CS Professional:Resolution of Corporate Disputes,Non-Compliances & Remedies [Ch-1 Shareholder's Democracy]

all shareholders have a right to speak,congregate,communicate with co-shareholders and to learn about what is going on in the company. members are only passive investors instead of being active participants; still the directors are answerable to all shareholders.

BUSINESS THAT CAN BE TRANSACTED AT SHAREHOLDER MEETINGS

1. Alteration of Memorandum of Association and Articles of Association. 
2. Further issue of share capital. 
3. Transfer a portion of uncalled capital to reserve capital to be called up only in the event of winding up of the company.
4. Reduce the share capital of the company.
5. Shift the registered office of the company outside the state in which the registered office is situated at present.
6. Decide a place other than the registered office of the company where the statutory books, required to be maintained may be kept.
7. Payment of interest on paid-up amount of share capital for defraying the expenses on Construction when plant cannot be commissioned for a longer period of time.
8. Appoint auditors
9. Approach Central Government for investigation into the affairs of the company
10. Allow Related Party Transaction
11. Allow a director, partner or his relative to hold office or place of profit
12. Payment of commission of more than 1% of the net profits of the company to a managing or a whole-time director or a manager.
13. Make loans, to extend guarantee or provide security to other companies or make investment beyond the limit specified.
14. Borrow money and to charge out the assets of the company to secure the borrowed money.
15. Appoint directors.
16. Increase or reduce the number of directors within the limits laid down in Articles of Association.
17. Cancel, redeem debentures etc.
18. Make contribution to funds not related to the business of the company.

director's obligation to send notices lest the meeting and it's proceedings become invalid.

despite the supremacy of shareholders, only the shareholder's holding majority or more voting power are able to exercise above mentioned rights.

for real shareholder's democracy, the shareholders have to unite at a district and a state level as associations.

SHAREHOLDER'S ACTIVISM

• Electronic Voting-section 108 of companies act,2013 read with rule 20 of companies (management and administration) rules,2014
• SEBI regulations-Reg. 44 of SEBI (LODR) regulations, 2015
• Approval of related party transactions by shareholders-section 188 of companies act,2013 read with rule 15 of companies (board meeting and its powers)

MAJORITY POWERS AND MINORITY RIGHTS

a company functions through board's instrumentality guided by the majority for the company's welfare. the general rule is that majority binds minority. the majority might even misuse powers which leads to an improper balance of rights and oppression. with the onset of companies act, special effect has been given to cases such as:

1. edwards v. halliwell, (1950) 2 All. E. R. 1064
2. North-West transportation Co. v. Beatty (1887) L.R. 12 A.C. 589
3. Ashbury Rly Carriage and Iron Co. v. Riche. (1875) L.R. 7 H.L. 653

PRINCIPLE OF NON-INTERFERENCE (RULE IN FOSS V. HARBOTTLE)

courts generally don't intervene in matters of internal administration/management of company at shareholder's instance so long as they act within powers conferred upon them.so, articles may be said to be protective shields to majority.The basic principle of non-interference with the internal management of company by the court is laid down in a celebrated case of Foss v. Harbottle 67 E.R. 189; (1843) 2 Hare 461 that no action can be brought by a member against the directors in respect of a wrong alleged to be committed to a company. The company itself is the proper party of such an action.

other important case laws:

    1. Pavlides v. Jensen (1956) Ch. 565

   2.Edwards v. Halliwell (1950) 2 All. E.R. 1064

Justification and Advantages of the Rule in Foss v. Harbottle

• on becoming a shareholder, one agrees to submit to majority's will so that if any wrong is done to company, only the company acting through majority can redress it.
• Recognition of the separate legal personality
• preserving majority's right to decide
• multiplicity of futile suits avoided
• Litigation at suit of a minority futile if majority does not wish it:if majority can ratify it, no point suing on the subject matter.

Exceptions to the Non-Interference Rule

recognized by palmer's co. law as minority protected by common law & companies act,2013.The cases in which the majority rule does not prevail are commonly known as exceptions to the rule in Foss v. Harbottle and are available to the minority. In all these cases an individual member may sue for declaration that the resolution complained of is void, or for an injunction to restrain the company from passing it.

1. ULTRA VIRES ACT (Bharat Insurance Ltd. v. Kanhya Lal, A.I.R. 1935 Lah. 792)
2. FRAUD ON MINORITY (Menier v. Hooper’s Telegraph Works, (1874) L.R. 9 Ch. App. 350--Allen v. Gold Reefs of West Africa, (1900) 1 Ch. 656--In Re. Transval Gold Exploration and Land Co. Ltd. (1885) 1 T.L.R. 604)
3. WRONGDOERS IN CONTROL (Cf. Birch v. Sullivan, (1957) 1 W.L.R. 1274--Par Jenkins L.J. in Edwards v. Halliwell, (1950) 2 All E.R. 1064, 1067--Glass v. Atkin (1967) 65 D.L.R. (2d) 501)
4. RESOLUTIONS REQUIRING SPECIAL MAJORITY (Baillie v. Oriental Telephone and Electric Co. Ltd., (1915) 1 Ch. 503 (C.A.)--Nagappa Chettiar v. Madras Race Club, 1 M.L.J. 662)
5. PERSONAL/INDIVIDUAL ACTIONS (Salmon v. Quin and Aztens, (1909) A.C. 442]--Nagappa Chettiar v. Madras Race Club, (1949) 1 M.L.J. 662 at 667--Joseph v. Jos, (1964) 1 Comp LJ 105)
6. DUTY BREACH (Daniels v. Daniels, (1978) 2 W.L.R. 73)
7. PREVENTION OF OPPRESSION/MISMANAGEMENT (Bennet Coleman & Co. and Ors. v. Union of India & Ors., (1977) 47 Com Cases 92 (Bom)--Panipat Woollen & General Mills Co.Ltd. v. R.L. Kaushik, (1969) 39 Com Cases 249 [Punj & Har])