ANALYZING MINORITY SHAREHOLDER OPPRESSION IN THE INDIAN CORPORATE

LANDSCAPE: A FOCUS ON MAJORITY RULE DYNAMICS

ABSTRACT
This research delves into the intricate dynamics of minority shareholder oppression within the
Indian corporate landscape, specifically exploring the impact of majority rule on the rights and
interests of minority stakeholders. The study investigates historical legal frameworks, recent
legislative changes, and judicial precedents to provide a comprehensive analysis of the
challenges faced by minority shareholders. By focusing on the interplay between majority
dominance and minority rights, the research aims to contribute valuable insights to corporate
governance practices in India.

The Companies Act of 2013 in India has a crucial function in overseeing corporate matters,
placing emphasis on openness, and guaranteeing the efficient functioning of economic entities.
This act is a clear demonstration of India's dedication to creating a strong and responsible
corporate sector, which is essential for economic advancement in the constantly evolving global
business landscape. Chapter XVI of this legislative framework specifically deals with issues of
corporate oppression and mismanagement. It includes Sections 241 to 245, which provide
remedies for such claims. Curiously, this significant section fails to offer explicit definitions or
elucidate the exact parameters of "oppression" and "mismanagement." The absence of this
important element has resulted in complex legal deliberations, court explanations, and scholarly
arguments, requiring a comprehensive examination of these ideas. The aim of this study is to
clarify the intricate aspects related to the understandings of oppression and mismanagement in
relation to the Companies Act of 2013. In order to achieve this, we will undertake a
comprehensive exploration of intricate legal principles, significant court decisions, and
scholarly perspectives. We seek to examine how the Indian legal system and legal scholars have
dealt with these uncertainties and, as a result, the practical consequences of such unclear
concepts within the corporate environment.

INTRODUCTION
The Indian corporate sector has witnessed significant transformations, yet concerns persist
regarding the protection of minority shareholder rights. Majority rule dynamics often raise
questions about the equitable treatment of minority stakeholders. 1 This research endeavors to
scrutinize the dynamics of minority shareholder oppression in the context of Indian corporations,
emphasizing the role of majority rule in shaping the corporate governance landscape.

The individuals who possess the largest proportion of shares are regarded as the majority
shareholders in a firm. The word "minority shareholder" is not explicitly defined in the Company
Law. However, it is commonly accepted that individuals who possess a smaller portion of shares
are referred to as minority shareholders.

Minority shareholders are individuals who possess a quantity of shares that does not grant them
power over the organisation. Typically, the governance of a firm operates on the principle of
majority rule. In each company, the directors are elected representatives and so have the
authority to oversee the firm's operations. The members exercise the rights that are not granted to
the directors during their general meeting. This choice is typically determined based on the
principle of majority. The concept of majority rule refers to the authority of the majority
shareholders to govern the firm and oversee its operations. Consequently, the majority exercises
its influence in the overall assembly.

The rights of minority shareholders in any firm are inherently limited, and they have frequently
experienced violations of their rights. The notion that the will of the majority should triumph and
have authority over the minority is referred to as the principle of majority rule.One This is
commonly referred to as the Foss v. Harbottle Rule. Foss v Harbottle is a prominent English
legal precedent in the field of corporation law. Therefore, harms that are purportedly inflicted
solely on the corporation and not on its members should be addressed through corporate
measures rather than individual member intervention. This principle is referred to as the
appropriate plaintiff rule, which is relevant in this situation due to the company being recognised
as a distinct legal entity.

Consequently, only the company itself has the authority to seek recourse in the event of any
harm inflicted upon it, rather than individual shareholders. India also adhered to this guideline as
it is taken from common law. However, there were a few exceptions to this rule, but they did not
serve as effective means of addressing the issue. Currently, the rule has been weakened to
1
Davies, P. (2020) ‘Majority and minority shareholders’, Introduction to Company Law, pp. 119–174.
doi:10.1093/oso/9780198854913.003.0005.
accommodate the evolving requirements and provide safeguard to the minority shareholders as
well.

