COMPANY LAW. Unit- IV:

PAPER-V:

COMPANY LAW.

Unit- IV:

Q.1. Who are Directors? Discuss their legal position, powers, duties, and liabilities under the Companies Act, 2013.

Long Answer:

Introduction: Who are Directors?

Directors are the key managerial personnel who control and manage the affairs of a company. As per Section 2(34) of the Companies Act, 2013, a “Director” means a director appointed to the Board of a company. The Board of Directors (BoD) is the collective body of directors responsible for decision-making and policy formulation.

Legal Position of Directors

The legal position of directors has evolved through statutes and judicial interpretations. A director can be regarded as:

Agent of the Company:
The company being an artificial person acts through its directors. They are agents when they enter into contracts on behalf of the company.
Trustees:
Directors are considered trustees of the company’s money and property and have fiduciary duties toward shareholders.
Officers of the Company:
Under Section 2(59), a director is an “officer” and can be held liable for any default committed under the Act.
Employees (in some cases):
A whole-time director may be treated as an employee, especially when drawing a regular salary.

Powers of Directors (Section 179 to 182)

Under Section 179, the Board of Directors can exercise all such powers as the company is authorized to exercise, subject to provisions in the Act or Articles of Association. Some key powers include:

General Powers:
- To make calls on shareholders for money unpaid on shares.
- To authorize buy-back of securities.
- To borrow money.
- To invest funds.
- To approve financial statements and Board’s report.
Powers with Shareholders’ Approval (Section 180):
- To sell, lease or dispose of the company’s undertaking.
- To borrow money exceeding the paid-up capital and free reserves.
- To remit or give time for the repayment of any debt due from a director.
Power to contribute to charitable funds (Section 181):
Contribution to charitable funds beyond 5% of average net profits requires shareholder approval.
Political Contributions (Section 182):
A company can contribute to political parties within prescribed limits.

Duties of Directors (Section 166)

The Companies Act, 2013 has codified directors’ duties under Section 166, which includes:

Duty to act in good faith:
Act in good faith to promote the objects of the company for the benefit of its members as a whole.
Duty to exercise due care, skill, and diligence:
Use independent judgment while performing duties.
Duty to avoid conflicts of interest:
Directors must avoid situations in which they have a direct or indirect interest that conflicts with the company’s interest.
Duty not to gain undue advantage:
Directors must not derive any undue gain. If done, they are liable to pay an equal amount to the company.
Duty not to assign office:
Directors cannot assign their office to another person.

Violation of these duties makes a director liable for a fine of ₹1,00,000 to ₹5,00,000.

Liabilities of Directors

Directors can be held liable under various circumstances:

1. Contractual Liability:

If directors act beyond their authority or without company authorization, they can be personally liable.

2. Statutory Liability:

Under Companies Act, 2013 and other laws like Income Tax Act, Environmental laws, etc.

3. Civil Liability:

For breach of fiduciary duties or negligence, they can be liable to compensate for losses.

4. Criminal Liability:

For offences such as misstatement in prospectus (Section 34), fraud (Section 447), insider trading, etc.

5. Liability for Misstatement in Prospectus:

If a director authorizes issuance of a misleading prospectus, he is liable to compensate investors (Section 35).

6. Fraudulent Conduct of Business:

Under Section 339, directors involved in fraudulent conduct during company winding up are personally liable.

Conclusion

Directors occupy a central position in corporate governance. The Companies Act, 2013 provides them with vast powers but simultaneously imposes strict duties and liabilities to ensure accountability, transparency, and fairness in corporate operations. Directors must balance their business decisions with legal and ethical standards to protect the interests of the company, shareholders, and stakeholders.

Q.2. Explain the appointment, qualification, disqualification, and removal of Directors under the Companies Act, 2013.

Long Answer:

Introduction

Directors are the managerial personnel responsible for running the company in accordance with the Companies Act, 2013. The Act lays down detailed provisions regarding appointment, qualification, disqualification, and removal of directors to ensure effective corporate governance and accountability.

1. Appointment of Directors

The appointment of directors is governed by Sections 149 to 172 of the Companies Act, 2013.

