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Note on Rights of Minority Shareholders

Note on Rights of Minority Shareholders

In  the Companies Act, 2013, though there is no specific definition of minority shareholders, from various provisions of the Act, we can state that minority shareholders are those,  who are,

  1. in case of a company having share capital, not less than 100 members or not less than 1/10th of total number of members, whichever is less or any member or members holding not less than 1/10th of issued share capital

and

  1. in case of a company not having share capital, not less than 1/5th of the total number of members.

Note on Rights of Minority Shareholders

General rights of all shareholders, including minority shareholders, under the Companies Act, 2013 are as below:

  1. Right to receive copies of audited financial statements under section 136 of the Companies Act– Company is required to send, signed and approved by the Board, Financial Statement (including consolidated Financial Statement), Directors’ Report and Auditors’ Report at least 21 clear days before the Annual General Meeting to every member.
  2. Right to inspect various registers/documents: Every member has right to inspect following registers/documents during business hours of the company:
  • Copies of MOA/AOA, copies of agreement and resolutions viz. special resolutions, resolutions passed by class of shareholders etc. on payment of prescribed fees- section 17.
  • Register of members/ copies of annual return filed, without any payment- section 94. However, copies of such registers/ annual return filed will be made available on payment of fees as specified in Articles.
  • Minutes of general meeting, without any charge for 2 hours in each business day- section 119. On payment of fees specified in Articles but not exceeding Rs. 10 for each page or part of page, copies can be obtained.
  • Books of account, etc will be open for inspection at the registered office during business hours- section 120
  • Register of directors and key managerial personnel and their shareholding shall be open for inspection during business hours and the members shall have a right to take extracts therefrom and copies thereof, will be provided free of cost –section 170
  1. Right to receive notice of general meeting – Company is required to send to every member, a copy of notice of AGM/ EOGM, 21 days before the meeting or as per the provisions in the Article.
  2. Right to attend AGM/ EGM: every member entitled to receive notice of general meeting is entitled to attend AGM/ EGM
  1. Right to demand a poll under section 109- members holding not less than 1/10th of the total voting power or not less than Rs. 5 lacs of the paid up capital, can demand for a poll to be taken at a general meeting.
  1. Right to appoint proxy under section 105: Any member of the company entitled to attend and vote at a meeting of a company, shall be entitled to appoint another person as a proxy to attend and vote at the meeting on his behalf.
  2. Right to receive dividend, if declared under section 123- each member whose name appears in the register of members at the time of declaration of dividend or such other date as decided by the company is entitled to receive dividend as and when declared by the company.
  1. Pre-emptive right in respect of further issue of shares on rights basis as per section 62: every member has a pre-emptive right to subscribe to the further shares issued by the Company in proportionate to his paid up shareholding in the company
  2. All ordinary/ special resolutions need members’ approval. To name a few Preferential issue of shares (sec 62(1)c)), amendment to AOA/ MOA (sec 13 & 14), removal of director (sec 169), removal of auditor (sec 140)
  1. Right to apply to NCLT in case of oppression and mismanagement under section 241- members can make application to NCLT for an order for relief in case of oppression/ mismanagement. Moreover, NCLT may on an application made, waive all/any of the requirements under section 244(a) &(b) viz. minimum no of members required for making application etc
  2. Class action under certain circumstances under section 245 by members/ class of members members/class of members/depositors, if feel that conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors, on behalf of such members/ class/ depositors, may make application to NCLT on following grounds:
  • to restrain the company from committing an act which is ultra vires the articles or memorandum of the company;
  • to restrain the company from committing breach of any provision of the company‘s memorandum or articles;
  • to declare a resolution altering the memorandum or articles of the company as void if the resolution was passed by suppression of material facts or obtained by mis-statement to the members or depositors;
  • to restrain the company and its directors from acting on such resolution;
  • to restrain the company from doing an act which is contrary to the provisions of this Act or any other law for the time being in force;
  • to restrain the company from taking action contrary to any resolution passed by the members;
  • to claim damages or compensation or demand any other suitable action from or against—

(i) the company or its directors for any fraudulent, unlawful or wrongful act or omission or conduct or any likely act or omission or conduct on its or their part;

(ii) the auditor including audit firm of the company for any improper or misleading statement of particulars made in his audit report or for any fraudulent, unlawful or wrongful act or conduct; or

(iii) any expert or advisor or consultant or any other person for any incorrect or misleading statement made to the company or for any fraudulent, unlawful or wrongful act or conduct or any likely act or conduct on his part;

  • to seek any other remedy as the Tribunal may deem fit

Keep in mind the ‘Right of Majority under Amalgamation and Reconstruction’

  • Power to acquire shares of dissenting shareholders– As per Section 235, in case of scheme or contract relating to transfer of shares, it is mandatory for the majority shareholders to notify the company of their intention to buy the remaining equity shares the moment the person (alone or together with other persons) becomes the registered holder of ninety per cent (90%) or more of the issued equity share capital of a company.
  • Purchase of Minority shareholding– As per Section 236 (1) and (2), the Acquirer on becoming registered holder of ninety percent (90%) or more of issued equity share capital shall offer minority shareholder for buying equity shares at the determined value.

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