January 23, 2022

Majority rule and Minority rights: Does companies Act 2013 balance the equation

Companies Act

In corporate world, all democratic choices and control of a organization are made with the majority rule that is deemed to be truthful and justified. The majority rule of decision making, quite often than not overlooks the views of minority shareholders. Majority power has exquisite importance in the running of a corporation and the “Courts will now not generally interfere at the instance of the shareholder in matters of internal management.

It follows that the general public of the participants enjoy the splendid authority to exercising the powers of the organisation and commonly to govern its affairs and the minority shareholders must concede to most people choice. This, however, may result in a opportunity that the individuals having majority vote may additionally have a tendency to be oppressive towards the minority shareholders misusing their majority strength.

To overcome this problem faced by the minority, the Companies Act, 2013 came up with the solution to tackle the problems which are usually faced by the minority shareholders.

Majority Rule

According to section 47 of the companies act, 2013, holding any equity shares shall have a proper to vote in respect of such capital on every decision placed before the company. Member’s proper to vote is recognized because the proper of assets and the shareholder can also workout it as he thinks in shape consistent with his interest and preference. A special resolution requires a majority of 3/4th of these votes at the meeting. consequently, wherein the act or the articles require a unique resolution for any cause, a 3/4th majority is important and a simple majority isn’t sufficient. The resolution of a majority of shareholders handed at a duly convened and held general meeting, upon any question with which the business enterprise is legally competent to deal, is binding upon the minority and consequently upon the company.

The Principle of Non-Interference (RULE IN FOSS V. HARBOTTLE)

The principle that the will of the majority should prevail over the will of the minority in matters of internal administration of the company was founded in the case of Foss v. Harbottle which is today known as the rule in Foss v. Harbottle.

According to this principle, the courts will not, intervene at the instance of the shareholders, in the management of a company it’s direct so long as they are acting within the powers conferred on them by the articles of the company.

In nutshell, the company cannot confirm, Any act which is ultra vires the company or illegal, Any act which is fraud on the minority, Any act passed with simple majority which requires special majority, Any wrong act done by those who are in control, Any act infringes the personal membership rights, Any act which amounts to breach of duty by directors, Any act which amounts to oppression of minority or mismanagement of the company.

Rights of Minority

Many provisions of Companies Act, 2013 deals with the situations where minority shareholders rights have been protected and the same can be divided into various major heads.

Oppression and Mismanagement

In Companies Act, 1956, the protection for the minority shareholders from oppression and mismanagement have been provided under section 397 (An Application to be made to company law board for relief in cases of oppression) and 398 (An Application to be made to company law board for relief in cases of oppression).

therefore, right to apply to the company board for the oppression and mismanagement is provided under the section 399, that is, meeting 10% of shareholding or hundred members or one-fifth members limit. however, relevant government under their discretionary powers has allowed any numbers of shareholders to apply for the company board for the relief under Sections 397 and 398. Whereas, on the other hand, under Companies Act, 2013, the relief from the oppression and mismanagement has been provided under Section 241-246.

in addition, under the section 245, companies Act, 2013, the new concept of class action has been introduced which was non-existent in companies Act, 1956 wherein it provides for class movement suits to be instituted against the company as well as towards the auditors of the company.

Protection of Minority Shareholders – Steps taken by companies

Piggy Backing – This provision states that if the majority sells their shares then the minority shareholder right has to be included in the deal. Moreover, “Piggy Backing” requires the party to consider the purchase of the business to sell 100 percent of the outstanding shares. To ensure the compulsory provisions of the minority shareholders.


while a company can establish a proper balance between its majority & minority shareholders then obviously the company runs smoothly which results increase in profit. both of these shareholders are internal stakeholder in which the whole company functioning with the aid of them. So it is very crucial to a company to maintain its own internal environment to function properly. [1]

[1] https://www.legalbites.in/majority-powers-minority-rights/

Author Details: Deepali Kir

The views of the author are personal only. (if any)

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