In the corporate sector, the majority rule is used to make all democratic
choices and to govern a corporation, which is thought to be equitable and fair.
The majority rule, which governs decision-making, frequently ignores the
opinions of minority stakeholders. A minority shareholder is a member of a
corporation whose interests are neglected and who has little influence on how
the firm is run.
Minority shareholders found themselves unable to exercise their
rights owing to a lack of resources or time, notwithstanding measures made under
the Companies Act of 1956 to protect their interests. Consequently, this led to
the majority dominating the company's management and decision-making processes,
and suppressing the rights of minority shareholders.
Private investments made by investment firms, mutual funds, and other qualifying
investors are known as PIPE (Private Investments in Public Equity) deals. The
corporation sells it for less than the current market worth. The investments may
be made in the listed company's stock, shares, or convertible securities.
Companies at various phases of development need two sorts of financial support:
venture capital and private equity. An investment which a start-up or small
business seeks to launch a novel idea and a fresh entrepreneur is known to as
venture capital. Through venture capital any new private businesses can raise
money which is unable to raise from the public sector.
A capital investment made
by companies or private in a company which is not public is known as Private
Equity. These investors or companies either purchase stock in private held
companies or gain approval from publicly traded companies to take them private
and simply remove from stock markets.
Who are Minority shareholders?
The equal treatment of all shareholders must be protected through the corporate
governance structure. Equity holders who hold ownership of less than 50% of the
company's equity capital and do not have voting or management powers are
minority shareholders. Due to this it gives a boost to the Rule of Majority by
making it more challenging for such shareholders to participate in the
The Rule of Majority was first established in the Foss
[i] case and is founded on the core idea of corporate democracy,
which holds that the majority will decide what is best for the company and there
could not be any court intervention.
The MCA established an Expert Committee in
2004 to revise the Companies Act of 1956's current provisions.[ii] The Expert
Committee's report, which was submitted in 2005 and included a number of topics,
included safeguarding the rights of minority owners. J.J. Irani served as the
chair of the committee, which stressed the necessity to strike a balance between
the interests of controlled and minority shareholders.[iii]
236[iv] of the Companies Act, 2013 'minority shareholding' implicit shareholders
holding not more than 10% of the shares of the company. The Companies Act of
1956 has no specifically mention of "minority shareholders".[v]
Raising Voice Against Controlling Shareholders
In order to affect the desired change in a company's management or decisions,
shareholders engage in a series of energetic actions. Shareholders invest
strategically in businesses because they want to see a particular return on
their money. However, occasionally, the company's choices might place the
business in an unpleasant situation, making it inappropriate for shareholders to
maintain their investment positions.
In such circumstances, shareholders may
take specific active measures to safeguard and advance their interests, signalling their transition from dormant to active investors. In India, there
have been numerous recent cases when minority shareholders have used their
authority to affect management choices in ways they wished.[vi]
Few important Rights of Minority Shareholders:
- Right of Requisition:
Section 100[vii] of the Companies Act, 2013 provides
that shareholders holding at least 10% of the company's voting rights[viii] can
summon a requisition notice to the company Board of Directors for shareholder's
meeting and if the Board fails to convene a shareholder's meeting after
receiving a requisition, then the shareholders themselves can hold the meeting.
- Protection against Mismanagement and Oppression:
If the affairs of the
company are being operated in a way that is detrimental to the interest of the
public or company, or its affairs are tyrannical towards any member of the
company then the shareholders of a company can proceed to the National Company
Law Tribunal (NCLT) under Section 241[ix] and 244[x] of the Companies Act, 2013.
- Right of instituting of the Class Action Suits:
If the shareholders of a
corporation believe that the management affairs of a company are being handled
in a way that is harmful to the interests of the firm or its members, they may
file a class action lawsuit under Section 245[xi] of the Companies Act, 2013 and
request damages or compensation.
- Cancellation of variation of the rights:
If Shareholders holding 10% of the
issued shares of a class did not consent to any variation of the right
associated with their shares, then they can approach to the National Company Law
Tribunal (NCLT) under Section 48[xii] of the Companies Act, 2013.
- Shareholders holding shares in publicly listed companies have extra
rights under the Companies Act, 2013 and the regulations enacted by the
Securities and Exchange Board of India (SEBI), including the following:
- In the Companies Act, 2013 independent directors' duties and appointment are
outlined when taken together with the SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2015 (LODR Regulations). Independent directors are
expressly required to protect the interests of minority shareholders under
Schedule IV of the Act, which lays out their code of conduct.
- Any change to a company's articles of incorporation, any transfer of an
undertaking by a public company, any borrowing in excess of the established
limitations and on a preferential basis any issuing of shares all require
special resolutions under the Act when read with the LODR Regulations.