A. Minimum and Maximum Number of Directors (Section 149):

Type of Company	Minimum Directors	Maximum Directors
Private Company	2	15 (can be more with special resolution)
Public Company	3	15
One Person Company	1	15

B. First Directors (Section 152(1)):

First directors are those mentioned in the Articles of Association.
If not named, then all subscribers to the Memorandum shall be deemed to be first directors.

C. Appointment by Shareholders (Section 152):

Directors are usually appointed in the general meeting by the shareholders through an ordinary resolution.

D. Appointment by Board of Directors:

Additional Directors (Section 161(1)): Appointed by the Board if authorized by the Articles.
Casual Vacancy (Section 161(4)): The Board may fill a vacancy caused by resignation or death of a director appointed in general meeting.
Alternate Director (Section 161(2)): Appointed during absence of a director from India for at least 3 months.

E. Appointment of Independent Directors (Section 149(6) & (7)):

Listed public companies must have at least 1/3rd of the total number of directors as independent directors.
They are appointed by shareholders in the general meeting for a term of up to 5 years.

F. Appointment of Women Director (Section 149(1)):

Certain classes of companies (e.g., listed companies or public companies with paid-up capital ≥ ₹100 crore or turnover ≥ ₹300 crore) must appoint at least one woman director.

2. Qualification of Directors

The Act does not prescribe specific educational qualifications. However, key requirements include:

A director must have a Director Identification Number (DIN) [Section 152(3)].
Must give a written consent to act as director [Section 152(5)].
For independent directors, they must possess appropriate skills, experience, and integrity (Section 149(6)).
Listed companies must ensure that their independent directors are registered with the Independent Directors’ databank and pass a proficiency test unless exempted.

3. Disqualification of Directors (Section 164)

A person is not eligible to be appointed as a director if:

A. General Disqualifications (Section 164(1)):

He is of unsound mind.
He is an undischarged insolvent.
He has applied for insolvency and the application is pending.
He has been convicted of an offence involving moral turpitude and sentenced to imprisonment for ≥ 6 months.
He has not paid any calls on shares held by him.
He has been disqualified by a court or Tribunal.

B. Disqualification due to Defaulting Company (Section 164(2)):

If a person is or was a director in a company which:

Has not filed financial statements or annual returns for 3 continuous financial years, or
Has failed to repay deposits, interest, dividend or redeem debentures for over 1 year, then such person is disqualified from being appointed as a director in any company for 5 years.

4. Removal of Directors

The removal of directors is governed by Section 169 of the Companies Act, 2013.

A. Removal by Shareholders (Section 169(1)):

A company may, by ordinary resolution, remove a director before the expiry of his term (except directors appointed by Tribunal under Section 242 or companies with proportional representation).

Procedure:

Special notice (at least 14 days before the meeting) is required.
The director has the right to be heard at the meeting.
A new director may be appointed in his place at the same meeting.

B. Removal by Tribunal (Section 242):

In cases of oppression and mismanagement, the Tribunal may remove a director.

C. Vacation of Office (Section 167):

A director shall vacate his office in certain cases like:

He incurs disqualification under Section 164.
He absents himself from all board meetings for 12 months.
He is convicted of an offence involving moral turpitude.
He acts in contravention of Section 184 (disclosure of interest).
His appointment is found invalid.

Conclusion

The Companies Act, 2013 provides a comprehensive legal framework for the appointment, qualification, disqualification, and removal of directors to ensure that only capable, ethical, and competent individuals manage the affairs of a company. These provisions strengthen corporate governance and protect the interests of shareholders and other stakeholders.

Q.3. Discuss the role and responsibilities of the Company Secretary and the Manager under the Companies Act, 2013.

Long Answer:

Introduction

The Companies Act, 2013 recognizes Company Secretary and Manager as key managerial personnel (KMPs) who play a crucial role in the governance, compliance, and day-to-day management of the company. Their duties, responsibilities, and liabilities have been clearly defined to ensure smooth functioning and legal compliance in corporate administration.

