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RIGHTS AND BENEFITS AVAILABLE TO MINORITY SHAREHOLDERS UNDER

COMPANIES ACT, 1956 AND COMPANIES ACT, 2013- A COMPARATIVE STUDY

1. Oppression & mismanagement


Companies Act, 1956 (Section 399)
The old Act prescribes that not less than 100 members or 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 have the right to make an application to the Company
Law Board (CLB) for relief, if there is oppression or mismanagement held in the
company. The CLB is empowered to order a number of remedial measures for
protection of the interests.
Companies Act, 2013 (Section 244)
The same provision has also been prescribed under the new Companies Act, 2013.
However, under the new law, the application has to be filed with the National
Company Law Tribunal (NCLT).
Hence, the minority shareholders may file complaint, if the affairs or management
of the company is being conducted in a manner prejudicial to public interest or
oppressive to any member(s) of the company.
2. Purchase of minority shareholding
Companies Act, 1956
The concept of purchase of stakes held by minority shareholders did not exist in the
provisions of the Companies Act, 1956.
Companies Act, 2013 (Section 236)
This new concept with regards to the purchase of minority shareholdings has been
introduced in the new Companies Act, 2013. It states that in the event of an
amalgamation, conversion of securities or for any other reason, if an acquirer or a
person acting in concert with such acquirer, holding ninety percent (90%) or more of
the issued share capital of a company or any person or group of persons becoming
ninety per cent (90%) majority or holding ninety per cent (90%) of the issued share
capital of a company, such acquirer or person or group of persons shall notify the
company of the intention to buy the remaining equity shares.
The acquirer or person or group of persons shall offer the minority shareholders for
buying the equity shares held by them at a price determined on the basis of

valuation by a registered valuer in accordance with the rules prescribed in this


behalf. The minority shareholders of a company may offer to the majority
shareholders to purchase their shares at a price determined in accordance with the
rules prescribed in this behalf.
Further as per the draft rules (Chapter XV-Compromise, Arrangement and
Amalgamations) issued by the Ministry of Corporate Affairs (MCA) with regard to
the aforesaid pricing, the price for purchase of minority shareholders will be as per
the following(1) In the case of a listed company:
-the offer price shall be determined in the manner as may be specified by the
Securities and Exchange Board by making regulations in this behalf; and
(2) In the case of an unlisted company and a private company:
-the offer price shall be determined after taking into account the following factors:(a) the highest price paid by the acquirer, person or group of persons for
acquisition during last twelve months;
(b) the fair price of shares of the company to be determined by the registered
valuer after taking into account valuation parameters including return on net
worth, book value of shares, earning per share, price earning multiple vis--vis
the industry average, and such other parameters as are customary for valuation
of shares of such companies.
Hence, in the aforesaid situation the law provides an opportunity to the minority
shareholders to sale their shares at a price to be determined in accordance with the
prescribed rules (which has yet to be notified by the government). The types of
companies to which this provision will be applicable are not yet clear. Because the
context of this section states only company. On the other hand, if any acquirer or
person acting in concert acquires ninety percent shares of a company, it has to be
delisted from the stock exchanges in India in which the shares of the company are
listed. So it does not state a clear picture with regard to the applicability of this
provision. However, the draft rules (Chapter XV-Compromise, Arrangement and
Amalgamations) issued by the MCA specifies the determination of price for purchase
of minority shareholdings in case of listed company and further notification or
circular/clarification in this regard in future may clarify the intention of the
legislature in this behalf.
3. Resolutions
Companies Act, 1956 (Section 189)

A resolution shall be special resolution when the vote cast in favour of the resolution
by members who, vote in person or proxy are not less than three times the number
of the votes, if any, cast against the resolution by members.

Companies Act, 2013 (Section 114)


The same provision also has been prescribed under the new Companies Act, 2013.
Nothing has been changed in the provision of resolution.
Hence, for matter requiring special resolution of the members, approval of at least
75% of the shareholders is required. Therefore, a minority shareholder with more
than 25% voting rights would have the ability to block special resolutions and it may
affect to the decisions to be taken in any meeting of the company. The interest of
the minors has been effectively appreciated by the law.
4. Proportional Representation for the appointment of directors
Companies Act, 1956 (Section 265)
The Articles of Association of a company may provide for the appointment of not
less than 2/3rd of the total number of directors of a public company or private
company which is a subsidiary of public company, according to the principle of
proportional representation, once in every 3 years.
Companies Act, 2013 (Section 163)
The same provision also has been prescribed under the new Company Act, 2013.
Hence, the Board of directors of a company may consist of directors nominated by
the minority shareholders in accordance with the proportional representation, who
will protect the interests of these shareholders.

5. Rights of minority shareholders /dissenting shareholders during any


scheme or contract approved by majority
Companies Act, 1956 (Section 395)
A transferee company, which has acquired not less than nine-tenths in value of the
shares of a transferor company through a scheme or contract, may give notice to
any dissenting shareholder that it desires to acquire his shares. When such a notice
is given, the transferee company shall be entitled and bound to acquire those
shares on the terms on which, under the scheme or contract, the shares of the
approving shareholders are to be transferred to the transferee company.
Companies Act, 2013 (Section 235)

The same provision has also been stated in the new Companies Act, 2013. However,
the old Act prescribed that, besides holding not less than 90% in value of the shares
whose transfer is involved, should not be less than 75% in number of the holders of
those shares. Section 235 of 2013 Act omits requirement of 75% in number. The
new act also provides for time-bound disbursal of purchase consideration received
by the transferor company to its shareholders i.e within 60 days from date of receipt
by the transferor company. This was not in the case of 1956 Act.
Hence, in the above case minority/dissenting shareholders have been provided with
an opportunity to approach the Court or NCLT as the case may be, by making an
application.

