The minority shareholders may often be in the dark when the acts of the company are carried out without accounting for their interests, which is owed to them by fiduciary duty of directors towards them.^[i] Additionally, attenuating the relief granted to minority shareholders under the Companies Act, 2013, courts have precluded themselves from hearing matters on the internal matters of companies, provided that the companies function under the purview of Articles of Association and the Memorandum of Association.^[ii]

However, the Companies Act, 2013^[iii], the Takeover Regulations, 2011^[iv], the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015^[v] and other such statutory laws in addition to fiduciary obligations,^[vi] have been enacted to defend the interests of the minority shareholders and confirm that they are not being taken advantage of by the majority shareholders.

Nevertheless, since the control is not in the hands of minority shareholders in the company,^[vii] there is very little that they can do once the majority shareholders sell their shares to a third party.^[viii] Tag-along rights vest with the minority shareholders, if stipulated in their shareholder agreement, to safeguard their interests. It gives them the right to take part in a transaction for the selling of shares, put forward by a majority shareholder. Regardless, exiting the company via such options may not be unqualified because tag-along right normally operates on a pro-rata basis.[ix] Hence, minority shareholders are usually not in a place to bargain for tag-along rights or other exit options, to safeguard their interests with an exit right.

The Takeover Regulations, 2011, comes to the rescue of minority shareholders impacted by changes in controlling structure and management due to sale of shares by majority shareholder transfers to a third party to which they have not consented.  

Hence, the legislatures passed Mandatory Takeover Bids (“MTBs”) under the Takeover Regulations, 2011 to prevent the detriment caused to the minority shareholders due to non-consensual change in control.^[x] The basis of this provision of MTBs was stirred by the equality principle between the shareholders.^[xi] Even after being criticized, the provision stressed on the rationale of equitability in the premium acquired through share sale and change in controlling the structure of the company without the assent of the minority shareholders.^[xii] As Professor Andrews noted, “if a controlling shareholder sold his shares, every other shareholder should be given an equal or proportionate opportunity to sell their shares.”^[xiii]

Under the current laws, any party gaining direct (surpassing 25% shareholding in the company) or implicit control over a company, is expected to propose an open offer for buying a supplementary twenty-six per cent shares of the corporation.^[xiv]

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.