RESEARCH QUESTIONS
1. What are the historical and legal foundations influencing the treatment of minority
shareholders in Indian corporate law?
2. How do recent legislative changes address the concerns of minority shareholders in the
Indian corporate environment?
3. What judicial precedents have shaped the interpretation and application of majority rule
dynamics in cases of minority shareholder oppression?
4. To what extent do corporate governance practices contribute to or mitigate minority
shareholder oppression in India?

RESEARCH OBJECTIVES
1. To assess the historical evolution of minority shareholder rights within the Indian
corporate legal framework.
2. To analyze recent legislative amendments and their impact on safeguarding the interests
of minority shareholders.
3. To examine landmark judicial decisions highlighting the interplay between majority rule
and minority rights.
4. To evaluate the effectiveness of existing corporate governance mechanisms in addressing
minority shareholder concerns.

HYPOTHESIS

Low enforcement of laws I the reason for oppression of minority shareholders in India.

THEORETICAL FRAMEWORK
This research adopts a theoretical framework grounded in agency theory, stakeholder theory, and
legal pluralism. Agency theory helps explain the principal-agent relationship between majority
shareholders, who act as agents, and minority shareholders, who are principals. Stakeholder
theory underscores the importance of equitable treatment of all stakeholders in corporate
governance. Legal pluralism is considered to understand the multiple legal sources that influence
the rights and obligations of minority shareholders in India.

This theoretical framework guides the exploration of majority rule dynamics and their impact on
minority shareholders, providing a comprehensive lens for analyzing the complexities inherent in
the Indian corporate landscape.

ANALYZING MINORITY SHAREHOLDER OPPRESSION IN THE INDIAN CORPORATE LANDSCAPE

The dynamics between majority and minority shareholders within the Indian corporate landscape
have been a subject of considerable scrutiny, particularly in the context of the legal frameworks
that govern shareholder rights. The historical evolution of these frameworks, recent legislative
changes, and judicial interpretations play a pivotal role in shaping the experiences of minority
shareholders, bringing to light the complexities associated with majority rule dynamics.

Historical Foundations and Legal Landscape

The historical roots of minority shareholder rights in India can be traced back to the Companies
Act of 1956. This foundational legal framework, while representing a crucial step in recognizing
minority rights, was not without its limitations. The Act provided limited redressal mechanisms
for minority shareholders, and their ability to challenge majority decisions was constrained.
However, this marked the initiation of legal recognition of minority interests, albeit in a
rudimentary form.2

Legislative Changes and Progress

Significant strides have been made in recent years through legislative amendments aimed at
fortifying minority shareholder protections. The Companies Act of 2013, a landmark legislation,
introduced substantial reforms addressing the concerns of minority stakeholders. Sections 397 to
409 of the Act, in particular, provided redressal mechanisms for minority shareholders against
oppressive acts by the majority.

Section 399 of the Companies Act of 1956 grants individuals the privilege to approach the
Company Law Board in instances of oppression and/or mismanagement as outlined in Sections

2
Balancing the scales: Empowering minority shareholders in India’s insolvency landscape (no date) The
Economic Times. Available at: https://economictimes.indiatimes.com/small-biz/legal/balancing-the-scales-
empowering-minority-shareholders-in-indias-insolvency-landscape/articleshow/104059565.cms?from=mdr
(Accessed: 28 January 2024).
397 and 398. The numerical criterion has been specified as either a ten percent stake, one
hundred members, or one-fifth of the total members, depending on the circumstances.
Nevertheless, the authority to exempt this was bestowed with the Central Government.

In the case of Sri Ramdas Motor Transport Ltd. v. Tadi Adhinarayana Reddy and Ors., the Court
has clarified that according to section 397 of the Companies Act 1956, any member of a
company can file an application with the Company Law Board if they believe that the company's
affairs are being conducted in a way that is harmful to public interest or unfairly oppressive to
any member or members. The purpose of this application is to seek an order under section 397 of
the Companies Act. Nevertheless, minority activism does not deprive the majority shareholders
of their democratic rights.

