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Majority Powers and Minority Rights

This document discusses several cases related to the rights of minority shareholders and duties of majority shareholders in companies. It establishes that courts will intervene to protect minority shareholders from fraudulent actions by the majority that discriminate against the minority or benefit the majority at the expense of the minority. The majority must exercise their powers in good faith for the benefit of the whole company. Individual shareholders also have personal rights against the company and other shareholders that can be enforced in court. Courts may also allow actions against wrongdoers on behalf of a company if the controlling shareholders prevent such actions.

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Nishita Arora
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944 views2 pages

Majority Powers and Minority Rights

This document discusses several cases related to the rights of minority shareholders and duties of majority shareholders in companies. It establishes that courts will intervene to protect minority shareholders from fraudulent actions by the majority that discriminate against the minority or benefit the majority at the expense of the minority. The majority must exercise their powers in good faith for the benefit of the whole company. Individual shareholders also have personal rights against the company and other shareholders that can be enforced in court. Courts may also allow actions against wrongdoers on behalf of a company if the controlling shareholders prevent such actions.

Uploaded by

Nishita Arora
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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# Lowey v.

Fahey
Where it was proved that the funds of the company were diverted to extraneous purposes, it
was held that the court had jurisdiction to pass an order for repayment to the company not
only against the guilty members and directors but also against third persons who had
knowingly received such money or improperly assisted the wrongful diversion.
2. FRAUD ON MINORITY
The conduct of the majority of shareholders can also be impeached if it constitutes a fraud on
minority (means a discriminatory action).
# Greenhalgh v. Arderne Cinemas Ltd.
“a special resolution would be liable to be impeached if the effect of it were to discriminate
b/w the majority shareholders and minority shareholders, so as to give the former an
advantage of which the latter was deprived”.
#Menier v. Hooper’s Telegraph Works.
2 Companies- A&B were rivals. Majority of the members of Company A were also members
of Company B.......unfavourable to company A.
Held:- in an action by the minority, the resolution was held invalid.
Thus, the court will interfere to protect the minority where the majority of a company propose
to benefit themselves at the expense of the minority.
Majority powers must be exercised in good faith for the benefit of the company as a whole. If
they have not been so exercised, there is a fraud on the minority.
3. ACTS REQUIRING SPECIAL MAJORITY
If the majority purports to do any act (which can only be done by a special majority) by
passing only an ordinary resolution or without passing special resolution in the manner
required by law, any member or members can bring an action to restrain the majority. Such
actions were allowed in Dhakeshwari Cotton Mills v.Nil Kamal Chakravorty and Nagappa
Chettiar v. Madras Race Club.

4. WRONGDOERS IN CONTROL
When an obvious wrong is done to the company and the controlling shareholders would not
permit an action to be brought against the wrongdoer, to safeguard the interest of the
company, any member or members may bring an action in the name of the company.
# Glass v. Atkin
(Company controlled by 2 defendants and 2 plaintiffs- action arose alleging the 2 defendants
had fraudulently converted the company’s assets to their own use)
Held:- While the general principle was for the company itself to bring an action where it had
an interest, it was appropriate for the two plaintiffs here to bring an action on behalf of the
company since the two defendants controlled the company in the sense that they could
prevent the company from taking action.
Control for this purpose means majority control.
It has now been recognised that control can be
exercised without majority power.
5. INDIVIDUAL MEMBERSHIP RIGHTS
Every shareholder has certain personal rights against the company and his co-shareholders.
These rights are conferred upon the shareholders by the act or the AOA of the company.
These are commonly known as ‘individual membership rights’.
# Nagappa Chettiar v. Madras Race Club.
a shareholder is entitled to enforce his individual rights against the company, such as his right
to vote, the right to have his vote recorded, or his right to stand as a director of the company
at an election.
# Karus v. Lloyd property Ltd.
A director refused to retire in accordance with the articles and invalidly continued in office.
The plaintiff shareholder was held entitled to bring an action on the ground that “the
individual rights of the plaintiff as a member have been invaded”.
6. OPPRESSION AND MISMANAGEMENT
# Kanika Mukherjee v. Rameshwar Dayal Dubey
The principle of the sections embodied in the companies act which provide for prevention of
oppression and mismanagement, is an exception to the rule in Foss v. Harbottle which lays
down the sanctity of the majority rule.

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