A. Company Secretary

1. Definition (Section 2(24)):

A Company Secretary means a company secretary as defined under Section 2(1)(c) of the Company Secretaries Act, 1980, who is appointed by a company to perform the functions of a company secretary under the Companies Act, 2013.

2. Applicability of Appointment (Section 203):

Mandatory for every listed company.
Mandatory for other public companies having:
- Paid-up share capital of ₹10 crore or more.

3. Appointment and Qualifications:

Appointed by the Board of Directors through a board resolution.
Must be a member of the Institute of Company Secretaries of India (ICSI).

4. Role and Responsibilities of a Company Secretary

Under Section 205 and various provisions of the Act, the Company Secretary is entrusted with the following functions:

A. Legal Compliance:

Ensure compliance with the provisions of the Companies Act and other applicable laws.
Maintain statutory registers, books, and records as required by law.

B. Secretarial Functions:

Convene Board Meetings, Committee Meetings, and General Meetings.
Prepare notices, agendas, and minutes of meetings.
Advise the Board on secretarial and legal matters.

C. Corporate Governance:

Act as a compliance officer to ensure sound governance practices.
Facilitate proper disclosure and transparency in business operations.

D. Liaisoning:

Act as a link between the company and stakeholders such as:
- Shareholders,
- Government authorities (MCA, SEBI, ROC),
- Regulatory bodies.

E. Certification Duties:

Certify annual returns under Section 92(2).
Issue compliance certificates for various filings.

5. Liabilities of Company Secretary:

Civil and criminal liability for wrong certification, misstatement, or non-compliance.
Penalty for contravention under various sections of the Act (e.g., Section 205(3), Section 92).
May be held liable under SEBI regulations and FEMA.

B. Manager

1. Definition (Section 2(53)):

A Manager is an individual (not necessarily a director) who subject to the superintendence, control, and direction of the Board, has the management of the whole or substantially the whole of the affairs of a company.

2. Appointment (Section 196):

Must be an individual.
Appointed through a resolution by the Board and approved by shareholders in the general meeting.
Can be appointed for a term not exceeding 5 years at a time.

3. Disqualifications (Section 196(3)):

A person cannot be appointed as manager if:

He is below 21 years or above 70 years (unless approved by special resolution).
He is an undischarged insolvent or has been adjudged insolvent.
He has suspended payment to creditors or made a composition with them.
He has been convicted and sentenced for more than 6 months.

4. Role and Responsibilities of a Manager

A. General Management:

Oversee daily operations of the company.
Implement Board decisions and corporate strategies.
Supervise functional heads and monitor performance.

B. Financial and Administrative Control:

Manage the company’s finances, budgets, and internal controls.
Ensure cost-efficiency and profitability.

C. Legal and Regulatory Compliance:

Ensure adherence to laws and regulations governing the company’s business.
Provide timely information and updates to the Board.

D. Reporting:

Report to the Board of Directors regarding operations, risks, and key issues.
Facilitate timely financial disclosures.

5. Distinction between Manager and Managing Director:

Particulars	Manager	Managing Director
Control	Subject to Board’s control	Substantial powers of management
Appointment	Need not be a director	Must be a director
Nature of Role	More administrative	Both strategic and administrative
Governing Provision	Section 2(53) & 196	Section 2(54) & 196

Conclusion

The Company Secretary and the Manager play distinct but equally important roles in the functioning of a company under the Companies Act, 2013. The Company Secretary ensures legal compliance and governance, whereas the Manager is responsible for administrative control and day-to-day business operations. Their accountability and responsibilities are key to maintaining legal sanctity and operational efficiency within the corporate structure.

Q.4. What are the legal provisions relating to meetings of the company? Discuss various types of meetings and their requisites.

Long Answer:

Introduction

Meetings are essential for the internal administration of a company and for decision-making by its members and board. The Companies Act, 2013 lays down comprehensive provisions relating to convening, conducting, and recording meetings of companies to ensure transparency and accountability.

