In an article in the Financial Express, my colleague Debashish Sankhari and I have looked at whether disputes of oppression and mismanagement in relation to the affairs of a company can be adjudicated through arbitration. This is an important practical question for many a financial investor (and even a long-term strategic investor) who has agreed to arbitration clauses in the investment/...
Double Derivative Actions Revisited
In an earlier post, we had discussed the concept of multiple derivative actions, and the decision of the Hong Kong Court of Final Appeal in Waddington, which held that double derivative actions (shareholder of a holding company bringing a derivative action complaining of wrongs done to the subsidiary company) were maintainable. In the comments, it was pointed out that the Bombay High...
Minority Shareholder Protection in M&A
The Economic Times examines a recent trend whereby companies have preferred asset sales or business sales (also known as “slump sales”, an expression that bears uniqueness to India, as I am yet to come across that expression elsewhere) over takeovers thereby shortchanging minority shareholders of the seller companies. The argument goes: by structuring the deal as a business sale, all that is...
Andhra Pradesh High Court on Reduction of Capital: More Uncertainty?
In an earlier post, I had highlighted some observations of the Bombay High Court in Re Organon, and had commented on whether the decision of the Single Judge in that case stood easily along with the observations of a Division Bench in Sandvik. The decision in Sandvik can perhaps be read to mean that when an overwhelming majority of non-promoter shareholders votes in favour of the scheme, then the...
Section 100 revisited: In Re Organon
We have discussed the law on reduction of share capital under Section 100 of the Companies Act previously. A recent decision of a Single Judge of the Bombay High Court has an interesting observation in this regard. In Re Organon (India) Limited [2010] 101 SCL 270 (Bom), Kathawalla J. observes after discussing the previous cases (including British & American Trustees [1894] AC 399, Re Panruti...
From ‘Oppression’ to ‘Prejudice’?
In this post, I had noted that the proposed Companies Bill appears to introduce some substantive changes in the law dealing with oppression (covered under Section 397 of the present Act). The proposed Companies Bill, 2009 states, in Section 212: “212. (1) Any member of a company who complains that— (a) the affairs of the company have been or are being conducted in a manner prejudicial to...
“Consent in writing” and Standing for Oppression and Mismanagement: Section 399(3)
Having discussed the apparent relaxation in standing requirements under Section 399(1), this post will now consider what the requirements under Section 399(3) are. In particular, the effect of the Justice Ruma Pal’s decision in J.P. Srivastava v. Gwalior Sugars will be considered. Section 399(3) states: 3) Where any members of a company are entitled to make an application in virtue of sub-section...
Locus Standi for Oppression and Mismanagement: Dilution of Section 399(1)
Remedies for oppression and mismanagement under Section 397 and 398 of the Companies Act, 1956 provide for some relief to shareholders. However, in order to invoke the provisions of Sections 397/398, the petitioners must demonstrate their standing under Section 399. Section 399, which deals with the right to apply under Sections 397 and 398, says in the relevant part: (1) The following members of...
Derivative Actions – Part I
The issue of shareholders making claims on behalf of a corporation has been a bone of contention ever since the decision in Foss v. Harbottle. However, in recent times, two particular aspects of this controversial area of corporate jurisprudence have received significant attention. These are the issues of multiple derivative claims, and the statutory requirements laid down for a derivative claim...
Shareholders and Their Duties under Indian Law
Under the Companies Act, 1956, shareholding in an Indian company is almost entirely associated with concepts like rights, entitlements and ownership. This emanates from Section 82, which reads as follows: The shares or debentures or other interest of any member in a company shall be movable property, transferable in the manner provided by the articles of the company. Shareholding is generally not...
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