This principle was also confirmed in the case of Shanti Prasad Jain v. Kalinga Tubes Ltd. A
conflict erupted between two factions of wealthy entrepreneurs vying for control over a certain
corporation. The appellant, who serves as the chairman of the firm, claimed that the company's
activities were conducted in a manner that was unjust and detrimental to him and his group of
members. The appellant argued that the allocation of new shares to external parties was intended
to undermine the interests of the current shareholders and constitutes oppressive behaviour. The
Supreme Court determined that the High Court's decision to dismiss the case under Section 397
was correct, as the simple act of assignment does not amount to oppression. The court
emphasised that the presence of factual evidence is necessary to substantiate any allegations of
severe mismanagement or oppression.

By delineating provisions based on the shareholding percentage and categorizing companies with
and without share capital, the Act sought to establish a nuanced approach to safeguarding
minority rights. However, challenges persisted as the numerical thresholds set in Section 399 of
companies act became a point of contention. The requirement of 10% shareholding or 100
shareholders (whichever is less) for companies with share capital, and 1/5th of the total number
of members for those without, posed hurdles for minority shareholders seeking legal recourse.3

3
Minority Interest, https://www.mca.gov.in/content/mca/global/en/data-and-reports/reports/other-reports/report-
company-law/minority-interest.html (last visited Jan 31, 2024).
 Judicial Precedents and Evolving Jurisprudence
The judicial landscape played a crucial role in shaping the discourse around majority rule
dynamics. While the Foss v. Harbottle rule initially posed challenges by limiting minority
actions, judicial interpretations have evolved over time. Early decisions, such as those in
Bhajekar v. Shinkar and Rajahmundry Electric Supply Corporation Ltd. v. Nageshwara Rao,
leaned towards a strict adherence to majority rule, emphasizing the right of the company to ratify
even irregular acts.

Some cases, like Sri Ramdas Motor Transport Ltd. v. Tadi Adhinarayana Reddy and Others,
changed the way things were thought about. The court recognised that Section 397 of the
Companies Act 1956 lets any member ask for help from the Company Law Board when
someone is being unfair. In a break from strict majority rule, this change showed a growing
concern for the rights of minorities.

Recent Trends Minority Buying out Majority

The idea of minority owners buying out the majority is an interesting new trend in Indian
corporate law. The case of Needle Industries (India) v. Needle Industries Newey (India) Holding
Ltd. 4 is a good example of this. In this case, Indian minority shareholders were accused of
oppressing foreign majority shareholders. Instead of the usual way of getting minority
shareholders to leave, the Supreme Court told the Indian minority shareholders to buy the shares
owned by the foreign majority. This was a break from the norm.

In the cases of Probir Kumar Misra v. Ramani Ramaswamy and Ors 5. and Namtech Consultants
Pvt. Ltd. v. GE Termometrics India Pvt. Ltd.6, the Madras High Court and the Karnataka High
Court respectively, have issued orders for the acquisition of shares by one of the conflicting
groups of shareholders. This was done by determining the value of the shares through an
impartial expert evaluator and through a competitive bidding process. The courts did not
consider whether the shareholders were in the majority or minority.

This landmark decision makes us think about the flaws that are built into the system and the
possibility of other ways to settle disagreements when there are foreign parties involved. It
4
Needle Industries (India) v. Needle Industries Newey (India) Holding Ltd., AIR 1981 SC 1298.
5
Probir Kumar Misra v. Ramani Ramaswamy and Ors., MANU/TN/2194/2009 (High Court of Madras).
6
Namtech Consultants Pvt. Ltd. v. GE Termometrics India Pvt. Ltd., ILR 2008 Kar 1187 (High Court of
Karnataka).
shows that Indian company law can be changed to fit different situations and that minority rights
are respected even when the majority is not Indian.

