Safeguarding Interests of Minority Shareholders

Abstract

Though corporate law has majoritarian character yet it always made strides to protect minority shareholders.1 It is believed that its principles were and still are directed primarily toward the protection of the property interests of minority shareholders.2 The paradigm shift from the perception of applicability of democratic governance in managing the companies occurred when Foss v. Harbottle placed emphasis on the rights of minority shareholders against oppression and mismanagement in companies.3 Though the protection against oppression and mismanagement was also provided by the erstwhile Companies Act, 1956,4 provisions are believed to have evolved into a valuable tool for minority shareholders under the Companies Act, 2013.5 Recent concerns raised by companies and their management over the presence of short-term shareholders in the companies also requires a relook for safeguarding interests of minority shareholders. In this background, the author will discuss the provisions of the Companies Act, 2013 that are meant to safeguard interests of minority shareholders and analyse oppression and mismanagement cases filed after enforcement of Companies Act, 2013 before the Principal Bench and Mumbai Bench of NCLT. While applications on different issues have been entertained by NCLT, the paper seeks to analyse whether relevant provisions of the Companies Act have sufficiently empowered minority shareholders to seek required relief. The author will also discuss the impact of short-term investments on minority shareholders in companies in India. Balancing the rights of majority and minority shareholders is mandatory for the functioning of the company.6 Balancing the rights and obligations of majority and minority shareholders in companies is the requirement of good corporate governance. The paper will also conclude if such balancing of rights and obligations is ensured by the Companies Act, 2013. Part I of the paper will introduce the topic and Part II will cover relationships between shareholders and reasonable expectations of minority shareholders. Part III of the paper will include discussion on protection of minority shareholders whereas Part IV will look at statutory provisions of the Companies Act dealing with minority protection against oppression and mismanagement as well as other methods to protect their interest. Part V will include the case analysis of cases filed before NCLT principal bench and Mumbai between the period 2016-2024 and the paper will be concluded by Part VI.