Majority Rule

&
Minority Rights
SS 241 – 246, 2013
(SS. 397 – 409, 1956)
 Foss & Edward Starkie Turton v Harbottle,
(1843) 2 Hare 461
 Action against directors brought by 2 SH’s
 Purchase land from Directors at an overvalue
 Property of Co. had been misapplied & wasted &
 Various mortgages were given improperly over Co’s
property (Victoria Park, Manchester.)
SH’s were trying to bring an action to enforce
rights
 Directors being wrongdoers - They would not bring
legal proceedings against themselves
 ƒOne would expect the Co., acting through BOD do this
for itself
 SH’s could not sue to enforce - Co’s rights against the
directors
 Proper Plaintiff Rule?
Majority Rule Principle?
 When a Co. is wronged by
its directors? If it can be confirmed /
Who has to sue? ratified
(By simple majority in
a GM)
Proper Plaintiff ?

It is only the Co. that has Court will not interfere ?
standing to sue.
A wrong done to - Co. may
be vindicated by the Co.
Majority Rule Principle
alone.
 Held
“Where it is alleged that a wrong has been
done to the Co.
Proper claimant in such an action is
the Co. itself
Where the Co. is competent to settle the
alleged wrong itself /
Co. is competent to ratify / condone an
irregularity by its own internal procedure
No individual member may bring
action”
 Foss v Harbottle
At the instance of minority members who are
dissatisfied with the conduct of the Co’s affairs
Courts – Refuses to interfere in the management
of the Co.
Rule is obvious
Courts cannot function
To take management decisions &
To substitute its opinions for those of BOD /
SH’s Majority.
 Foss v Harbottle
 “The conduct with which the defendants are charged in
this suit is an injury not to the Plaintiffs exclusively; it
is an injury to the whole Corp. by individuals whom the
Corp. entrusted with powers to be exercised only for
the good of the Corp.”
 “In such cases - The rule is that.. Corp. should sue in its
own name & in its corporate character.
 It is not a matter of course for any individual members
of a Corp.
Thus to assume to themselves the right of suing in
the name of Corp.
 In law - Corp. & the aggregate members of Corp. are
not the same thing for purposes like this”
 Majority Rule & Minority Rights
“In Voting Majority Rules”
 MR - Power to make decision for
everyone
 Authority rest with either BOD / SH’s
GM
Principle
 Greater No. should exercise greater power
 Majority has the power to control the Co.
through voting at a Co. meeting
Those who takes interest in Co. Ltd. by shares
Have to accept the majority rule.
Deemed to have accepted the risk that wider
interest of Co. which may be prejudicial to his
own –
Bound by certain policy of the majority which
does not coincide with his own
If there is conflict of opinion;
Majority’s opinion must prevail - Minority
have by contract agreed to submit to the
will of the majority
 Purpose of the Majority Rule
Avoid multiplicity of suits – Majority
“WILL” should prevail & litigation by
minority SH’s is futile if the majority do not
wish it
Prevents – Co. being subjected to a long &
expensive litigation
Corporate Democracy – Recognised by the
court
Will not interfere with management &
administration
 Mani v Angraha Jewellers Ltd (2005) 126 CC 878 Mad.
Mac Daugall v Gardiner (1875) 1 Ch D 13, 25
 Chairman of a meeting of SH’s wrongfully (i.e. in breach of
articles) refused to call a poll when one was requested by a SH. -
SH was not entitled to bring personal action - Rather the proper
claimant was Co.
 Majority of the Co. are entitled to do -
 Something has been done irregularly which the majority are
entitled to do regularly
 Something has been done illegally which majority are
entitled to do legally
 No use of having a litigation about it.
 Ultimate end of which is only that a meeting has to be
If the&majority
called are abusing
then ultimately theirgets
the majority powers & are
its wishes
 “If
depriving the which
it is a thing minority of their are
the majority rights, that is of
the masters an-
Majority in substance
entirely different shall be entitled to have their
thing
will followed.”
 Burland v Earle [1902] AC 83, 93*
“It is an elementary principle of the law relating
to JSCo’s that the Court will not interfere with
the internal management of Co’s acting within
their powers, & in fact Court has no jurisdiction
to do so.
Again, it is clear law that in order to redress a
wrong done to the Co. / to recover moneys /
damages alleged to be due to the Co., - Action
should prima facie be brought by the Co. itself.