Challenges and Opportunities

Historical Foundations:
The historical evolution of India's legal framework for minority shareholders can be traced back
to the Companies Act of 1956. This foundational legislation, while a crucial first step in
recognizing the rights of minority stakeholders, was limited in its scope. The Act acknowledged
the existence of minority shareholders but provided inadequate mechanisms for them to
challenge oppressive actions by the majority.

Companies Act of 2013:

The passing of the Companies Act of 2013 was a major turning point. It brought about major
changes that were meant to protect small shareholders even more. Sections 397 to 409 of the Act
broke away from the earlier restrictions. They made it clear that minority owners could file
complaints if the majority did something unfair.

But the number limits set in Section 399 made things more difficult. It became a problem that
companies with share capital had to have 10% of the shares or 100 owners, whichever was less.
For companies without share capital, they only had to have 1/5th of the total number of
members. These limits were meant to stop pointless lawsuits, but they made it harder for small
owners to get legal help.

LEGISLATIVE OVERVIEW
Section 241 allows any member of a company to approach the Tribunal if they suspect that the
company's activities negatively affect public interest, the interests of the company or its
members, or if there has been a substantial change in its management likely to have adverse
consequences.7

Once a petition is filed under Section 241, the Tribunal possesses the authority to take various
actions to resolve matters in dispute. These actions may include regulating the future conduct of
the company, facilitating the purchase of shares, reducing share capital, imposing constraints on

7
Companies Act, No. 18 of 2013, § 241.
share transfers, revising agreements, dismissing directors, recovering gains, and determining
appropriate costs.8

This section outlines the consequences when the Tribunal terminates, sets aside, or modifies
agreements mentioned in Section 242. It explicitly states that these actions do not give rise to any
claims against the company and prohibits directors or managers affected by such actions from
assuming similar roles without the Tribunal's consent for a specified period.9

Section 244 elucidates who possesses the right to file an application under Section 241. For
companies with share capital, this includes a minimum of one hundred members or one-tenth of
the total members, or members holding one-tenth of the issued share capital. In companies
without share capital, the threshold is not less than one-fifth of the total members.10

Section 245 empowers members or depositors who perceive prejudicial conduct in a company's
management to file applications on behalf of these groups. The applications may seek diverse
orders, including restraining the company from unlawful acts, voiding resolutions, claiming
damages, and more.11

This section ensures that specific provisions (Sections 337 to 341) are applied with necessary
modifications to proceedings under Sections 241 and 245, ensuring a consistent legal framework
for these proceedings.12

JUDICIAL INTERPRETATION OF OPPRESSION AND MISMANAGEMENT

Oppression: An Elusive Concept
The Companies Act of 2013 in India does not explicitly define the term "oppression," but
English Courts have provided valuable insights into its meaning and scope. Oppression, as
elucidated through various court judgments, primarily involves conduct that departs from the
standards of fair dealing and violates the conditions of fair play that shareholders should
reasonably expect.13
8
Companies Act, No. 18 of 2013, § 242.
9
Companies Act, No. 18 of 2013, § 243.
10
Companies Act, No. 18 of 2013, § 244.
11
Companies Act, No. 18 of 2013, § 245.
12
Companies Act, No. 18 of 2013, § 246
13
Umakanth Varottil, "Unpacking the Scope Of Oppression, Prejudice And Mismanagement Under Company Law
In India", NUS Law Working Paper 2020/020.
In Elder v. Elder & Watson Ltd. 14, the court emphasized that oppressive conduct should
encompass "a violation of the conditions of fair play," highlighting that mere disagreements or
management disputes do not necessarily constitute oppression. To be considered oppressive,
conduct must be burdensome, harsh, and wrongful, aligning with the dictionary definition of the
term.

The Halsbury's Laws of England, further clarifies that oppression should involve a continuing
course of oppressive conduct, specifically directed at the petitioner in their capacity as a member.
It necessitates an element of lack of probity or fair dealing concerning the petitioner's proprietary
rights as a shareholder. In essence, it should not merely entail inefficient or careless conduct. 15

In the Needle Industries case, it was clarified that technically legal and correct conduct may still
justify relief under the just and equitable jurisdiction. Conversely, conduct involving illegality or
contravention of the Act may not be sufficient for relief. It is crucial to establish a pattern of
continued oppression rather than isolated acts to warrant legal intervention.

