECTION & PREVENTION OF OPPRESSION &

MANAGEMENT

 Company is governed and managed by will of majority of shareholders.

 wide powers may be misused by majority shareholders to exploit the minority

shareholders.

 Need for balance for the smooth functioning of company affairs.

WHY PROTECTION OF MINORITY

 A proper balance of the rights is done by allowing minority to exercise their

powers

 To regulate powers of majority and majority to observe the principles of

natural justice and fair play
 The principle of rule by majority has been made applicable to the management
of the affairs of companies

 Once the resolution is passed by the requisite majority then it is binding on all
the members

 As a consequence thereof the court will generally not intervene to protect the
minority interest affected by the resolution, as on becoming a member each
person impliedly consents to submit to the will of the majority of the members
 If wrong is done to the company it is the company which is the legal entity
having its own personality and that can only institute a suit against the
wrongdoer; shareholders individually do not have a right to do so.
 The aforesaid rule was laid down in Foss v Harbottle.
BASIS OF THE RULE OF SUPREMACY OF MAJORITY

 To honour the will of the majority shareholders

 To avoid the multiplicity of suits
 To recognise the separate legal entity of the company
 To preserve the right of the majority to decide the matters –
The majority shareholders has the right to decide how the company’s affairs
shall be affected
The rule of supremacy of majority seeks to preserve this right of the majority
as the minority is not allowed to challenge the lawful acts of the majority.
EXCEPTIONS TO THE RULE OF SUPREMACY OF MAJORITY

 Certain acts cannot be approved or ratified even by the majority in such cases even a
single shareholder may bring a legal action – for example
 Ultra-vires acts – this rule does not apply where the act complained of is ultravires the
company.
 Fraud against minority – where the majority of a company’s member use their power to
defraud the minority their conduct is liable to impeached even by a single shareholder
 Inadequate notice of a resolution passed at a meeting of members – if an sufficiently
informative notice is not given of a resolution to be proposed at a general meeting any
member who does not attend the meeting or who vote against the meeting may bring a
representative action to restrain the company and its director from carrying out the
resolution.
 Where the personal rights of the members are infringed – infringement of a
member’s individual rights like membership rights of a member, right to
receive dividends etc., entitles him to proceed in his own name.
 Besides members the following may also apply for relief –
 The central government or any person authorized by the central government.
 A legal representative of a deceased member on whom title to the shares
devolves by operation of law
 Trustees of a shareholder/member may also make petition