AUN creed CCL LV WATS 9) t= eae W ES __ ACTION REMEDIES LUTON Re clic ANeCotO TCLS CaR SIE OSRULERS UCT TOA} company to bring an action on behalf of the company against a third party before the cella HMO CMM UTM Us oitocuem ome eu reUNeeeCor( oN everal in ‘where two groups of olders of a company wrestle for the contro that company. These battle ther fought in the confine ‘quasi judicial functions, Proceeding requiring interference of the Company Law Board for oppression and mis TEMES Re acl oT EWR WNAU SMAI EUR UeRotesn tn Mute eulsn TS always welcome ‘company.66 Itis imperative that such an action is brought in good faith and supported by bonafide intentions. It is pertinent to note that the personal rights of the plaintiffs cannot be the subject matter of a derivative action as a derivative action is for the benefit erick Dastur Neha Bhatia of the company. Senay Associate Senior Associate J Sagar Associates {sor compensation from the company _ selves to bring an action for the benefit or its directors for any fraudulent, un- of the company. The welfare and inter- awful or wrongful act or omission. A est of the company is the primary ob- similar claim may be brought against jective of such a derivative aeton, the auditors or any expert advisor or a It is imperative that such an setionsis Drought in good faith and supported ‘An interesting area of law, relatively byisbonafidesintentions. It is perti- ‘unexplored, isthe law governing deriv- nent to note that the personal rights ative action mechanism which enables ofthe plaintiffs cannot be the subject theshareholdersoiacompanytobring matter of a derivative action as a de- an-action-on-beiaif-of-the-eompany _rivative action is forthe benefit of the ‘gninstathine-partybeloretheregular company. ‘The=distinetion-berween cetfeourts. There arenospecfiestatu- _personabaetion-on-the-one-hendand tory provisions for a derivative action dENVERICE-SEUON ON THE OLE UBPEES in India. However, the doctrine of de- _ robetmetorwdertvativenction to be rivative action is recognised by Indian browgheoretorstcceed=the-wrongdo- courts. Normally, the management of ingueomplained-of-and-ultimately=to a company is responsible for bringing _beestablishedshasto-bewwrong-done and defending proceedings on behalf WHE ESMPAAY. In the purest form of of the company. However, there are derivative action, no personal benefit Decasions where the majority share- would acerue to the plaintiff share- holders or shareholders in control of holder upon a deeree being passed. It the company may be reluctant to bring is the company, notwithstanding it be- an action on behalf of the company. ing shown as a defendant, that gets a In such an eventuality, the minority voice through the plaintiff sharcholder shareholders may take it upon them- in derivative suit. Hence, itis essential that such a power is not misused to fos- ter ulterior objects for oblique motives of individual share- holders and that necessary checks and balances in the system are in place. Keeping this in mind, the courts, have observed that where there is an unfair action, inefi- cient management, self dealing by the majority stakehold- crs and if such a charge is supported by material evidence, the courts may be inclined to grant interim reliefs on an application made by the minority shareholders on behalf of the company and for the benefit of the company. It is important that the merits of a claim are substantiated by relevant docu- ‘ments, material and evidence asa safe- guard against frivolous proceedings. ‘The Bombay High Court, while record {ng that there were no specific statuto- ry provisions for such derivative action in India, has recently observed that it js a permissible mode for the minor- ity shareholders to check and control unfair, influential, malafide action for personal gain by others which is not in the interest of company, Ifa shareholder alleges that a wrong has been done to the company by per- sons in control thereof, he may bring 2 derivative aetion where he derives Live autnorily from his corporate rignt te-sne-on behalf nf the company: ‘The promise on whicl the court entertains his extraordinary form of action is “upon the eompinining. shareholder's “isertion that tne company cannot sue 4s the persons in control would not pring an actinn an its behalf pr for its Dante time is perhaps right to introduce the derivative action mecha- nism by way of specific enabling statu- tory provisions. The jurisprudence on derivative action in India is still de- veloping and any measure enhancing the enforcement mechanism is always wweleome. ® 67 | August 2012 | LegalEra | wwwlegalera.in