Mismanagement: A Question of Prudence and Integrity

It's not clear from the Companies Act, 2013 what mishandling means, but one way to think about
it is running a business in a bad, dishonest, or inefficient way. Section 241 Sub Clause 1 of the
Act says what to do about abuse, which means doing things that hurt the public interest, the
owners, or the company itself.

Tata Consultancy Services Limited v. Cyrus Investments Pvt. Ltd. & Ors. is a case that shows
how tricky the word "mismanagement" can be. The main problem in this case was that Mr.
Cyrus Mistry was kicked off of several Tata Group directorships by the Board of Directors and at
shareholder meetings.

KEY FINDINGS IN TATA CONSULTANCY SERVICES LIMITED V. CYRUS INVESTMENTS PVT.

LTD. & ORS.
The judgment in this landmark case highlighted several critical aspects of the judicial
interpretation of oppression and mismanagement:
14
Elder v. Elder & Watson Ltd., (1952) S.L.T. 112.
15
Devika Bansal and Naina Bora, Analysing the Oppression Remedy in India: Is it "Just and Equitable"?,
INDIACORPLAW (July 1, 2021, 9:00 PM), https://indiacorplaw.in/2021/05/analysing-theoppression-remedy-in-
india-is-it-just-andequitable.html.
 Directorship Removal and Oppression
The court made it clear that being fired from a board post alone is not enough to prove abuse and
bad management. These kinds of cases can be thrown out by the National Company Law
Tribunal (NCLT). However, help under Section 242 may be granted if the expulsion is part of a
larger scheme to injure or abuse the interests of certain members.16

Winding Up and Confidence

The court clarified that winding up a company due to findings of oppression and mismanagement
is only warranted when there is a justifiable lack of confidence in the conduct and management
of the company's affairs. A mere lack of confidence between majority and minority shareholders
is not sufficient to trigger such action.

Limited Reinstatement Powers

Sections 241 and 242 of companies act 1956, do not provide the Tribunal with the power of
reinstatement. The court highlighted that its role is to examine past conduct or ongoing conduct
but cannot address apprehensions of future misconduct based on the company's articles.

In the realm of corporate law, the judicial interpretation of the terms "oppression" and
"mismanagement" in India is a nuanced and evolving process.

Continuity in Oppression and Temporal Aspects

Shantadevi v. Sangramsinh P. Gaekwad 1921 P. Gaekwad stresses the importance of proving
that the majority owners of the company have been acting in an abusive way for a long time,
stating that the behaviour will not stop until the case is made. The most important thing is that
the business is being run in a way that hurts the owners. 17

Power Finance Corporation Ltd. v. Shree Maheshwar Hydel the Company Power Corporation
Ltd. talks about the short-term effects of abuse and bad management. The words "have been"
and "are being conducted” are used in Section 241 of the Companies Act, 2013. To "have been"
something means to do something in the past that is still happening now. On the other hand, "are
being conducted" means that something is still happening.

16
Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd., 2021 SCC OnLine SC 272.
17
Sangramsinh P. Gaekwad v. Shantadevi P.Gaekwad, (2005) 11 SCC 314 (Supreme Court of India).
 RECENT TRENDS IN MINORITY SHAREHOLDER
In the intricate tapestry of corporate governance, minority shareholder activism has evolved into
a formidable force, reshaping traditional power dynamics and emphasizing, fairness,
transparency, and equitable treatment within companies. Recent years have witnessed notable
trends in this domain, signifying a transformative phase in corporate governance and
highlighting the growing assertiveness of minority shareholders.

