Reimagining Derivative Suits: A Call For Legislative Action
- IJLLR Journal
- Dec 15, 2024
- 1 min read
Tiana Shah, Jindal Global Law School
ABSTRACT
Disputes between shareholders members and directors has been an issue in the Corporate world through the years. Allegations by the minority shareholders reverberate in courtrooms throughout the world. Indian law provides for various reliefs for oppression and mismanagement but how effective they are is a point of debate. This paper highlights one such relief; Derivative Actions are suits that are filed by the shareholder on behalf of the company against its officers or directors. It is an action that is brought to either compel the corporation to sue or an action that is brought on behalf of the corporation to redress the harm caused to the corporation. These suits have not been statutorily recognised however through case precedents Section 241 of the Companies Act, 2013 offers shareholders a new channel however it imposes constraints, ultimately turning out to be a "paper tiger.".
Furthermore, the company retains significant control over the process, and the tribunal's scrutiny can make filing a lawsuit challenging. This paper analyses the situation of shareholder derivative action suits in India and aims to showcase that Sections 241 may not be the best avenue for shareholders therefore advocating for its statutory. Although derivative suits are a relatively recent development in India, their significance in the corporate sphere requires careful examination. Hence through this paper we shall examine these provisions, their suitability in the corporate sphere, and whether they are beneficial or detrimental.
Keywords: Derivative suits, Section 241, Corporate governance, minority shareholders, Statutory recognition, Private wrongs, Legal framework, Jurisdiction.
