Majority Rule, Minority

Rights& Class Action Suits

- Satyam Scam

Majority rule

Majority ruleisadecisionrulethatselectsalternativeswhich
haveamajority,thatis,morethanhalfthevotes.

Freeze-out:awaytoousttheminorityshareholders

Section395oftheoldActrarelyused

Minorityshareholderscanbesqueezedoutif9/10rulemet

SandvikAsiaLimitedvsBharatKumarPadamsi

ParentCompany95.4%shares

4.46%sharestobeboughtbackatRs850pershare

Nothingcontrarytolaw,howeverquestionoffairnessraised

.
Minority
Rights

Minority

rights arerightsguaranteedtominoritiesthat
cannotberemovedormodified,evenbyavoteofthe
majority.

Theirbasicrightscannotbetakenawayfromthem,andthey
willstillberepresented.

Eventhoughthemajorityruleisinplay,thepeoplewithout
thepopularvotewillstillhavethesamebenefitsasthepeople
withthemajorityorwinningvote.

ApproachingCompanyCourt
ApproachingCivilCourt
ApproachingCompanyLawBoard

Majority rule & Minority Rights

SterliteIndustriesLimited,2002
Buyingbacksharesunlessintimidatedbywriting
ApprovedbyBombayHighcourt
OpposedbySEBI&CentralGovt
RuledoutbyHighCourtSEBIheldnopower

Sub-clausesrequiringlistedcompaniestoseektheprior
approvalofstockexchangeswhentheyinitiateschemesof
arrangementintroducedbySEBI

Unlistedcompaniesbolderschemessqueezingoutminority
shareholders

Class Action Suits

Aclass

action suitisatypeoflawsuitwhereoneofthe
partiesisagroupofpeoplewhoarerepresentedcollectively
byamemberofthatgroup.

Alawsuitinwhichmanypeoplejointogethertosuebecause

theyallsaytheywereharmedbythesamepersonorgroup
Forexample,groupofshareholdersordepositorsfilingalaw

suitagainstacompanyincaseofmismanagement.
Section399ProtectiontoShareholder/Member

Satyam Scam
Fraudulentrepresentationofaccountstostakeholdersin

alliancewithauditors&CAs
Webof356investmentcompanieswasusedtoallegedly

divertfunds
SellingMaytasInfrastructureandMaytasPropertiesto

SatyamforanestimatedRs7,800crore
2009,RamalingaRajuconfession
CBIestimatedlossofaboutRs14,000crore
IndianarmofPwCfined$6millionbytheSEC

Satyam Scam
300,000minorityshareholdersofSatyamsuedthecompany

fortheirfraudulentactivity.
ClaimeddamagesworthRs.5,000crore.
Deniedoftheirrighttoclaimbacktheirinvestedamounts
ClassactionsuitsfiledbyshareholdersCompaniesAct

2009byIndianParliament

Satyam Scam
2009-TechMacquiredSatyamforRs2,889crore
2012AmalgamationwithTechMahindra
Minorityshareholdersareobjectingtothe2:17shareswap

ratio,notmerger
NetprofitofRs.1,306.06croreinFY11-12
LossofRs.147.23croreduringFY10-11,theperiodunder

considerationwhiledecidingtheswapratio
SchemeclearedbyCCI,BSE,NSE,BombayHighCourt

Change of Provisions in Companies Acts

Provisions

Companies Act, 1956

Sec397/398:
Combined Provisions for
Grantingreliefonly
relief related to oppression
formismanagement
and mismanagement

Protection of Minority Class

Class Action

Companies Act , 2013

Sec241:Mismanagement
&oppressioncombinedas
one-reliefforboth

Sec399:Protectionto Sec245:Members&
shareholder/member depositors

NA

Sec245:Classactioncan
befiledagainst
company/auditorsby
minorityclassincluding
depositors

Change of Provisions in Companies Acts

Provisions

Companies Act, 1956

Companies Act , 2013

Sec395:Transferofshares Sec235:Notification
onapprovalbyatleast9/10th Valuation
valueshareholders
Sec235(4):Separatebank
account,timelimit
Reconstruction and

amalgamation
Sec100:CapitalreductionbySec236(1)(2):Acquirersrole
specialresolution(75%
Sec236(3):Minoritysrole
approval)
Sec236(5):Transferorsrole
Sec151:Appointmentof
independentdirectorsbysmall
shareholdersinlisted
companies

Minorities
upgraded

References
http://

indiacorplaw.blogspot.in/2009/05/squeezing-out-mi
nority-shareholders.html
http://
www.ezylaws.com/siteadmin/uploaded/IMPACT%
20ON%20CORPORATE%20RESTRUCTURING.pdf
http://
www.livemint.com/Companies/ZNl0MTwxHCb0iQTkCYq
BM/Satyam-minority-shareholders-object-to-share
-swap-ratio.html
http://indiacorplaw.blogspot.in/2009/05/squeezing-

out-minority-shareholders.html
http://www.ezylaws.com/siteadmin/uploaded/I
MPACT%20ON%20CORPORATE%20RESTRUCTURING.pd
http://www.livemint.com/Companies/ZNl0MTwxHCb0i