One of the prominent trends characterizing minority shareholder activism is the heightened
emphasis on Environmental, Social, and Governance (ESG) issues. Beyond mere financial
considerations, shareholders are leveraging their positions to advocate for sustainable and
responsible business practices. This trend mirrors the global shift towards ethical and socially
responsible investing. Minority shareholders are increasingly demanding greater transparency on
companies' ESG performance, urging adherence to environmental standards, and advocating for
initiatives that reflect social responsibility. This signifies a broader acknowledgment that
corporate success is intricately tied to ethical conduct and positive societal impact. 18

Proxy contests have emerged as a more prevalent tool in the arsenal of minority shareholder
activists. In these contests, shareholders solicit votes from their counterparts to replace
incumbent board members or influence specific corporate decisions. Minority shareholders
strategically employ proxy contests to challenge board decisions, demand changes in corporate
strategies, or advocate for board diversity. The increasing prevalence of proxy contests
underscores the assertiveness of minority shareholders in influencing corporate governance.19

Beyond conventional forms of activism, litigation has become a noteworthy trend in minority
shareholder activism. Shareholders are increasingly turning to legal avenues to challenge
corporate decisions, allege governance lapses, or seek redress for perceived injustices. The
judiciary plays a pivotal role in defining the boundaries of minority shareholder activism, and
landmark legal cases are shaping the legal framework that governs shareholder rights.

18
Manupatra, Casting Light on the Shadows of Corporate Governance: Unravelling Oppression and
Mismanagement in India’s Companies Act of 2013, https://articles.manupatra.com/article-details?
id=undefined&ifile=undefined (last visited Jan 31, 2024).
19
Girard-Guerraud, C., Goodman, J. and Louche, C. (2022) ‘Transformations in shareholder activism: Past,
present, and future’, Recent Trends in Financial Engineering, pp. 133–164.
doi:10.1142/9789811260483_0007.
Historically, shareholder activism was hindered by collective action problems, as investors opted
to withdraw their assets rather than take action. Nevertheless, regulatory modifications are
compelling more involvement of shareholders (see to Section IV). Indian regulated mutual funds
are currently obligated by SEBI to participate in voting on resolutions pertaining to their
portfolio firms and submit voting reports on a quarterly and annual basis. The Insurance
Regulatory and Development Authority of India released its Stewardship Code in March 2017,
which outlines guidelines for insurance companies' involvement in publicly traded stocks.

Historically, the prevalence of promoters posed challenges for investors in their efforts to enforce
modifications at the board level. Nevertheless, this image is undergoing transformation. In May
2018, investors successfully ousted a director of Fortis Healthcare due to issues raised by
investors regarding the board's evaluation of certain bids for the firm. In 2019, the board of CG
Power and Industrial Solutions ousted its promoter from the position of chair, however this did
not entail the revocation of a directorship. This action was taken in response to charges of
specific irregularities. In March 2022, Invesco achieved a significant legal victory that affirmed
its authority to request an Extraordinary General Meeting (EGM) in order to reformulate the
board of Zed. Ultimately, Invesco retracted the requisition, nevertheless, the judgement paves the
way for future such actions. In a correlated ruling, as previously stated, the Bombay High Court
declined to endorse a petition seeking to prohibit Yes Bank (a creditor that imposed a share
pledge) from exercising its voting rights to oust the chairman of Dish TV, a company previously
under the control of the same promoters as those of Zed. In Dish TV's Extraordinary General
Meeting (EGM) on 24 June 2022, the proposal to retain the current managing director was
declined, with 78.95 percent of shareholders voting against it. Additionally, shareholders also
rejected the election of some other directors. These cases, along with the promoter opposition,
are significant advancements in the context of shareholder activism in India.

Regulatory bodies increasingly recognize the importance of protecting minority shareholder

rights and ensuring fair treatment. Reforms in corporate governance regulations are aligning with
these principles, providing minority shareholders with a more robust framework to assert their
rights and participate meaningfully in corporate decision-making.

