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When making decisions concerning a company, the interests of the majority of shareholders are typically taken into account. All decisions, whether monetary or managerial, are made by majority vote. The majority’s decisions are regarded as being equitable, fair, and advantageous to the company. However, the opinions of minority shareholders are not always taken into account. Employee rights and interests are routinely ignored since they have little say in how the company operates. The corporate world works to maintain a balance between effective and efficient control over the company by safeguarding the interests of minority shareholders.
A company can only succeed if all its employees respect one another’s opinions and methods while collaborating to achieve a common objective. The rights and interests of the minority owners can occasionally be taken over by the majority shareholders, which can result in biased management within the company. The Companies Act, 2013 protects the rights and interests of minority shareholders. The laws established to protect the interests of minority shareholders are meant to make sure that corporations exercise their power in a way that is consistent with natural justice and fair play principles.
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Minority shareholders have recourse rights for oppression and mismanagement under Sections 397 and 398 of the Companies Act 1956. Under this Act, the Company Law Board was the authorized authority to deal with these problems, and the Central Government had the ability to waive qualifying restrictions in specific circumstances. However, the NCLT is the authorising body under Companies Act, 2013 and has the discretion to waive qualifying conditions in particular cases. Section 242 grants it additional rights. Class action litigation has benefited management in making more informed decisions, therefore improving protection for all classes of shareholders. This clause is included in Chapter XVI of CA, 2013 “Preventions and Oppression of Management”, under Section 241 – 246.
An individual who holds a minority stake in a corporation is one who has limited influence over how the firm is run. The rule of the majority, which states that whoever has majority shares in the business regulates its affairs, was established by the Companies Act, 1956. In the Companies Act, 2013, this premise was changed by giving some authority and influence on minority shareholders.
In the case of “VN Bhajekar v. KM Shinkar”, the court determined that the few minority shareholders with limited power are not permitted to initiate a lawsuit seeking the court to become involved in decisions about the company’s management. These rules were put in place to safeguard the interests of minority shareholders and to inform them of those rights. The Companies Act 2013 was introduced to address these issues.
The majority shareholders, who possess the majority of the company’s power and influence, frequently violate the rights of minority shareholders out of greed. As a result, the company’s finances may be diverted, profits may be reinvested, and minority shareholder’s payouts may be delayed. Although the majority owners owe the minority shareholders fiduciary responsibilities to pay their returns honestly and loyally, they disobey these obligations by raising their own wages or selling only the company’s stocks that are advantageous to them. So that their rights and interests in the firm are not disregarded.Minority shareholders need a legal framework forwhen the business fails, they have a right to receive a refund.
A minority shareholder may, under exceptional circumstances, petition the court based on actions that constitute unfair prejudice. There is no specific law that defines “unfair prejudice”. The word unfair indicates “wrong”, whereas prejudice refers to any damage caused to a person’s legal rights or claims. The court has the authority to investigate unfair prejudice in cases:
A minority shareholder has the right to file a lawsuit for unfair prejudice. If the court decides that anything is unfair and biased, they can:
2. Oppression and mismanagement
These are two terms used to describe the unjust or unfair use of authority in a company. Oppression is when the matters of the company are decided unfairly or in a manner unfair to any member, Examples of oppression include:
While mismanagement is when the matter of the company is done in a manner prejudicial to the interests of any member. Mismanagement includes:
The National Company Law Tribunal (NCLT) is a special tribunal established by the Companies Act 2013 to defend the interests of minority shareholders. The Supreme Court established this body to address matters involving the firm. Sections 241 to 246 deal with the company’s unfair prejudice, oppression, and mismanagement.
2. Section 242:If a petition is submitted in accordance with section 241, section 242 describes the tribunal’s authority. The following authorities belong to the tribunal:
Thus, Modern corporate law has established remedies for minority shareholders who are experiencing discrimination due to ownership of shares or voting rights. Minority shareholders now have the voice to speak out against discrimination, oppression, and mismanagement of the company’s operations. The company’s management committees will be more cautious in handling internal concerns as a result of the implementation of this new legislation. To achieve the company’s objectives, each employee must collaborate while respecting each other’s interests and opinions.
Read our Article: Recent development in Minority Shareholding in Demat Account
Kiran is a multi-talented individual currently pursuing her final year of BBALLB at Chandigarh University. In addition to her studies, Kiran is also a dedicated legal content writer and researcher. She has a keen interest in the legal writing and is committed to using her knowledge and skills to produce informative and insightful content.
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