Meetings may be broadly classified into:

Shareholders’ Meetings
Board Meetings
Committee Meetings
Class Meetings

Legal Provisions Relating to Meetings

The provisions for company meetings are contained primarily in:

Sections 96 to 122 (General meetings)
Sections 173 to 175 (Board meetings)
Secretarial Standards (SS-1 and SS-2) issued by the Institute of Company Secretaries of India (ICSI), which are mandatory under Section 118(10).

1. Types of Company Meetings

A. Meetings of Shareholders

(i) Annual General Meeting (AGM) – Section 96

Applicability:
Mandatory for all companies except One Person Companies.

Time Frame:

First AGM: Within 9 months from end of the first financial year (no need if held within that time).
Subsequent AGMs: Within 6 months of end of financial year, but not more than 15 months between two AGMs.

Business Transacted:

Approval of financial statements
Declaration of dividend
Appointment or reappointment of directors and auditors
Review of company performance

(ii) Extraordinary General Meeting (EGM) – Section 100

Called for urgent matters requiring shareholder approval outside the AGM.

Who can call:

Board of Directors
Requisition by members holding 1/10th of paid-up share capital
Tribunal (in specific cases)

Notice: At least 21 clear days notice required.

(iii) Class Meetings – Section 48

Held when rights of a particular class of shareholders (e.g., preference shareholders) are to be varied.

Approval Needed: Special resolution passed by three-fourths of the concerned class.

B. Board Meetings – Section 173

Frequency:

First Board Meeting: Within 30 days of incorporation.
Thereafter:
- Minimum 4 board meetings in a year.
- Gap between two meetings must not exceed 120 days.

Notice:

Minimum 7 days’ notice in writing.
Can be sent by hand delivery, post, or electronic means.

Quorum:

1/3rd of total strength or 2 directors, whichever is higher.

Business Transacted:

Operational and financial decisions
Approval of budgets, investments, borrowings
Appointment of KMPs, etc.

C. Committee Meetings

Companies with specific committees like Audit Committee, Nomination and Remuneration Committee, and CSR Committee must hold regular meetings as per SEBI regulations and Companies Act.

D. Meeting of Creditors or Debenture Holders

Called when their approval is required for schemes like restructuring or compromise under Section 230.

2. Requisites of a Valid Meeting

To ensure the legality and validity of company meetings, the following requisites must be complied with:

A. Proper Authority to Convene:

Only those authorized (Board, requisitionists, Tribunal) can call a meeting.

B. Notice of Meeting – Section 101:

At least 21 clear days’ notice (excluding the day of sending and meeting) must be given.
Must be sent to every member, director, and auditor.
Mode: Hand delivery, post, or electronic mode.
Contents: Date, time, venue, agenda, explanatory statement (if special business).

C. Quorum – Section 103:

Private Company: 2 members personally present.
Public Company:
- 5 members (if total ≤ 1000)
- 15 members (if 1001 to 5000)
- 30 members (if > 5000)

If quorum not present within 30 minutes, the meeting is adjourned to the same time, place and day next week.

D. Chairman of Meeting:

Usually appointed as per Articles.
In Board meetings, usually the Managing Director or person elected by directors.

E. Agenda and Minutes:

Agenda must be circulated in advance.
Minutes of meetings must be recorded, signed, and preserved as per Section 118 and Secretarial Standard-1 and 2.

3. Voting and Resolutions

Types of Resolutions:

Ordinary Resolution: Passed by a simple majority.
Special Resolution: Requires 3/4th majority (at least 75%).

Methods of Voting:

Show of hands
Poll
Electronic voting (for listed companies)
Postal ballot (in specific cases)

Conclusion

Meetings form the backbone of corporate decision-making. The Companies Act, 2013 ensures that meetings are held in a structured and transparent manner with adequate participation, notice, quorum, and proper record-keeping. Understanding the types of meetings and their requisites is essential for ensuring statutory compliance and maintaining good corporate governance.

**Q.5. Examine the rule of majority as laid down in Foss v. Harbottle. What are the exceptions to this rule?**

Long Answer:

Introduction

The rule of majority forms a fundamental principle of corporate governance. It states that the will of the majority of shareholders prevails, and courts will not interfere in internal matters that can be resolved by majority vote. This principle was first laid down in the landmark English case Foss v. Harbottle (1843).