As minority shareholder activism continues to evolve, technology-enabled collaboration has

emerged as a key driver. Digital platforms and social media enable shareholders, regardless of
their stake size, to unite their voices and influence corporate decisions. This increased
collaboration amplifies the impact of minority shareholders, challenging traditional notions of
corporate hierarchy and reinforcing the notion that effective corporate governance requires the
active participation of all stakeholders.

Moreover, there is a growing awareness among minority shareholders about the broader
implications of their activism. Beyond immediate financial gains, activists are considering the
long-term sustainability of companies, incorporating ESG considerations into their demands.
This signals a shift towards a more holistic view of corporate governance, where social and
environmental responsibility are integral components.20

The changing landscape of minority shareholder activism is not devoid of challenges. The legal
and regulatory frameworks across jurisdictions remain diverse, posing hurdles for shareholders
engaging in cross-border activism. The balance between short-term gains and long-term
sustainability is another delicate aspect, as activists navigate the fine line between immediate
financial returns and the broader interests of all stakeholders.

While legislative and judicial developments have brought about positive changes, challenges
persist. The numerical thresholds in the Companies Act of 2013, though intended to prevent
frivolous suits, pose practical difficulties. Recent high-profile conflicts, such as the Tata and
Cyrus Mistry dispute, have highlighted the limitations of these thresholds, calling for a nuanced
evaluation of their applicability. The introduction of class action suits under the new Act is a
positive step towards collective redressal. However, the mechanism's underutilization raises
questions about awareness and the need for further advocacy to encourage affected parties to
leverage this provision.

20
Islam, A.U. (2020) ‘Do shareholder activism effect corporate governance and related party transactions:
Evidences from India?’, Indian Journal of Corporate Governance, 13(2), pp. 165–189.
doi:10.1177/0974686220966810.
 SUGGESTIONS AND RECOMMENDATION
Regulatory Framework
India's rules and regulations helps in understanding how important independent directors are for
good corporate governance and protecting small owners. The Companies Act of 2013 requires
that certain types of businesses have independent directors on their boards. This is done to make
sure that decisions are made in an impartial and fair way. It is assumed that these boards will
balance out the power of the leader, protecting the interests of small owners from being harmed.
21

The Securities and Exchange Board of India (SEBI) also made the SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015, which states what independent directors need to do
and how they should do it. In its guidelines, SEBI stresses how important it is to have
independent directors who promote openness, boost the board's reputation, and keep an eye out
for any actions that could hurt small owners. 22

Guardians of Fairness and Transparency

Independent directors serve as guardians of fairness and transparency in the decision-making
processes of the board. Their independence from management allows them to critically evaluate
proposals, transactions, and strategies, ensuring that minority shareholders are not subject to
oppressive measures. Their fiduciary duty is not only towards the company but extends to all
stakeholders, especially minority shareholders who may be more vulnerable to oppressive
practices.

Independent directors play a crucial role in preventing related-party transactions that might
disproportionately benefit majority shareholders at the expense of minority interests. Through
their oversight on audit committees and their involvement in strategic decision-making, they act
as a check against any attempts to subvert fairness in transactions or corporate actions.23
21
The independent director: Has it been indianised enough? - manupatra. Available at:
http://docs.manupatra.in/newsline/articles/Upload/51D72E8E-0E3D-436C-8816-07816F8789EC.pdf
(Accessed: 28 January 2024).
22
The role of independent directors in corporate governance a critical study. Available at:
http://gnanaganga.inflibnet.ac.in:8080/jspui/bitstream/123456789/60/1/Hepitha%20Priscilla.P.pdf (Accessed:
28 January 2024).

23
Batth, C.V. (2016) ‘Role of independent directors in the changing business scenario in India’, International
Journal of scientific research and management [Preprint]. doi:10.18535/ijsrm/v4i2.02.
 Challenges Faced by Independent Directors
While the role of independent directors is pivotal, they face numerous challenges in discharging
their duties effectively. One major challenge is the risk of being co-opted or influenced by the
dominant majority shareholders or the management. The very independence that empowers them
to protect minority interests can become compromised if they succumb to external pressures.

