Derivative Actions In Corporate Governance: A Comprehensive Global Review And Reformative Approach With Special Focus On India

Ayush B. Gurav, Maharashtra National Law University (MNLU), Mumbai

ABSTRACT

This research explores the vital role of derivative actions in modern corporate governance, focusing on protecting minority shareholders' rights. It starts by establishing a common law foundation, tracing the evolution from Foss v Harbottle to the 'Proper plaintiff rule' and 'Majority rule.' Derivative actions serve as a last resort for minority shareholders in cases of unaddressed corporate misconduct, with exceptions for fraud and control highlighted.

The article compares derivative actions to class actions and discusses their interaction with statutory oppression and mismanagement remedies in the Indian legal context. It addresses the debate on whether derivative action claims can be arbitrated, emphasizing conflicting court decisions and the need for alignment with global standards. Motivations behind derivative actions are identified, emphasizing their focus on corporate interests and addressing deficiencies in the existing corporate remedy framework. Concerns about the neglect of derivative actions in India's regulatory framework and the inadequacy of class actions are raised.

The article thoroughly examines derivative actions in India, highlighting their potential to strengthen corporate governance in family-dominated environments. It discusses stringent prerequisites, litigation costs, and constraints in the Indian legal system, proposing recommendations for a more efficient framework. Lastly, insights into derivative actions across various jurisdictions, including the UK, Hong Kong, Singapore, the USA, Germany, New Zealand, and Japan, are provided, outlining their legal frameworks, eligibility criteria, and factors influencing their utilization.

Keywords: Derivative Actions, Common Law, Shareholder Remedies, Oppression and Mismanagement, Minority Shareholders Protection.