An Examination Of The Remedies Available To Shareholders In Cases Of Oppression And Mismanagement In Light Of Recent Judgements
Siddhanth Moirangthem & Shresth Goel, Jindal Global Law School, O.P. Jindal Global University
ABSTRACT
The practices of Special and Ordinary resolutions as envisaged in S.114 of the Company Act, 2013 reflects Democratic arrangements in General Administrative functioning of Company, i.e. the rule of majority. In the legal context, it was the early case of Foss v. Harbottle which established its legitimacy and added that the Courts will not ordinarily intervene in the internal matters of the Company.1 The understanding that all shareholders work towards maximizing the company’s benefit lacks prudency in the practical realm. Decisions are rather based on number of votes received for the proposal, irrespective of the merit in the proposal.
This classic instance of Majoritarianism which suppresses the interest of minority shareholders is recognized in Company law as acts of Oppression, prejudice and mismanagement. In such circumstances, the exceptions to the rule of majority will come into force to enable the minority shareholders to exercise their remedy. In this regard, it is the pro-active role of Judiciary and statutory creation that has provided more power and protection to the claims of minority shareholders.
In the Indian Context, the majority-oriented proper plaintiff which prohibited minority shareholders from approaching the Court was held to be lacking pragmatism by the Delhi High Court. On the substantive end, the Judicial interpretation has opted for a wide definition of the terms oppression, mismanagement and prejudice. This eventually reduced the burden on the minority shareholders from making a claim in Court. Regarding the procedure to approach the Court, the NCLAT through the celebrated case of Cyrus Investments Pvt. Ltd. & Anr. TATA Sons Ltd. & Ors created a four- step approach for evaluation and for the Court to exercise its discretion on relaxing the numerical criteria as envisaged in S. 244 r/w S.241 of Company Act2. Overall, devoid of the success rate of claims by Minority shareholders, what can be undeniably observed is that the rights of Minority shareholders has enhanced.
