MAJORITY

POWERS
AND MINORITY
RIGHTS
INTRODUCTION
•  In corporate world, all democratic decisions and management of
a company are made with the majority rule which is deemed to
be fair and justified.
•  Majority domination and suppression of minority shareholders
rights in the decision making and management of the company.
•  A minority shareholder is a person in a company who does not
enjoy much power in the management of the company and their
interests are disregarded.
•  Minority shareholders are the equity holders of a firm who does
not enjoy the voting power of the firm by the virtue of his or her
below 50% ownership of the firm’s equity capital.
•  Sometimes majority decision may affect the interests of the
minority shareholders.
•  The aim of the law must be to strike a balance between the
effective control of the company and the interests of the small
individual shareholders.
•  Foss v. Harbottle, 1843, action brought by 2 shareholders
against directors- fraudulent and illegal transactions where
property of the company was wasted- prayed that loss should be
made good. Action rejected. Rule is corporation to sue in its
own name and in corporate character. Not a right given to the
individual member the right to sue.
•  Burland v. Earb, 1902, it is elementary principle of the law that
the Court will not interfere with the internal management of
the company acting within their powers.

•  Rajahmundry Electric Supply Corp. Ltd v. Rao, 1956, courts

would not intervene at the instance of the shareholders, in the
matters on internal administration, by its directors so long as
they act within their powers.

•  Stein v. Blake, 1998

 EXCEPTIONS TO MAJORITY
RULE
•  Majority rule does not prevail in all situations.

•  Exceptions are protection of minority right.

•  Exceptions are:

•  Illegal or ultra vires acts: shareholder is entitled to bring action against the
company and officers in matters which are ultra vires to the company.

•  Foss rule applies only as long as company is acting within its powers.

•  Bharat Insurance ltd v. Kanhaiya lal, 1935, plaintiff was a shareholder of the
respondent company. Object was to advance money at interest on security
of land, house, machinery. Plaintiff complained several investments made
without adequate security. Directors are acting ultra vires. Single member
can maintain a suit for declaration as to the true construction of articles.

•  Lowe v. Fahey, 1996

•  Fraud on minority: conduct of majority impeached- action constitutes
fraud on minority.
•  Greenhalgh v. Arderne Cinemas Ltd, 1951
•  Daniels v. Daniels, 1977
•  Prudential Assurance Co. Ltd v. Newman Industries Ltd, 1982
•  Acts requiring special majority
•  Wrongdoers in control: sometimes an obvious wrong may have been
done to the company, but the controlling shareholders would not
permit an action to be brought against the wrongdoer. To safeguard
the interest of the company any member may bring an action in the
name of the company. (VP Singh v. Metropolitan Council of Delhi,
1969)
•  Glass v. Atkin, 1967

Oppression and Mismanagement
•  Oppression is the exercising of authority or power in a burdensome,
merciless, or unjust manner.
•  Whereas the term “Mismanagement” means a situation in which
something such as a company or an economy is organized or
controlled badly.
•  The term ‘oppression’ has been explained by Lord Cooper in Elder v.
Elder & Watson Ltd. [1952 SC 49 (Scotland)] as, “The essence of the
matter seems to be that the conduct complained of should at the
lowest involve a visible departure from the standards of fair dealing,
and a violation of the conditions of fair play on which every
shareholder who entrusts his money to the company is entitled to
rely.”
Application to Tribunal Section 241
•  The first remedy available to oppressed minority is to move the NCLT.

•  Whenever the affairs of a company are being conducted in a manner

pre-judicial to public interest or in a manner oppressive to any
member or members, an application can be made to the Tribunal.

•  Section 244: application signed by 100 members of the company or by

1/10 of total numbers of member, whichever is less.
•  Where members entitled to make application any one or more of them
having obtained consent in writing can make an application.

•  MC Duraiswami v. Sakthi Sugars Ltd, 1980