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PREVENTION OF OPPRESSION AND

MISMANAGEMENT

Rule of Majority: The principle of rule by majority is made applicable to the

management of affairs of the company. The shareholders pass resolutions on various subjects either by simple majority or by three-fourth majority. Once a resolution is passed, then it is binding on all the members of the company and the court will not intervene to protect minority against the resolution, as by becoming a member, the shareholder agrees to submit to the will of the majority of the members. Thus, if a wrong is done to the company, it is the company which is legal entity having its own personality, which can institute a suit against the wrongdoer; and shareholders do not have a right to do so. This rule was laid down in the leading case of oss vs. !arbottle. The facts of this case were as follows" # O$$ brought an action on behalf of the shareholders against the defendants who consisted of % directors, a solicitor and an architect of the company alleging that by illegal transactions they had caused the company&s property to be lost and claimed damages from the defendants to be paid to the company. The 'ourt held that the action could not be brought by the minority shareholders. The wrong done to the company was one which could be ratified by the majority of members. The company was the proper plaintiff for wrongs done to the company and the company can act only through its majority shareholders. The majority of the members should be left to decide whether to commence proceedings against the directors. The principle of majority rule has since then been applied to a number of cases.( Exceptions to 'The Majority Rule. In the following cases the rule of oss v. !arbottle does not apply, i.e., the minority shareholders may bring an action to protect their interest" ). Where the act done is illegal or ultra-vires the company. * shareholder is entitled to bring an action against the company and its officers in respect of matters which are illegal or ultra-vires the company since no majority of shareholders #not even the entire body of shareholders( can sanction such matters. (I) +. Breach of fiduciary duty: ,hen a director is in breach of fiduciary duty, every shareholder may be regarded as an authorised organ to bring the action. ( F ) -. Where the act complained of constitutes a fraud on the minority . ,here the majority of a company&s members use their power to defraud or oppress the minority, their conduct is liable to be impeached even by a single shareholder. (F) .. Where an act which requires special resolution to be effective but has in fact been done by a simple majority . (S) %. !nfringement of a member"s individual rights li#e right to vote right to receive dividends etc. entitles him to proceed in his own name. The principle of majority rule is applicable only to the corporate membership rights of a member. /nfringement of a member&s individual rights li0e right to vote, right to receive dividends, etc., entitles him to proceed in his own name. )

1. $rotection under the %ompanies &ct:


'i( )ariation of class rights: Where the share capital of a company is divided into different classes of shares the rights attached to the shares of any class can be varied as provided in the memorandum or articles of the company with the consent of the *+,th majority of the shareholders of that class. Where this is done and the rights are varied by the requisite majority vote the holders of not less than -. per cent of the issued shares of that class who had not assented to the variation may apply to the %ourt for the cancellation of the variation. 'ii(/cheme o f reconstruction and amalgamation: 0o compromise or arrangement in connection with a scheme for the amalgamation of the company shall be sanctioned by the court unless it has received a report from the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest. 'iii( 1ppression and mis-management: & member who complains that the affairs of the company are being conducted in the manner oppressive to some of the members including him may apply to the %ourt.

#iv( 2ights of dissenting shareholders at the time of takeover ids: ,hen an offer for the purchase of all the shares is received and the offer is accepted by the holders of 34 per cent of the shares, the party ma0ing the offer may, on the same terms ac5uire the remaining shares also. 6ut a notice is to be given to the dissenting shareholders who have a right to apply to the court praying that their shares should not be allowed to be ac5uired, on the terms of the scheme. On hearing the parties concerned, the court ma0es an order as it may thin0 fit.
$owers of Tribunal for Prevention of Mismanagement and Oppression /ection *23 provides that any member of a company who complains that its affairs are being conducted in a manner oppressive to any member or members may apply to the 4ribunal under this section. With a view to bring an end the matters complained of the 4ribunal may ma0e such order as it thin0s fit under this section, if it is of opinion that-

#i( the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and #ii( to wind up the company would unfairly prejudice the members who have lodged the complaint, but the court would be prepared to ma0e a winding up order on the ground that it is just and e5uitable that the company should be wound up. *n application may also be made under s.-37 to the Tribunal by any members of a company who complain that- #i( the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interest of the company; or #ii( a material change has ta0en place in the management or control of the company and that by reason of such change, it is li0ely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company. *fter hearing the petition, the Tribunal may pass such order as it thin0s fit.
$ersons entitled to complain: /ection *22 specifies the persons who are entitled to apply to the 4ribunal for relief in cases of oppression and mismanagement complained of in pursuance of /s.*23-*25. 4he numbers necessary to ma#e such application is: 'i( in the case of a company having a share capital -.. members or -. per cent of the total number of its members whichever is less or members holding -. per cent of the issued share capital6 'ii( in the case of a company not having a share capital 7. per cent 'one fifth( of the total number of its members. 4he

%entral 8overnment is empowered in an appropriate case to authorise any lesser number of members to ma#e such application.

$ection .4+ provides for the relief that can be provided by the Tribunal and may include" #a( the regulation of the conduct of the company&s affairs in future; #b( the ac5uisition of the shares or interests of any members by other members or by the company; #'( termination, setting aside or modification of any agreement, however arrived at, between the company and the manager, managing director or any other director; #d( termination, setting aside or modification of any agreement between the company and any other person with the latter&s consent; #e( setting aside of any transfer, delivery of goods, payment, e8ecution or other act relating to the property made or done by or against the company within three months of the application which would amount to fraudulent preference in case of an individual&s insolvency; #f( any other matter for which, in the opinion of the Tribunal, it is just and e5uitable that provision should be made.