The democratic structure of corporations means the will of the majority prevails, but this is subject to strict judicial limits.
1. The Rule in Foss v. Harbottle (1843)
The court laid down two foundational principles governing corporate litigation:
- Proper Plaintiff Rule: If a wrong is done to a company, the proper plaintiff is the company itself, acting through its board or majority. An individual shareholder cannot sue.
- Majority Rule: If the alleged wrong can be ratified or condoned by a simple majority of members in a general meeting, no individual member can maintain a suit.
2. Exceptions to the Rule (Where Minority Can Sue)
Individual shareholders can sue in their own name to protect the company if the majority commits:
- Ultra Vires or Illegal Acts: Acts that the company cannot legally ratify.
- Fraud on the Minority: Where the majority uses their voting power to expropriate the property or rights of the minority (Cook v. Deeks).
- Transactions Requiring Special Majority: Acts completed by a simple majority when a special resolution is statutorily required.
- Invasion of Personal Rights: Infringing on a shareholder's personal rights (e.g., right to vote, right to receive dividend).
3. Prevention of Oppression and Mismanagement (Sections 241-244)
Any member who complains that the affairs of the company are being conducted in a manner oppressive to any member or prejudicial to the interests of the company may apply to the National Company Law Tribunal (NCLT).
- Eligibility to Apply (Section 244): In a company with share capital, at least 100 members or one-tenth of the total number of members (whichever is less), or any member(s) holding not less than one-tenth of the issued share capital must sign the petition.
- Remedial Powers of NCLT: The NCLT has vast powers under Section 242, including terminating agreements, regulating future conduct of business, ordering the purchase of minority shares, or replacing directors.