Minority Shareholders’ Protection

Barrister Sabrina Zarin

15th January, 2019 10:14:04 printer

The dispute among shareholders within a company puts emphasis on the concern as to who are in control of management of the company and who should have a direct mode of complaint to the court if they can show that the affairs of the company are being run in a manner which is prejudicial to the interests of the company. Where such dispute arises, the company law denotes that the will of the majority shall always prevail.

With such influence, majority shareholders may sometime cause injustice, which might directly and adversely affect the interest of the minority shareholders.

Therefore, in order to redress the imbalance of power between majority and minority shareholders and to secure protection for minority shareholders, the Companies Act, 1994, and the Company Rules 1995, ensures a remedy via section 233, which provides protection to the minority shareholders. It affords that those who are not in the control of the management of the company should have a direct mode of complaint to the court if  they can show that the affairs of the company are being conducted or the powers of the directors are being exercised in a manner prejudicial to one or more of its shareholders or debentures, or that the company is acting or is likely to act in a manner which discriminated or is likely to discriminate the interest of any shareholder or debenture holder or a resolution of the members, debenture holders has been passed or is likely to be passed which discriminates or is likely to discriminate the interest of one or more of the members.

It is important to note that section 233 read with section 195 implicates that section 233 can only be invoked by minority shareholders if they possess a minimum 10 per cent shareholdings of the concerned company. The petitioner, however, must show that the infringement of his right or any other oppression suffered by him in the matter of his interest in his capacity as a member, not as a director and that the company/director has breached any of the articles or any relevant agreement.

The court shall, on receipt of an application from the minority shareholder, send a copy thereof to the board of the company and fix a date for hearing. The idea of prejudice extends very wide, which subsequently permits the court with plentiful discretion to practise its legal watchfulness in deciding if a specific injustice falls inside the extent of this segment.

In this manner, after hearing the gatherings present on the date so settled, the court may make such request as implored by the minority shareholder or such other request as it esteems fit including a direction, to cancel or modify any resolution or transaction; or regulate the conduct of the company’ affairs in future in such manner as is specified therein, or to amend any provision of the memorandum and articles of the company.

The court safeguards the rights of minority shareholders as well as their genuine desires. However, after such decision by the court, it is often seen that the minority shareholders finds themselves at a difficult position due to the breakdown of their relationship with the majority shareholders. The remedy frequently looked for and regularly allowed is a request that the majority shareholders buy the minority’s shares at an incentive to be controlled by a free inspector named by the court under the terms of reference recommended by the court. On the other hand, the minority shareholders may seek an order directing the majority shareholders to sell their shares to the minority shareholders at a reasonable incentive to be dictated by an independent auditor delegated by the court under the terms of reference recommended by the court. The court may decide the valuation looking upon the concerned company’s assets, accounts and incomes based on expert evidence.

Regardless of the accessibility of this statutory solution for minority shareholders of the companies, a developing pattern of minority shareholder is to secure themselves via agreements formed mutually among them, modification within the Article of Associations containing specific rights for the minority shareholders etc. Therefore, in order to redress the grievances that the minority shareholders have against the majority shareholders such growing trend should be entertained and widely practiced.

 

The writer is an Advocate of the Supreme Court of Bangladesh and a Partner in FM Associates.


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