- A listed entity is required to uphold certain shareholder rights under
Regulation 4(2)(a) and 4(2)(c) of LODR Regulations including:
- Participation right and be adequately informed of corporate change
- Fully participate and cast a vote at shareholder meetings
- Minority shareholders to be shielded from unfair treatment by majority
shareholders or acting on their behalf.
- Ensures that all shareholders, including foreign and minority
shareholders, are treated fairly
A certain number of small shareholders who own shares with a maximum face value
of ₹20,000 of a company which is listed are allowed to appoint a Director to the
board of the listed company under Section 151 of the Act.
The Zee Entertainment Enterprises Limited-Invesco Developing Markets Fund Conflict
In recent time in the matter of Invesco Developing Markets Fund v. Zee
Entertainment Enterprises Limited
[xiii] the Bombay High Court's Division bench
on March 22, 2022 accepted the appeal filed by Invesco Developing Markets Fund
against its judgement of Single Judge Bench dated 26 October.
In order to
prevent Invesco Developing Markets Fund from convening an extraordinary general
meeting (EGM) of Zee Entertainment Enterprises Limited, the Bombay High Court's
Single Judge Bench decided on the side of Zee Entertainment Enterprises Limited
(Zee). Investor shareholders in India are relieved by this ruling since it
reinstates a shareholder's fundamental right to call an EGM to alter the make-up
of a company's board of directors.
Invesco Developing Markets Fund, Zee's
largest shareholders and owners of a 17.88% equity holding, submitted a request
for the convening of an Extraordinary general meeting (EGM) on September 11,
2021, in complaint with Section 100(2)(a) of the Companies Act, 2013. The
Requisition requested the removal of the CEO from the Zee Board and the
appointment of six independent directors.
Zee argued that the planned
Requisition breached the law of India and hence should not be used to justify
convening the Extraordinary General Meeting (EGM). Regarding this claim, Zee
Entertainment Enterprises Limited denied calling the scheduled Extraordinary
General Meeting (EGM), and at the same time, the Zee Entertainment Enterprises
Limited filed a suit before the Bombay High Court asking for the Requisition to
be declared void, unlawful, and contrary to the law.
By ruling dated October 26,
2021[xiv], the Bombay High Court's Single Judge-Bench granted an injunction in
Zee Entertainment Enterprises Limited favour and prohibited the Invesco
Developing Markets Fund from acting in accordance with the Requisition,
including calling or convening the Extraordinary General Meeting (EGM). Then
annoyed by this choice, Invesco Developing Markets Fund appealed, and the Bombay
High Court Division Bench ultimately decided to grant their request in a ruling
dated March 22, 2022.[xv]
After digging in the Companies Act, 2013 it is clear that the legislation's main
aim is to protect the interest of minority shareholders but it is necessary to
have a greater awareness of the regulatory environment to interpret these
instruments in a meaningful way and that their precious rights be given the
respect they deserve. Law is plain and clear which asserts that a shareholder
has a right to call for requisition meeting under Section 100 of the Companies
If it the fulfils the procedural and numerical regulation and if the
board rejects the requests for reasons other than listed under Section 100 of
the Act then the shareholder has the right, under Section 100(2)(a) of the Act
to convene the meeting without the directors in twenty-one days. Zee
Entertainment Enterprises Limited made an offer to amalgamate with Sony Pictures
Networks Private Limited although the dispute continued to be in progress.
Despite the Bombay High Court's judgement, Invesco chose not to use its right to
requisition a shareholders' meeting but rather sold some of its shareholding in
Zee Entertainment Enterprises Limited. It seems that systemic deferrals can
create concerns for minority shareholders trying to quickly and effectively
assert their statutory rights. However, the Companies Act, 2013 has taken a
number of important measures to safeguard the interests of minority
shareholders' rights in the company, regardless of the existence of oppression
and poor management that influence those rights.
-  67 ER 189
- Ministry of Corporate Affairs, "Report of the Expert Committee on
Company Law" (May, 2005).
- Companies Act, 2013, Section 236
- Companies Act, 2013, Section 100
- Companies Act, 2013, Section 241
- Companies Act, 2013, Section 244
- Companies Act, 2013, Section 245
- Companies Act, 2013, Section 48
- Appeal (L) No. 25420 of 2021 in IA (L) No. 22525 of 2021 in Suit (L) No.
22522 of 2021 with IA (L) No. 25423 of 2021
- Zee Entertainment Enterprises Limited v. Invesco Developing Markets Fund
 229 CompCas 540 (Bom)
- Tushar Jain and
- Jashn Sethi
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