**The Case: Foss v. Harbottle (1843) 67 ER 189**

Facts of the Case:

Two minority shareholders, Foss and Turton, brought an action against the directors of a company alleging that they had misapplied the company’s funds and committed various acts of misconduct.

Judgment:

The court held that:

The company is a separate legal entity.
Only the company itself, and not individual shareholders, can sue for wrongs done to it.
If a majority of shareholders can ratify an act, the court will not interfere at the instance of a minority.

Rule of Majority: Principle from Foss v. Harbottle

The rule states that:

“Where a wrong is alleged to have been done to the company, the proper plaintiff is the company itself, and not individual shareholders.”

Legal Implications:

The internal management of a company is governed by the majority of shareholders.
The courts will not interfere in matters that can be decided by a majority.
Prevents multiplicity of legal proceedings and unnecessary litigation by dissenting minority shareholders.

Rationale Behind the Rule:

Corporate Personality: The company is a legal person distinct from its members.
Avoids Multiplicity of Suits: Prevents numerous suits by individual shareholders.
Democratic Principle: Majority rules in a democracy.
Judicial Non-Intervention: Courts should not interfere in internal matters unless exceptional.

Exceptions to the Rule of Foss v. Harbottle

Although the rule protects majority decisions, it is not absolute. The Companies Act, 2013 and judicial pronouncements recognize certain exceptions where minority shareholders can take action.

1. Ultra Vires and Illegal Acts:

If the act is beyond the powers of the company (ultra vires) or illegal, it cannot be ratified by majority. Minority shareholders can sue to restrain such acts.

Example: Selling all assets of the company without authority.

2. Fraud on the Minority:

Where the majority acts fraudulently or oppresses minority shareholders, the court can intervene.

Example: Misuse of power by majority to divert funds for personal gain.

3. Acts Requiring Special Majority:

If an act is done that legally requires a special resolution, but it is passed by ordinary resolution, it can be challenged.

Example: Alteration of Articles of Association without proper procedure.

4. Infringement of Individual Membership Rights:

If personal rights of shareholders (like voting rights or dividend rights) are violated, individual action is permitted.

Example: Wrongful denial of voting or refusal to register transfer of shares.

5. Oppression and Mismanagement – Sections 241–244 of Companies Act, 2013:

Minority shareholders holding at least 10% shares or 100 members may file an application before the National Company Law Tribunal (NCLT) if:

Company’s affairs are being conducted in an oppressive or prejudicial manner.
There’s mismanagement affecting public interest or members.

6. Derivative Action:

A shareholder may bring a derivative suit on behalf of the company when directors are acting against the company’s interest and the company itself is not taking any action.

Example: Directors entering into contracts with their own companies at inflated prices.

Indian Position

Indian courts and statutory law (Companies Act, 2013) have accepted and incorporated the principles of Foss v. Harbottle along with its exceptions. Provisions for oppression and mismanagement (Sections 241–244) are major statutory exceptions under Indian law.

Conclusion

The rule in Foss v. Harbottle reflects the democratic nature of corporate management, where decisions are governed by majority will. However, to protect minority interests and ensure justice, the law provides exceptions where court intervention is allowed. These exceptions balance the power of the majority with equitable remedies to prevent oppression, illegality, and fraud in company affairs.

Q.6. Explain the rights of minority shareholders under the Companies Act, 2013. How are these rights protected?

Long Answer:

Introduction

In a company, decisions are typically taken based on majority rule, as laid down in Foss v. Harbottle (1843). However, the rights and interests of minority shareholders (those holding a smaller percentage of shares) are not left unprotected. The Companies Act, 2013 provides various statutory rights and remedies to safeguard minority shareholders against oppression, mismanagement, and unfair decisions by the majority.

Who are Minority Shareholders?

There is no precise definition in the Act, but generally, minority shareholders are those who:

Hold less than 50% of the total equity share capital,
Do not have control over the management or decision-making.

In legal provisions, 10% or 1/10th of the total shareholding or membership is often used as a threshold to initiate protective action.

