CompIMPORTANCE OF BUSINESS LEVEL STRATEGY IN CORPORATE WORLDany Law Project Sem 6th Roll No 25. Arun Norge

PERSONAL MEMBERSHIP RIGHT V.
CORPORATE RIGHT; A DETAILED COMPARISON

HIDAYATULLAH NATIONAL LAW UNIVERSITY Page 1

PROJECT
ON
PERSONAL MEMBERSHIP RIGHT V. CORPORATE RIGHT;
A DETAILED COMPARISON
SUBMITTED TO
MR. SHYAMTANU PAUL
(FACULTY OF CORPORATE LAW)

SUBMITTED BY
ARUN NORGE
ROLL NO. 25
SEMESTER VI, SECTION C

DATE OF SUBMISSION 09-04-2013
HIDAYATULLAH NATIONAL LAW UNIVERSITY, RAIPUR (C.G.)
PERSONAL MEMBERSHIP RIGHT V. CORPORATE RIGHT; A DETAILED COMPARISON


1. Acknowledgements... 03
TABLE OF CONTENTS
2. Research Methodology.. 04
3. Objectives.. 04
4. Introduction... 05
5. Definition of members.05
6. Rights of members......06
7. Individual rights of the members......07
8. collective right of the members.....08
9. Conclusion.... 12
10. Bibliography..... 13



ACKNOWLEDGEMENTS
First & foremost, I take this opportunity to thank Mr. SHYAMTANU PAUL, Faculty of
CORPORATE LAW, HNLU, for allotting me this challenging topic to work on. He has been
very kind in providing inputs for this work, by way of suggestions.
I would also like to thank my dear colleagues and friends in the University, who have helped
me with ideas about this work. I thank the almighty god, my parents, who gave me moral and
mental support. I would like to thank my friends and seniors, who gave me their precious time
for guidance and helped me a lot in completing my project by giving their helpful suggestion and
assistance. Last, but not the least I thank the University Administration for equipping the
University with such good library and I.T. facilities, without which, no doubt this work would
not have taken this shape in correct time.

ARUN NORGE
Semester- VI, Batch-X
Roll no- 25



This doctrinal research paper is descriptive & analytical in approach. It is largely based on
secondary & electronic sources. Books & other reference as guided by faculty of taxation are
primarily helpful for the completion of this project.
RESEARCH METHODOLOGY
1. Try to find out what are the personal right and corporate right of the
shareholder/members.
OBJECTIVES
2. Elucidating the detailed comparison between these rights.



PERSONAL MEMBERSHIP RIGHT V. CORPORATE RIGHT;
A DETAILED COMPARISON

A company is composed of members though it has its own entity distinct from members.
Generally speaking, the members of a company are the persons who, for the time being,
constitute the company as a corporate entity. Generally speaking, all members who are
competent to enter into a contract may become a members of the company but a person of
unsound mind and the minor,
INTRODUCTION-
1
being incompetent to contract, cannot be a member of the
company.
2
In the case of the company, limited by the share, persons whose names are put on the register of
the members are the members of the company. They may also be called shareholders of the
company as they have been allotted share and are holding them in their own right. In such a
situation, the terms members and shareholder are interchangeably used to mean to same
person. In srikanta datta v. venketeshawara real estate enterprises (p.) Ltd,

3
it was held that
unless the context otherwise requires, the word members under section 2(27) means the
shareholder excepting a person who is a bearer of the share warrant of the company. But in the
case of an unlimited company or the company limited by guarantee, a member may not be a
shareholder for such a company may not have a share capital.
Section 41 of the Companies Act, 1956 defines a 'member'. It provides that on registration of a
company the subscribers to the Memorandum shall be deemed to have agreed in writing to
become members of the company and their names shall be entered in the register of members.
Clause (2) of this section further provides that every other person who agrees in writing to
DEFINITION OF MEMBER (SECTION 41)-