Additionally, the lack of clarity in defining the exact scope of the duties and powers of
independent directors poses a challenge. Ambiguities in legal provisions can make it difficult for
independent directors to navigate complex corporate scenarios and identify instances of minority
shareholder oppression effectively.24

Balancing Act: Navigating Conflicts of Interest

There are times when independent directors have to balance the needs of majority shareholders,
management, and minority shareholders, which can be tough. There can be conflicts of interest,
especially when independent boards have personal or business ties that make it hard for them to
be objective. To find the right mix, you need to know a lot about company governance principles
and be strong-willed enough to say no to any unwanted impact.

Enhancing Minority Shareholder Activism

Independent directors can play a pivotal role in enhancing minority shareholder activism by
fostering an environment where dissenting voices are heard and respected. They should
encourage minority shareholders to voice their concerns, propose resolutions, and actively
participate in crucial decision-making processes. Facilitating communication channels between
minority shareholders and the board can lead to a more inclusive and transparent governance
framework.25

CONCLUSION
In conclusion, the analysis of minority shareholder oppression in the Indian corporate landscape
reveals a complex interplay of historical, legislative, and judicial factors. The evolution from the
Companies Act of 1956 to the transformative changes in the Companies Act of 2013 signifies a
24
Role of independent directors - KPMG. Available at:
https://www.in.kpmg.com/SecureData/aci/Files/RoleofIndependentDirectorsIssuesandChallenges.pdf
(Accessed: 28 January 2024).
25
(No date a) Role of independent director in corporate governance – reference to India. Available at:
http://www.virtusinterpress.org/IMG/pdf/10-22495_cbv9i1art5.pdf (Accessed: 28 January 2024).
significant stride in recognizing and safeguarding minority rights. Judicial precedents, notably
cases like Sri Ramdas Motor Transport Ltd. v. Tadi Adhinarayana Reddy and the innovative
approach in Needle Industries (India) v. Needle Industries Newey (India) Holding Ltd.,
underscore the adaptability of Indian corporate law. Challenges persist in implementing
numerical thresholds and underutilizing class action suits, evident in conflicts like the Tata and
Cyrus Mistry dispute. The examination of related party transactions emphasizes the intersection
of regulatory frameworks and shareholder activism, urging strengthened oversight and enhanced
disclosures. Ongoing efforts by regulatory bodies, companies, and activist shareholders are
essential in shaping a corporate landscape prioritizing equity, transparency, and stakeholder
interests.

The Companies Act of 1956 included some safeguards aimed at safeguarding the interests of
minority shareholders against the dominance of dominant shareholders. This marked the initial
action by the legislature to acknowledge the rights of minority shareholders in India. According
to the Companies Act of 1956, minority shareholders were marginalised within the firm as a
result of the dominance exerted by the majority. The Companies Act of 2013 has implemented
several important measures to protect the rights of minority shareholders in a firm, regardless of
whether there is oppression or mismanagement that affects their rights. Furthermore, it may be
determined that the primary objective of the legislation is to protect the rights and benefits of the
minority shareholders. However, the difficulty is in ensuring the implementation of these rights.
Effective implementation of minority shareholders' rights ensures proper governance by
prioritising the involvement of minority shareholders in corporate management. One significant
drawback of the Companies Act of 2013 is the numerical threshold specified in Section 244 of
the Act. Although it is acknowledged that there should be filters in place to prevent the filing of
frivolous lawsuits and to avoid wasting the Court's time, it is challenging to fulfil the specified
minimum requirement. This was revealed following the recent controversy between Tata and
Cyrus Mistry, where the Mistry group's request was first dismissed due to their failure to meet
the required numerical criteria. While the NCLT has been granted the authority to waive certain
provisions, there is a lack of clarity regarding the circumstances under which the NCLT can
exercise this power and the specific criteria that must be met. In general, implementing filters for
direct actions, such as those brought by shareholders in their own names to assert their rights
(rather than those of the company), contradicts the principles of corporate law and ultimately
weakens the position of minority stakeholders.