Rights of Minority Shareholders under the Companies Act, 2013

The Act confers several rights to minority shareholders, which can be grouped as follows:

1. Right Against Oppression and Mismanagement (Sections 241–244)

Minority shareholders can file an application to the National Company Law Tribunal (NCLT) if:

The company’s affairs are being conducted in a manner oppressive to any member(s), or
There is mismanagement that is prejudicial to the company or public interest.

Who can apply?

At least 100 members, or
1/10th of total members, or
Any member(s) holding 1/10th of issued share capital.

Remedies:
The NCLT may:

Remove directors,
Restrict transfer or allotment of shares,
Regulate future conduct of company’s affairs,
Order recovery of undue gains from wrongdoers.

2. Right to Approach NCLT in Case of Prejudicial Actions (Section 245 – Class Action Suits)

Minority shareholders can file a class action suit against:

The company,
Directors,
Auditors or consultants,

Grounds include:

Misleading statements in prospectus,
Misconduct by directors,
Fraudulent conduct of business.

This protects the interests of a group of shareholders or depositors.

3. Right to Call Extraordinary General Meeting (Section 100)

Minority shareholders holding at least 10% of paid-up share capital with voting rights can requisition an EGM to discuss important matters if the Board fails to act.

4. Right to Demand Poll (Section 109)

To prevent the domination of the majority through show of hands, minority shareholders holding:

1/10th of voting power, or
Shares of paid-up value of ₹5 lakh or more,
can demand voting by poll, ensuring proportional representation.

5. Right to Apply for Investigation (Sections 210–213)

Minority shareholders holding at least 1/10th of total voting power may apply to the Central Government or NCLT for investigation into company affairs.

6. Right to Dissent in Cases of Variation of Shareholder Rights (Section 48)

When rights of a class of shareholders are proposed to be varied, minority shareholders holding 10% or more of that class can challenge the decision in the Tribunal within 21 days.

7. Right to Receive Notice, Attend and Vote in Meetings (Sections 101–107)

Every shareholder, regardless of shareholding size, has the right to:

Receive notice of general meetings,
Attend and vote in meetings,
Speak on matters affecting their interests.

8. Right to Receive Dividend and Financial Statements (Sections 123, 136)

Minority shareholders are entitled to:

Timely payment of declared dividend,
Copies of financial statements, Board’s report, and auditor’s report before the AGM.

9. Right to Apply for Relief in Cases of Fraud (Section 447)

If the minority suffers loss due to fraud by company officers, they can seek compensation under Section 447, which penalizes fraudulent conduct with imprisonment and fine.

How Are These Rights Protected?

1. Statutory Remedies under the Companies Act, 2013

Legal rights under Sections 241 to 245, 210 to 213, etc.
Ability to seek redressal before NCLT, SEBI, or High Courts in appropriate cases.

2. Regulatory Oversight by SEBI

For listed companies, SEBI regulations provide additional protection to small shareholders through:
- Disclosure obligations,
- Voting by postal ballot,
- Insider trading restrictions.

3. Role of Tribunal (NCLT) and Appellate Tribunal (NCLAT)

Empowered to provide binding remedies,
Fast-track redressal of grievances involving oppression or mismanagement.

4. Secretarial Standards (SS-1 and SS-2)

Ensure transparent procedures for Board and general meetings,
Guarantee fair treatment in communication and participation.

Conclusion

The Companies Act, 2013 recognizes the importance of protecting minority shareholders from oppression, fraud, and mismanagement by the majority. By providing specific rights and statutory remedies, including class actions, NCLT petitions, and investigations, the Act ensures a balanced and democratic corporate environment. Thus, minority shareholders are empowered to safeguard their interests and participate meaningfully in the governance of the company.

Q.7. What is meant by Oppression and Mismanagement? Explain the remedies available to shareholders under the Companies Act, 2013.

Long Answer:

Introduction

In a company, powers are generally exercised by the majority of shareholders and the Board of Directors. However, the law ensures that these powers are not exercised in a manner oppressive or prejudicial to minority shareholders or the interests of the company. The Companies Act, 2013 provides for relief in cases of oppression and mismanagement under Sections 241 to 246.

