Enforcement of Minority Shareholders’ Rights in a Company
By Anika Mardiah Chowdhury
The management of the companies which incorporated under the Companies Act, 1994 are based on the majority rule like any other democratic set up institution and known as the principal of Majority Rule as laid down in Foss vs. Harbottle (1843) 2 Hare 461. As per the majority rule, the majority shareholders sometimes enjoy exclusive benefits in the Company. The result of the majority discretion sometimes lead to the minority shareholders being ignored and left out of any management decision.
Section 233 of the Companies Act, 1994 has incorporated to the exceptions of that principle of majority rule to protect the interests of the minority shareholders by preventing all types of illegality or fraudulent or other activities by the majority shareholders. Also in the case of M.A. Gaffur vs. Registrar of Joint Stock and Others, 4 LNJ (2015) 661, it was held that the jurisdiction under section 233 of the Act is regulatory and preventive in nature and this jurisdiction is to be exercised to protect interest of the minority shareholders from being prejudiced by the majority shareholders as well as to prevent mismanagement as regards the affairs of the company either by majority of the members or by the directors of the company.
According to section 233 of the companies Act states that any member or debenture holder of a company may either individually or jointly bring to the notice of the court by pray to pass an order which would be necessary need for safeguard of his or their interest and also the interest of any other member or debenture holder. That the-
- Affairs of the company are being conducted or the powers of the directors are being exercised in a manner prejudicial to the interest; or
- The company is acting or is likely to act in a manner which discriminated or is likely to discriminate the interest of any member or debenture holder. Or,
III. A resolution passed or is likely to be passed which discriminates or is likely to discriminate the interest of one or more of the members or to debenture holder.
The Court shall on receipt of an application shall send a copy thereof to the board and fix a date for hearing the application and after hearing the parties present on the date so fixed, the Court is of opinion that the interest of the applicant or applicants has been or is being or is likely to be prejudicially affected for reasons specified in the application then it may make such order as prayed for or such other order as it deems fit including a direction-
(a) Either to cancel or modify any resolution or transaction. Or,
(b) To regulate the conduct of the company’s affairs in future in such manner as is specified therein. Or,
(c) To amend any provision of the memorandum and articles of the company. And where by an order of the Court any amendment is made in the memorandum or articles of the company the company shall not without leave of the Court make any amendment therein or take any action which is inconsistent with the direction contained in the order.
After the order had been passed the company shall within fourteen days from the making of an order inform the Registrar in writing of such order and send him a copy thereof, and in case if the company makes default in complying with this order then every officer of the company who is in default shall be liable to a fine not exceeding one thousand taka.
As also in Kader Textiles (pvt.) Ltd. and another vs. Md. Lehajuddin Miah and Others (civil) 58 DLR (AD) (2006) 238, the Hon’ble Appellate Division held that no illegality has been committed by the company Court in allowing the Petition and passing the Judgment and order. It was further stressed that under Section 233, the Company Court possesses jurisdiction to pass any order or orders for the purposes of protection of the interest of the minority share holders.
Before went to seek remedy the minority shareholders have to show that they have possessed a minimum 10 per cent shareholdings of that concerned company or in case not having share capital one fifty in number of the members on the company also have to show that the action had infringed his or their right or any other oppression suffered by his in the matter of his interest as an member but not as a director and the company or the directors has breached any of the articles or any relevant provision as per section 195 of the following Act. Unless the applicants does not fulfil with this condition they have no right to apply for protection under section 233 of the Companies Act, 1994 held by the High Court Division in Moksudur Rahman vs. Bashati Property Development Ltd. 49 DLR (1997) 539.
Lastly it can said that from the above discussion though the court works as a safeguard regarding the rights of minority shareholders as well as their genuine desires but law is not enough to shield the interest of the minority shareholders unless they themselves are pro-active and aware of their rights and responsibilities. However after the judgment it is often seen that the minority shareholders finds themselves in a difficult position due to the breakdown of their relationship with the majority shareholders. Therefore for this reasons and issues all the shareholders of the same series of a class should be treated equally and should have effective means of redress.