1
Mohair bibi v. dharmodas ghosh, (1903) 30 IA 114
2
See, section 10, 11 of the Indian contract act, 1872.
3
1990 68 comp. cas. 216 (kar)


become member and whose name is entered in the register of members, shall become members
of the company.
The words 'agreed in writing' were inserted in clause 2 of the section by the Amendment of I960
so that a person may be regarded as a member only if he has acquired the right of membership
though his name may not be there in the register of members,
4
and conversely a person whose
name appears in the register of members may not be regarded as member if he did not agree to
be a member in writing and bear the burden of liabilities of membership.
5
Thus in Ram Kishan
v. Kanwar Paper (P) Ltd.,
6
Person other the subscriber of the memorandum do not become members until their name are
duly entered into the register of the members. A subscriber which is aggrieved by a wrong full
omission of his name in the register may apply to the tribunal for entry of his name and
rectification of the register.
the name of the petitioner was ordered to be removed from the
register of members because there was no agreement in writing to this effect.
It is significant to note that a subscriber of the memorandum becomes a member of the company
immediately on its incorporation, even before his name has been entered in the register of
members. Neither this entry in the register nor any allotment of shares is a condition precedent to
his becoming a member. He must take the shares, for which he has subscribed the memorandum
direct from the company and can be exempted from this only in case of the share capital
authorized by memorandum has been fully subscribed by other person.
7
Likewise if the name of the person is improperly entered in the
register of the members he may apply to the tribunal for rectification and getting his name struck
off under section 111 of the companies act. However if he accept the position and act as a
members, he would be estopped from refuting the liabilities and denying that he is a members.
One a person becomes a member of a company; he is entitled to exercise all the right of a
member until the cessation of his membership. So long as his name exists in the register of
RIGHTS OF THE MEMBERS

4
A Satya Prasad Rao v. V.L.N. Shastri, (1968) 65 comp. cas 492 (A.P).
5
Balaji Exttiles Mill Ltd v. Ashok Kavle, 1989 66 comp cas 654 kerela ; National Steel And General Mills V. Official
Liquidator, 1989 2 comp L.J 214 delhi.
6
1990 69 comp cas 209 (H.P)
7
See, section 111(4) the word company law board in this section are substituted by the words tribunals by
companies second amendment act, 2002.


members as a member, his position it not altered even if he has sold the shares and has given the
share certificate and the blank transfer deed duly signed, and he remains entitled to exercise the
right of the membership.
8
Broadly speaking the right of the members/shareholders divided into two kinds, namely (i)
individual rights, (ii) corporate rights. Every shareholder can enforce his individual rights singly
but corporate rights have to be enforced by the majority Suresh Chandra Marwaha v. Lauls
(p.)
The rights of the member may either be documentary rights which he
derives from the documents of the company, namely, the memorandum or the articles of
association, or they may be statutory rights which are conferred on the member by the law and
cannot be attend or taken away by the company through alteration in its memorandum or articles.
For example, right of a member/shareholder to transfer his shares is a statutory right given to him
under Section 82 of the Companies Act and so is the right to receive share-certificates for his
shares under Section 113 of the Act.
9

. However, individuals and corporate rights may not be mutually exclusive. Where the same
transaction infringes both individual and corporate membership rights, one composite action can
be brought.
The dividing line between personal and corporate right is very thin and the court will probably be
inclined to treat a right as a 'personal right' only if he has a 'special interest' distinct from the
general interest which other members ha veto the company complying with the terms and
conditions of the Act, the Memorandum and the Articles of association.
In case of infringement of a personal right, a member may sue a wrongdoer and the company in
his own name. But for infringement of his corporate right, the action should be brought in the
name of the company. His company should be the plaintiff and the wrongdoers should be made
the defendants.

8
Life insurrnace corporation of india v. escorts Ltd.1986 59 comp. case 548 sc, see also balakrishna gupta nad
others v. swadeshi polytex Ltd. 1995 58 comp cas 563.sc
9
Ltd. 1978 48 comp. cas. 110 ( punj. And Har.)