These provisions allow shareholders to approach the National Company Law Tribunal (NCLT) to seek protection and corrective measures when the affairs of the company are conducted in a manner that is unfair, unjust, or detrimental to their interests.

Meaning of Oppression and Mismanagement

1. Oppression

The term oppression is not specifically defined in the Act, but judicial interpretation suggests that it means:

“A visible departure from the standards of fair dealing and a violation of conditions of fair play on which every shareholder is entitled to rely.” – Needle Industries v. Needle Industries Newey (India) Ltd.

It generally includes:

Harsh, unjust, or burdensome treatment of minority shareholders,
Abuse of power by the majority to further their own interests,
Denial of legitimate expectations of members.

📌 Examples:

Issuing shares only to majority to dilute minority stake,
Denial of dividends despite adequate profits,
Wrongful removal of minority directors.

2. Mismanagement

Mismanagement implies inefficient, dishonest, negligent or reckless management of company affairs, which may cause harm to the company or public interest.

📌 Examples:

Misapplication or siphoning of company funds,
Persistent losses due to mismanagement,
Failure to maintain financial records,
Breach of legal obligations.

Remedies Available Under the Companies Act, 2013

The Companies Act, 2013 provides detailed remedies to shareholders under Sections 241 to 246.

✅ 1. Application to NCLT (Section 241)

Any member can apply to the National Company Law Tribunal (NCLT) if:

The affairs of the company are conducted in a manner oppressive to any member(s), or
There is mismanagement that is prejudicial to the company or public interest.

✅ 2. Eligibility to Apply (Section 244)

Only members meeting the following criteria can apply:

Company Type	Who Can Apply
Company with Share Capital	– At least 100 members, or – At least 1/10th of total members, or – Members holding at least 10% of issued share capital.
Company without Share Capital	Not less than 1/5th of total number of members.

The Tribunal may waive these requirements in suitable cases.

✅ 3. Powers of Tribunal (Section 242)

If the Tribunal finds oppression or mismanagement, it may pass any order it thinks fit, including:

Regulation of company’s future affairs.
Removal of directors or officers.
Order to recover undue gains from wrongdoers.
Cancellation or modification of contracts with directors or related parties.
Order directing majority to purchase minority shares.

✅ 4. Consequences of Termination (Section 243)

If the Tribunal cancels the appointment of any managerial personnel due to oppressive or prejudicial conduct:

They are not entitled to compensation or damages.
They are disqualified from holding office for a specified period.

✅ 5. Class Action (Section 245)

A group of shareholders or depositors can collectively file a class action if:

The conduct of the company is prejudicial to their interests,
They seek compensation from directors, auditors, or advisors for fraud, misrepresentation, or negligence.

✅ 6. Investigation into Company Affairs (Sections 210–213)

Members holding 10% of voting power can apply to the Central Government or NCLT for investigation into the affairs of the company if:

There is suspicion of fraud or misconduct,
Business is carried on for fraudulent or unlawful purposes.

Judicial Interpretation

🧷 Needle Industries v. Needle Industries Newey (India) Ltd.

The court held that acts which are unjust, unfair, or violate shareholder expectations amount to oppression.

🧷 Shanti Prasad Jain v. Kalinga Tubes Ltd.

Oppression must involve a continuous course of conduct which is burdensome, harsh, and wrongful.

Conclusion

The Companies Act, 2013 empowers shareholders, particularly minority shareholders, to challenge oppression and mismanagement through a structured legal mechanism. By allowing access to the NCLT and providing a range of remedial powers, the Act ensures that corporate power is not abused and that equity, fairness, and transparency are maintained in company affairs. These provisions uphold the principle of corporate democracy while protecting minority interests.

Q.8. Discuss the powers of the majority and the limitations imposed on them to protect minority shareholders.

Long Answer:

Introduction

In company law, the majority rule is a fundamental principle which enables the shareholders holding a majority of shares to control the affairs and decisions of the company. This principle was firmly established in the case of Foss v. Harbottle (1843), which held that the will of the majority prevails in matters of internal management.

