Rights of Minority Shareholders in India Under the Companies Act, 1956

Abstract

Section 397 to 409 of the Companies Act, 1956 lays down provision in order to protect the rights of minority shareholders and safeguard their interest against the oppressive act of majority shareholders. The Rights of Minority Shareholders is based on the principle of Natural Justice .The basic principal relating to the administration of the affairs of a company is that “the will of the majority prevails or majority is supreme”. Except the power vested in the Board of Directors, the overall powers of controlling the issues of the company it’s with the shareholders which are exercised in the general meeting of a company. Usually the general rule is that the decision of majority shareholders in a company binds the minority. Therefore, it is only majority of members who can control the board of directors. The majority is in the position where it connected in every parts of the company. They maintain their rights without considering the interests of minority which creates sullen effects. They misuse their power to exploit the rights of minority. In such a case a proper balance of the rights of majority and minority shareholders is essential for the smooth functioning of the company.