INDIVIDUAL RIGHTS OF THE MEMBERS
The members of a company enjoy certain rights in their individual capacity and as such they can
enforce them individually. These rights being contractual in nature, cannot be taken away except
With the written consent of the member concerned. These rights of the members could be
grouped under the following categories (a) contractual and otherwise (b) statutory.
Contractual and other rights- A member by virtue of the contract with the company and any
other members via the Memorandum and Articles is entitled to have his name on the Register of
members, to vote at the meeting of members, to receive dividends when declared, to exercise the
right of pre-emption, return of capital on winding-up or on reduction of share capital of the
company.
As a member he also has certain other rights which may or may not arise out of contract. In
exercise of such rights he is entitled to bring action to restrain the company from doing an ultra
vires act, to attend and take part in the proceedings of meetings of the company and to move
amendments.
Statutory rights
I. The right to vote at all meetings [Sec. 87];
- A person who is a shareholder of a company has many rights under the Act.
Some of them are:
II. The right to requisition an extraordinary general meeting of the company or artv to joint
requisition [Sec. 169];
III. The right to receive notice of a general meeting [Sec. 172];
IV. The right to appoint proxy and inspect proxy register [Sec. 176];
V. In the case of a body corporate which is a member, the right to appoint a representative to
attend a general meeting on, juts behalf [Sec. 187]; and
VI. The right to require the company to circulate resolution [Sec. 188].



Certain other rights of the members spelt out by the supreme court in Life Insurance Corporation
Of India V. Escorts Ltd.
10
I. elect directors and thus to participate in the management through them;
are :
II. To enjoy the profits of the company in the shape of dividends;
III. To apply to the court for relief in case of oppression;
IV. To apply to the court for relief in case of mismanagement;
V. To apply to the court for winding-up of the company; and
VI. To share in the surplus on winding-up.
Besides, the rights of a member include right:
I. To have the certificate of shares held ready fan delivery to him within three months from
the date of allotment [$ec. 113].
II. To transfer shares subject to the provisions of the Companies Act and the Articles of
Association [Sec. 82].
III. To inspect the Register of members and Register of debenture-holders and get extracts
therefrom [Sec. 163].
IV. To obtain copies of Memorandum and Articles on request and payment of the prescribed
fee.
V. To obtain, on request, minutes of proceedings at general meetings as also to inspect the
minutes [Sec. 196].
VI. To apply to the court to have any variation of shareholders right set aside. [Sec 106]
VII. To participate in the removal of directors by passing of an ordinary resolution.[section
248]
VIII. To sue the company for enforcing his rights against the company in any appropriate
capacity.
The afforsaid rights are in no way exhaustive but are only illustrative

10
[1986] 59 comp. cas. 548.


1. There is, however, possibility of majority becoming oppressive resulting into
mismanagement of the company's affairs and cause great injustice to the minority
shareholders. In order to prevent this eventuality, Section 399 confers a right to not less
than one hundred members of a company or not less than one-tenth of the total number of
members, whichever is less, or any member or members holding not less than one-teat of
the issued share-capital of the company, and in case if a company not having a that
capital, not lea than one-fifth of its total number of members, to apply to the Coat under
Section 397 for relief against oppression or under Section 398, for relief against
mismanagement.
COLLECTIVE RIGHTS OF THE MEMBER
There are certain rights which the members of a company may exercise collectively through a
democratic process. These are also known as 'corporate membership rights, which each member
has agreed to be exercised by majority at the general meetings of the company. It is through this
majority-will that the shareholders determine the policy of company and exercise effective
control over the management of the company.
2. Section 169 of the Companies Act further confers a right on members holding not less
than l/10th of the paid up share capital of a company, to requisition m extraordinary
meeting of the company. If the Board of Directors does not take steps tool a meeting
within 21 days from the date of receipt of such requisition from like members, the
members themselves on expiry of forty-five days from the date of submission of
requisition, call the meeting.
3. The members have a right to get a director removed by a majority resolution in the
company's meeting.
11
4. The members have a right which may be collectively exercised in respect of making
application 10 the Central Government for investigation into the affairs of an company,