See also Mozley v. Alston, (1847) 1 Ph 790
 Satya Charan Law v Rameshwar Prosad Bajoria
[1950] 20 Comp. Cas. 39; A.I.R. 1950 F.C. 133
 Proper plaintiff in respect of a wrong alleged to be done to a Co.
is prima facie the Co. itself.
 Ordinarily - Directors of a Co. are the only persons who can
conduct litigation in the name of the Co.,
 But when they are
 Themselves the wrongdoers against the Co. &
 Have acted mala fide /
 Beyond their powers, &
 Their personal interest is in conflict with their duty in such a
way that they cannot / will not take steps to seek redress for
the wrong done to the Co.
 Majority of SH’s must in such a case be entitled to take steps to
redress the wrong.
 If there is no provision in AOA to meet the contingency -
Majority SH’s can sue in the name of the Co.”
 See. Edward v Halliwell (1950) All. ER 1064
 Who should be the managing agents of the Co.
 It is difficult to see how a few SH’s who represent the
minority are entitled to maintain the suit & ask the
court to interfere on the question as to
 Bhajekar v Shinkar AIR 1934 Bom 243
 This is a consequence of - Co’s separate legal personality,
because when the Co. as a corporate person, sustains a legal
injury, it does not follow that any of its members individually
suffer a legal injury too & unless they do, they have no grounds
for suing.
 He cannot sue in the Co’s name himself, unless BOD /Members -
by ordinary resolution /the liquidator if it is being WU, authorise
him to do so, & if he brings an action without such authorisation,
the defendant may have the action struck out.
 Exceptions
 60 % of petitions in CLB – Oppression &
Mismanagement
 Minority SH’s Protection – Concern of the Law
Minority Protection
 Remedies evolved to safeguard a minority of Co.
members from the abuse of the majority (Rule)
Representative or Derivative Actions – Class Action
 Complainant does not sue in his own right alone,
but he sues instead on behalf of himself & all his
fellow members other than those, if any, against
whom relief is sought.
 Exceptions to the Rule in Foss v Harbottle
 1. Acts Ultra vires/illegal acts
 Directors - acting ultra vires (e.g. in application of funds) –
 Single member can maintain a suit for declaration as to the true
construction of the Cl. stated in the MOA of the Co.
 Bharat Insurance Co Ltd v Kanhaiya Lal, AIR 1935 Lah 792.
 2. Activity undertaken must be sanctioned by a Spl, Res.
 Where a Spl. Res. was required by AOA –
 Co. obtained - Assent of the majority by a trick
 Where a Co. authorised to do a particular thing only by a Spl.
Res. –
 Does it without a Spl. Res. duly passed.
 To deny a right of suit to the SH’s without using the name of the
Co. would in effect result - The Co. doing the thing by an
ordinary Res.
 Nagappa Chettiar v Madras Race Club, (1949) 1 MLJ 662;
 Baillie v Oriental Telegraph & Electric Co., (1915) 1 Ch. 503.
 3. Activity infringement of Personal
Rights of SH’s
Member, “has a right to say, “Whether I vote in
the majority / minority, you shall record my
vote, as that is a right of property belonging to
my interest in this Co…” ?
If there is a refusal to record the vote – SH will
have right to institute legal proceedings against
you to compel you.“
Pender v Lusghington, (1877) 6 Ch D 70
  4. Activity amounts to a fraud on
the minority SH’s
 Menier v Hooper’s Telegraph Works Ltd. (1874) 9 Ch
App 350;
 Referred in
 Saurashtra Cement Chemical v Esma Industries Pvt. Ltd, 2001
103 Comp Cas 1041 Guj;
 S. Manmohan Singh & Ors. v S. Balbir Singh & Ors. ILR
1975 Delhi 427
 Daniels v Daniels, [1978] Ch 406
 Majority SH’s - Guilty of gross negligence & profited
from that negligence notwithstanding the absence of
fraud ?
 GBP 4,250 sold at 120,000
 Cook v Deeks, [1916] 1 AC 554
 5. Activity is unfairly prejudicial to
Minority SH’s
 Brown v British Abrasive Wheel Co., [1919] 1 Ch 290
 Pennington on Company Law
Fraud / Oppression
“Where the persons who control a
majority of the votes which can be cast at
a GM, use their power of control to
defraud / oppress minority SH’s - The
court will interfere at the instance of the
minority, & will upset the majority’s
machinations (secret / complicated plans –
especially to gain power).”