However, absolute power can lead to abuse, oppression, or mismanagement, particularly against minority shareholders. To strike a balance between majority control and minority protection, the Companies Act, 2013 imposes several legal limitations on the powers of the majority.

I. Powers of the Majority

1. Voting Power in General Meetings

The majority shareholders can approve or reject resolutions on various matters including:
- Appointment and removal of directors,
- Approval of financial statements,
- Declaration of dividends,
- Alteration of Memorandum and Articles.

2. Control Over the Board

Majority shareholders have indirect control over the Board of Directors through:
- Election of directors,
- Removal of directors by ordinary resolution (Section 169),
- Influencing strategic decisions.

3. Alteration of Articles of Association (Section 14)

Articles can be altered by passing a special resolution (75% majority), allowing the majority to regulate internal management.

4. Power to Call and Conduct Meetings

Through their voting strength, majority shareholders can:
- Call Extraordinary General Meetings,
- Demand polls to ensure voting is proportionate.

II. Limitations on Majority Powers to Protect Minority Shareholders

While the majority holds the power, the law places several checks and safeguards to ensure fair treatment of minority shareholders.

1. Oppression and Mismanagement (Sections 241–244)

Minority shareholders can approach the National Company Law Tribunal (NCLT) if the affairs of the company are conducted in a manner:

Oppressive to any member(s),
Prejudicial to the interests of the company or the public.

✅ Remedies:

Regulation of company affairs,
Removal of directors,
Order to buy out minority shareholders.

2. Class Action Suits (Section 245)

Minority shareholders can file a class action suit against:

The company,
Directors,
Auditors or advisors,

on grounds of:

Fraud,
Misstatement,
Prejudicial conduct.

✅ Impact: This enables collective redressal of grievances and discourages wrongful acts by the majority.

3. Ultra Vires and Illegal Acts

The majority cannot legalize an act that is:

Beyond the powers of the company (ultra vires the Memorandum),
Contrary to law or public policy.

✅ Such acts are void, and minority shareholders can challenge them in court.

4. Acts Requiring Special Resolution

Certain key decisions require special resolutions (75% approval), ensuring that:

Minority views are considered,
Arbitrary actions by simple majority are prevented.

📌 Examples:

Alteration of capital structure,
Changing the registered office across states,
Voluntary winding up.

5. Infringement of Individual Rights

Even a single shareholder can challenge actions that violate individual statutory or contractual rights, such as:

Right to vote,
Right to receive dividends,
Right to inspect records.

✅ These rights are non-negotiable and cannot be overridden by majority decision.

6. Investigation into Company Affairs (Sections 210–213)

Minority shareholders holding 10% of voting power can request the Central Government or Tribunal to initiate an investigation into affairs of the company in cases of suspected:

Fraud,
Mismanagement,
Oppression.

7. Requirement of Fair Valuation and Transparency

In cases of forced acquisition of minority shares (like under Section 236 – Purchase of minority shareholding), the law requires:

Fair valuation by registered valuer,
Transparency in disclosures, especially in related party transactions.

8. SEBI Regulations (For Listed Companies)

The Securities and Exchange Board of India (SEBI) mandates additional protections:

Disclosure of material facts,
Related-party transactions to be approved by disinterested shareholders,
Minority shareholders’ approval in mergers/demergers.

Case Law Support

Foss v. Harbottle (1843)

Established the rule that the majority’s decision prevails, and courts do not interfere in internal matters.

Needle Industries v. Needle Industries Newey (1981)

The Supreme Court of India held that acts which are legal but unjust or oppressive can be challenged by minority shareholders.

Shanti Prasad Jain v. Kalinga Tubes Ltd.

Oppression must be a continuous and harsh conduct, not merely one illegal act.

Conclusion

The majority shareholders enjoy significant powers in corporate decision-making, but the Companies Act, 2013 and judicial precedents have ensured that these powers are not absolute. By recognizing rights like class actions, protection from oppression, investigation into mismanagement, and fair valuation, the law provides a balanced framework where minority shareholders are protected and corporate democracy is upheld. Thus, the law maintains equity, fairness, and accountability within corporate governance.