12

and also for appointment of Government nominee directors.
13

11
Section 284.
12
Section 235.
13
Section 408.



In the context of exercise of rights by the members of a company, it must be stated that the
Company Law Board (now Tribunal),
14
will not, in general, intervene at the Instance of
shareholders in matters of internal administration and will not interfere with the management of a
company so long as the directors me acting within the powers conferred on them under the
articles of the company.
15
1. A shareholder is entitled to bring an action against the company and its officers in respect
of acts which are ultra vim the company and as such no majority can validate those
acts.
In Foss v. Harbottle it was held that no member has a right to sue the
company either in his individual capacity or collectively for disputes pertaining to internal
matters among the members/shareholders thernselves. It was further held that in respect of a
wrong alleged to be done to a company, the company itself should be the proper plaintiff. There
are, however, certain exceptions to the rule in Foss v. Harbottle when even a single member may
sue to enforce Obligations owed to the company. Thus relief ultimately goes to the company
These exceptions are as follows :
16
2. If the conduct of majority shareholders constitutes a fraud on the minority shareholders,
any shareholder in exercise of his individual right may apply to the Company Law Board
to interfere and restrain the company from going ahead with that transaction. Thus in
Cook v. Decks,

17
3. There are certain acts which can only be done by passing a special resolution at a general
meeting of shareholders. If the majority tries to do such acts by passing only an ordinary
resolution or without passing the special resolution as required by law, any member or
members can file a petition to restrain the majority.
the directors of a company holding three-fourth of the capital obtained a
contract in their own names to the exclusion of the company. The Court held that the
directors holding majority of votes would not be allowed to make a gift to themselves as
it would mean permitting majority to oppress the minority shareholders.
18
4. Sometimes it may happen that an obvious wrong has been done to the company but the
majority shareholders who are in control of the affairs of the company refrain from taking

14
The powers vested in the CLB are now vested in the tribunal by the companies (second amendment) act, 2002.
15
Rajmundry Electric Supply Corporation V. A. Nageswar Rao AIR 1956 SC 213.
16
(1843) 67 ER 189.
17
(1916) 1 AC 554.
18
Dhakswari cotton mill ltd. V. Nil kamal chakravarty, AIR 1937 cal 645.


action against the wrongdoer. In such cases, any member or members may file a petition
to the Company Law Board in the name of the company.
19
This principle is well illustrated by the decision in Glass v. Atkin,

20
wherein a company was
controlled equally by two defendants and two plaintiffs. The two plaintiffs brought an action
against the two defendants alleging that they had fraudulently converted the assets of the
company for their own benefit. The Court allowed the action and observed that normally it is for
the company itself to bring an action where its interest is adversely affected, but in the instant
case the two plaintiffs were perfectly justified to bring an action on behalf of the company since
the two defendants being in equal control would easily prevent the company from suing.

CONCLUSION
The dividing line between personal and corporate rights is very hard to draw, and perhaps the
most that can be said is that the court will be inclined to treat a provision in the memorandum or
articles as conferring a personal right on a member only if he has a special interest in its
observance distinct from the general interest which every member has in the company adhering
to the terms of its constitution. A consequence of the distinction between personal and corporate
rights is that a member cannot bring a personal action for the loss he has suffered by the
diminution in the value of his shares resulting from breaches by the defendants of provisions of
the company's memorandum or articles which do not confer personal rights on members, or from
breaches of fiduciary duties owed by the defendants to the company; even if the member can
prove a conspiracy between the defendants to commit the breaches complained of, the
diminution in the value of his shares is merely a reflection of the loss suffered by the company,
and the proper remedy therefore is for the company to sue the defendants or, in appropriate
circumstances for a derivative action to be brought.

19
V.P singh v. chairman, metropolitan council, AIR 1969 Del. 295.
20
1967 65 DLR (2
nd
) 501; see also Satya Charan Lal V. Rameshwar Bajoria, 1950 SCR 394.


REFERENCE
1. Companies act 1956
Statutes
1. A Ramaiya, guide to the Companies Act part II (17th ed., 2010).
Books
2. A. k. Manjumdar and Dr. Kapoor, company law and practice, 17th edition, Taxmans,
1995.
3. Avatar Singh, company law, 15
th
edition, eastern book company (lucknow), 2007.

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PERSONAL MEMBERSHIP RIGHT V.

CORPORATE RIGHT; A DETAILED COMPARISON

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