Majority Rule Principle
As a general rule when a particular motion has been passed and accepted by simple majority, the court ought not to interfere with the decision so taken by the majority. Justification for the non interference of the court lies on following grounds of “Corporation Principle”. Corporation Principle recognizes that the corporate is separate legal entity and thus any injury caused to corporation, only proper plaintiff for the same would be corporation itself. This rule was recognised in Foss v Harbottle [(1843) 67 ER 189].
Exception to Majority Rule
Such a rule favouring majority in all circumstances is dangerous in nature, it would allow majority to perpetuate any harm whatsoever it wants, even at the cost of minority. Further the minority might be barred from taking action on corporations behalf. Such idea by its very virtue and further implications ignores the fact that every shareholder by virtue of share has interest in the company, and management ought to protect that interest. thus various exceptions from this rules were drawn with time, which includes illegal and ultra vires act, act amounting fraud on minority, infringement of right members, and many others.[1]
Indian Scenario
Minority Shareholders can approach the court against the oppressive practice of majority shareholders, under the S 241 and 242 of the Companies Act, 2013. These provisions are similar to the provision u/s 397 and 402 of Companies Act 1956, which was in turn modelled around the S 210 of the English Companies Act, 1948. While the Companies Act provide for wider scope for filling the complaint, by also allowing the Minority to even pre-emptively apply for the remedy. Thus a injury does not actually need to subsist, but if court could be convinced that the action so proposed to be taken will lead to injury to the shareholders, the same can be prevented from happening at first place.[2]
Oppression- Definition
In Needle Industries Ltd. [AIR 1981 SC 1298] case the Hon’ble Supreme Court clarified the scope of word “oppression” for the purposes of Companies act, while doing so it heavily relied on the definition as propounded in Scottish Cooperative Ltd.[1954 SC 381.] Court defined that when operation of the company are conducted in a manner which lack probity and fair dealing, and are prejudicial to the particular group of members. Thus it gave the court wide amplitude of power while dealing with such situations, to reach equitable ground. Further court clarified that if the complaint is only because of management being inefficient that won’t fall within the purview of oppression, even if it causes certain degree of harm to particular group of members.
Test for Oppression
For the purposes of showing that the conduct of majority was oppressive on minority one isolated even might not be sufficient, what is required to be shown is that the such conduct was continuous in nature. Further it is also required to be shown that not only such conduct was regular but also such conduct was harsh, burdensome, and wrong. Thus differentiating oppressive conduct from merely lack of confidence between majority and minority, and setting higher standard for the same. It is also further required that the propriety rights of the minority are being harmed in manner, which lack probity and fair dealing. It was held by Supreme Court of India in Shanti Prasad Jain v Kaliga Tubes [(1965) 35 Com cases 351].
The requirement of the act of oppression by majority on minority being continuous has been introduced by judicial pronouncement, though courts have not abrogated their jurisdiction to entertain petition when the conduct complained of oppressive though not continuous in nature. The courts have though categorically denied relief in case of conduct merely being inefficient, unwise or even careless on part of directors or key managerial personals. The onus of proving the oppression lies on the applicant only.
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[1] Surya Bhansingh, Deals with the Oppression and Mismanagement and its prevention under Company Law, Legal Service India, http://www.legalservicesindia.com/article/125/Oppression-&-Mismanagement.html (last accessed Oct 18, 2018).
[2] Sanchari Debnath, OPPRESSION OF MAJORITY BY MINORITY SHAREHOLDERS, 8th August 2013, Sashwaat Society of Research & Education, http://www.researchatsashwaat.com/display_article.php?article=NjU= (last viewed Oct 18, 2018)