INTRODUCTION:            

The corporate world is based on the concept of shareholders democracy which means the rule of shareholders, by the shareholders, and for the shareholders. So, the democracy of shareholders is all about a right to speak(i.e. attend and vote), congregate(i.e. attending meetings), communicate with co-shareholders, and learn what is going on in the company. It denotes shareholders’ supremacy in governing the business and its affairs.

MAJORITY POWER AND MINORITY RIGHTS:

The general principle of company law is that the exercise of powers and control of affairs of the company is done by majority shareholders. The resolution passed by majority shareholders at a duly convened and held general meeting on a legally competent matter is binding upon the minority and consequently upon the company. But, this rule is subject to certain limitations:

• The powers of the minority are subject to the provisions of memorandum and articles of association;
• The resolution must not be inconsistent with provisions of the Act or any other law, neither it shall constitute a fraud on the minority.

RULE OF SUPREMACY OF MAJORITY:

Generally, in a company, every member has equal rights concerning other members falling within the same class. Since majority members are in an advantageous position they usually run the company according to their command, the minority shareholders are often oppressed. The company law provides minority shareholders with adequate protection in such a case. But an exception is attached to this rule and the protection is not available when the majority shareholders do anything in respect of the internal administration of the company. Thus, the articles are a protective shield for the majority of shareholders. The court will not interfere at the instance of shareholders to protect the minority shareholders, this principle was laid down by the court in the landmark case of Foss v. Harbottle.

In Foss v. Harbottle (1843), the court laid down that court will not intervene in the internal administrative matters of the company at the instance of some shareholders and will not interfere with the management of the company if the directors are acting within the powers conferred on them under the articles. The company is the proper plaintiff to initiate action against any wrong done to it. A corporation cannot assume to himself the right of suing in the name of the corporation.

The principle laid in the case above is not absolute and is subject to certain exceptions. Thus, the majority has its way but the minority has its say. The exceptions are :

(i)Under the common law:

• Ultra vires act: where the majority of shareholders perform ultra vires or illegal acts on behalf of the company then minority shareholders have the right to bring action against them.
• Fraud on minority: An act constitutes fraud on minority where the effect of the act is to discriminate between majority and minority shareholders and majority shareholders are given an advantage over minority shareholders then an action can be brought even by a single shareholder.
• Wrongdoers in control: if the company is in the hands of wrongdoers and controlling shareholders does not allow to bring an action for wrongs committed by them. Then in such case minority shareholders’ action will be entertained by the court.
• Personal actions: If the personal rights of the minority are invaded by majority shareholders like the right to vote then an individual shareholder can enforce his rights against the majority.

(ii) Under the provisions of Companies Act:

• Transfer and transmission of securities(section 56);
• Prevention of oppression and mismanagement(section 241 and 242);
• Demand for poll(section 109);
• Rectification of register of members (section 59).

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. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.

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. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.