PROTECTION OF MINORITY SHAREHOLDERS IN A COMPANY UNDER THE

COMPANIES ACT 2013

By- Vishnu Tandi

Democratic decisions are made in accordance with the majority decision and same rule was
also applicable in the Companies cases also. As per the Companies Act 1956, shareholders
who hold the majority of shares, rule the company. This majority principle is recognised in a
land mark case Foss vs. Harbottle (1843) 1. The decision taken by the majority shareholders
was binding on the minority. Now this principal has been replaced and minority shareholders
have been given greater power under Companies Act 2013.

Various provisions have been introduced in the Companies Act 2013 to essentially bridge the
gap towards protection and welfare of the minority shareholders under Companies Act 1956 2.
The concept of class action is added in the Companies Act 2013 but in 1956 Act there was no
such concept in the Act. As per this Section class action can be instituted against the
Company as well as the auditors of the Company. This class action has to be filed by the
minority shareholders. Intent of the Sec 245 is not only to empower the minority shareholder
but also the depositors.3

Sec 241 to sec 246 of the Companies Act 2013 deals with oppression and mismanagement in
the company. Sec. 241 talks about the application to tribunal in the case of oppression and
mismanagement and sec 244 deals with the right to apply. As per this Section

(a) in the case of a company having a share capital, not less than one hundred members of the
company or not less than one-tenth of the total number of its members, whichever is less, or
any member or members holding not less than one-tenth of the issued share capital of the
company, subject to the condition that the applicant or applicants has or have paid all calls
and other sums due on his or their shares;

(b) in the case of a company not having a share capital, not less than one-fifth of the total
number of its members

Have right to apply to the tribunal under sec 241 of the Companies Act 2013.

1
(1843) 67 ER 189
2
Rise of the Minority shareholder, by Akshat Sulalit, Indian Law Journal.
3
Sec 245 (1) of the Companies Act 2013.
Other Provisions

 Majority share holders who by virtue of amalgamation, share exchange, conversion,

or any other reason have come to hold 90% or more of the equity share capital have
been mandate to make an offer to minority shareholders for buying their share. 4 The
price for the share will be determined by the registered valuer.
 Section 236 (3) of CA 2013 has provided the minority with an option to make an offer
to the majority shareholders to buy its shares.
 Specific obligations have been imposed on the promoters of the company to provide
dissenting shareholders an exit opportunity if they do not agree to vary the terms of
contract or objects referred to in the prospectus.5
 If the share capital of a company is divided into different classes of shares and a
variation in the rights of the shareholders is proposed, the holders of not less than 10%
of the issued shares of a class who do not consent to such variation may apply to the
tribunal to have the variation cancelled.
 The majority share holders shall deposit an amount equal to the value of shares to be
acquired by them under sub sec (2) or sub sec (3) of sec 236 of the Act, as th case
may be in a separate bank account to be operated by the transferor company for at
least one year for payment to the minority share holders and this amount shall be
disbursed to the entitled share holders within 60 days. 6
 The transferor company to act as a transfer agent for making payments to minority
shareholders.7

 Dissenting shareholders in respect of resolution seeking approval for a scheme of

arrangement or compromise involving any class of creditors or members may be
granted exit offers if recommended by the relevant authority.

 For matters requiring special resolution of the members, approval of at least 75% of
the shareholders is required. Therefore, a minority shareholder with more than 25%
voting rights would have the ability to block special resolutions and it may affect the

4
Sec 235 (Power to acquire shares of shareholders dissenting from scheme or contract approved by majority)
and Sec 236 (Purchase of Minority Shareholding).
5
Sec 13 (8) (ii) of the Companies Act 2013.
6
Sec 236 (4) of the Companies Act 2013
7
Section 236 (5) of the Companies Act 2013
 decisions to be taken in any meeting of the company. The interest of the minorities
has been effectively appreciated by the law. 8

 For any resolution requiring special notice, notice must be given to the company by
members holding not less than 1% of the total voting power or those holding paid up
shares of an aggregate sum not exceeding INR 500,000.

 Members holding shares of nominal value not exceeding INR 20,000 shall be entitled
to collectively nominate one director on the board of a listed company.9

 During the preparation of consolidated financial statements, profit or loss attributable

to “minority interest” and to owners of the parent in the statement of profit and loss
shall be presented as allocation for the period. Further “minority interests” in the
balance sheet within equity shall be presented separately from the equity of the
owners of the parent.

 Code for Independent Directors specifically requires that independent directors shall
particularly safeguard the interests of minority shareholders.

Conclusion-

After briefly analysing the above report it is clear that the new Companies Act, 2013
contains extra beneficial provisions for the protection of the minority shareholders. it
introduced new concepts and Sections like purchase of minority shareholdings, class-
action, etc. The intention of the Legislature is to provide proper rights and benefits to
the minorities in such a way that it cannot be misused by the majority shareholders
and the business of the company can be conducted in an effective and efficient
manner. This dual approach towards enforcement of minority rights shall only
guarantee proper administration of the corporate activities.

8
Sec 114 of the Companies Act 2013
9
Sec 151 of the Companies Act 2013