• Supremacy of Majority and Protection of Minority

• Oppression & Mismanagement of Company’s Affairs

• Corporate Frauds
 Supremacy of Majority and Protection of Minority

•‘MAJORITY RULE’ OR THE ‘RULE OF SUPREMACY.’

•Company is governed and managed by will of majority of

shareholders.

•Wide powers may be misused by majority shareholders to exploit the

minority shareholders.

•Need for balance for the smooth functioning of company

affairs
 RULES OF SUPREMACY OF MAJORITY
RULE IN FOSS v. HARBOTTLE(1843)

•The will of the majority shareholders is supreme and it should prevail

over the minority.

•Court should not interfere with the internal management of

companies so long as company’s activities are within its powers.

•As company is a separate legal entity independent from the members

who compose it. (No lifting of veil till illegality)

•So, if a wrong is done to Co., the company is the proper person to

bring an action for the same.
 Principle of the Rule of Supremacy of Majority

•Where the alleged wrong in a transaction is binding on the company

by a simple majority of members-

•no individual member of the company is allowed to maintain an action

in respect of that matter.

Limitations:

Power of the majority is subject to company’s ‘memorandum of

association’.

Majority’s act must not be inconsistent with the provisions of the

Companies Act or any other law
 PROTECTION OF MINORITY UNDER THE COMPANIES ACT

Right to apply to the Company Law Board/ National Company Law

Tribunal ( Now )for the investigation of company’s affairs [Sections
235, 236]

•Right to apply to the court if not satisfied with the scheme of

reconstruction and amalgamation

•Right to apply to the court for winding up of the company

•Right to apply to the Company Law Board for prevention of

oppression and mismanagement
 Prevention of Oppression and Mismanagement

•Remedies are available to minority where majority indulges

in oppression or mismanagement But

•Complaining member must show that

• he/she is suffering from oppression in his capacity as

member and not in any other capacity and

•oppressions is of continuing nature

 Acts held to be oppressive by the Courts/CLB

(i) not calling a general meeting and keeping shareholders

in dark

(ii) non-maintenance of statutory records

(iii) not conducting affairs of company in accordance with

the companies Act

(iii) depriving a member of his right to dividend

(iv) transfer of shares to selected shareholders rather than

making an offer to all.
(v) allotment of shares in a manner by which an existing
majority of shareholders is reduced to a minority

(vi) continuous refusal by company to register shares with an

ulterior motive of retaining control over affairs of company

(vii) countermanding/overcoming the decision of Board by a

director who controls majority voting power and thus not
allowing Board to perform its functions
• (x) sale of assets to directors simultaneously giving
them loan to purchase the same

• (xi) refusal to register transmission under will

• (xii) issue of further shares benefiting a section

of shareholders

• (xiii) registration of transfer of shares in violation

of articles
 Sec 398
CLB is empowered
to grant relief in cases of mismanagement

•When CLB is of the opinion that

• affairs of company are being conducted/ likely to be

conducted in a manner prejudicial to the public interest or
interests of the company

•CLB can take necessary action to grant relief

 Acts amounting to mismanagement are :

• Serious infighting between directors,

•illegal constitution of the Board of directors,
• gross neglect of interest of company by sale of its assets,
•diversion of funds to benefit majority, operation of bank
account by an unauthorized person,
• continuing in office of managing director after expiry of
their term
To end oppression and mismanagement

CLB has been empowered to grant certain specific relief

which include:

(i) regulation of conduct of company’s affairs in future

(ii) order to purchase shares of any member by other members

or by company and permission to reduce its share capital
• (iii) termination/modification of any agreement
between company and MD /director/manager and
third person,

• (iv) set aside any transfer of property, delivery of

goods, payment of goods and other act relating to
property,

• Central Govt. may nominate a Board of Directors

to prevent oppression and mismanagement
 LEGAL NOTICE
1. DELETE PPTs IMMEDIATELY AFTER USE.

2. DO NOT LEAVE THE PPTs/ CASE STUDIES/ ASSIGNMENT

REPORTS IN PUBLIC DOMAIN.THEY MAY BE MISUSED.

3. DO NOT TRANSFER PPTs / CASE STUDIES/ REPORT OR

INFORM THE INDLAW PASS WORD TO ANY UNAUTHORIZED
USER.

4. CRs MUST DELETE GROUP LAB ASSIGMENT REPORTS AFTER

SUBMISION TO THE PROFESSOR.

5. EACH STUDENT MUST KEEP HIS/HER REPORT TILL FINAL

GRADES ARE ANNOUNCED