6. Demand for Poll


Companies Act, 1956 (Section 179)
The old Act states that before or on declaration of the result of the voting on any
resolution on a show of hands, a poll may be ordered to be taken by the chairman of
the meeting of his own motion, and shall be ordered to be taken by him on a
demand made in that behalf by :
-In case of public company-members holding not less than 1/10 th of the total voting
power or shares on which aggregate sum of not less than Rs. 50,000 have been
paid up and,
-In case of private company-one member having the right to vote on the resolution,
if not more than seven such members are personally present, and by two such
members, if more than seven such members are personally present.
Hence, the demand for poll can be made by shareholder(s) holding 1/10th of the
total voting power or shares of paid up value of not less than Rs.50,000. The
minority shareholders may make demand for poll in any matter required to be
approved in a meeting of the company. So the minority interests have been
appreciated in the aforesaid situation.

Companies Act, 2013 (Section 109)


The same provision has also been stated in the new 2013 Act. However the person
entitled to demand for poll is different from the old Act.
-In case of a company having share capital-by members present in person or by
proxy, and holding not less than 1/10 th of the total voting power or shares on which
aggregate sum of not less than Rs.5,00,000 have been paid up, and
In case of any other company-by any member or member or members present in
person or by proxy, and having not less than one-tenth of the total voting power.

Hence, the demand for poll can be made by shareholder(s) holding 1/10th of the
total voting power or shares of paid up value of not less than Rs.5,00,000.

7. Appointment of the small shareholders directors


Companies Act, 1956 [Section 252 and Rule 4 of the Companies
(Appointment of the Small Shareholders Director) Rules, 2001]
The old Act prescribes that a company may act suo moto to elect a small
shareholders director from amongst small shareholders or upon the notice of small
shareholders, who are not less than 1/10 th of total small shareholders and have
proposed name of a person who shall also be a small shareholder of the company.
In the aforesaid context, small shareholder means a shareholder holding shares of
nominal value of Rs.20,000 or less in a public company.
The above said provision is applicable only to public companies having paid up
capital of five crore rupees or more and one thousand or more small shareholders.
Companies Act, 2013 (Section 151)
The new Act prescribes that a listed company may have one director elected by
small shareholders in such manner and with such terms and conditions as may be
prescribed. In the aforesaid context, small shareholder means a shareholder holding
shares of nominal value of not more than Rs.20,000 or such other sum as may be
prescribed.
The MCA has issued in the first phase of the draft Rules (Companies Act, 2013) with
regard to the small shareholders (Chapter-XI-Appointment and Qualifications of
Directors). It states that for the purpose of Section 151, a listed company may suo
motu or upon the notice of not less than five hundred or one-tenth of the total
number of small shareholders, whichever is lower, elect a small shareholders
director from amongst the small shareholders and such small shareholder shall be
considered as an independent director.
Hence, the small shareholders may nominate a director in the Board of directors of
a listed company to represent their interest. Therefore this provision appreciates the
minority interests in the company.
8. Class Action
Companies Act, 1956
This provision did not exist in the old Act.
Companies Act, 2013 (Section (Section 245)

This is a new provision introduced by the new Companies Act, 2013. The class
action suit may be filed by the members or small investors against the directors or
auditors of a company. It states that the class-action may be taken by member(s) or
depositor(s) by filing an application before the NCLT against the directors or
auditors, if they are of the opinion that the management or conduct of the affairs of
the company are being conducted in a manner prejudicial to the interests of the
company or members or depositors.
The provision of the aforesaid section states that the requisite number of members
or depositors for filing this class-action application is:
-not less than one hundred members or depositors or not less than such percentage
of the total numbers or depositors as may be prescribed, whichever is less, or any
member or members holding not less than such percentage of the issued capital of
the company as may be prescribed or any depositor or depositors to whom the
company owes such percentage of total depositors of the company as may be
prescribed.
Further, the MCA has also issued in the first phase of draft Rules (Companies Act,
2013) with regards to the class action (Chapter XVI- Prevention of Oppression and
Mismanagement) by members or depositors of a company. It states the following
requisite members and/or depositors for filing the application.
a) Members- For the purpose of section 245, the number of members that may file
an application for class action shall be,

in the case of a company having share capital-: not less than one
hundred members of the company or not less than ten per cent. of the
total number of its members, whichever is less, or any member or
members singly or jointly holding not less than ten percent of the
issued share capital of the company;

b) Depositors- For the purposes of section 245, the number of depositors that may
file an application for class action shall be,
-

not less than one hundred depositors or not less than ten per cent. of the
total number of depositors, whichever is less or any depositor or depositors
singly or jointly holding not less than ten percent of the total value of
outstanding deposits of the company.

Enabling such class-action should help in improving the quality of corporate


governance and protect the interest of the minority shareholders.