Majority and Minority rule under Companies Act by Zainub @LEXCLIQ

Majority and Minority rule depends on shareholding of the members and majority and minority.

In company decisions are taken on majority basis I.e

  1. Simple Majority- Ordinary resolution
  2. Special Majority- Special resolution (3/4)th
  3. In company some shareholders are present whose shares are less in total but it can’t be ignored.

.Majority rule is of company’s management is basically based on Foss vs Harbottle (1843) 67 ER 189 rule.

Two shareholders Richard Foss and Edward Turton took legal action against the promoters and directors of the company alleging that they misapplied the company’s assets and improperly mortgaged the company’s property. Also prayed that defendants might decree to make good to the company losses. Court rejected the claim and held that breach of the duty was from director’s side so company alone could sue. The proper plaintiff is company only not them.

So, the principle of Foss vs Harbottle is applied only when a corporate right of a member is infringed, not when individual right of a member is infringed.

Section 241-246 acts as an exemption to majority rule in case of oppression and mismanagement.

Section 241 talks about application to Tribunal for relief in cases of Oppression-

That any member of a company who complains that-

  1. If there are any affairs or act which is prejudicial to public and him, is oppressive to him or any other members of the company,

2Any act which is ultra-vires the company, majority can’t even define it because it is outside the powers of the company, so even 1 member could take action against them.

Ex- Bharat Insurance Co. Ltd vs Kanhaiya Lal

Shareholder complaianed about several investments which were made by the company with inadequate security, which was contrary to the memorandum and therefore seeked for permanent injunction against the company to make any such investments in the future.court held that company’s directors are acting ultra-vires and a single shareholder is eligible to file an action against them.

3At certain point of time they passed ordinary resolution but it needed special resolution according to the general provisions, so it is under mismanagement.

4.Majority takes undue advantage of their position against minority – oppression and mismanagement.

  1. Deliberately delaying in calling of general meeting and keeping shareholders in dark.
  2. Not-maintaining financial or such as minutes of the meeting records
  3. Ulterior motive to retain control, not transferring shares or delay.

Under this case No oppression is there because company and Y and z are acting in behalf of all the members and special resolution was passed to offer the shares to the new persons. Infact, X as a chairman was being oppressive to all other members of the company.

As stated in the case of Rajahmundry Electric Supply Corpn Ltd. v. Nageshwara Rao : it was held by the Court that the facts and circumstances of each case is essential to understand whether there was any oppression or mismanagement according to sec.241.

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