INDIA Law and Practice Contributed by: C R Dua, Sanjeev Kaul, Abhinav Rastogi and Ashish Malkotia, Dua Associates
10.3 Derivative Actions The Act does not provide an explicit provision regard- ing a derivative action. However, courts have paved the way for bringing such an action, and some courts have allowed such suits on the grounds of oppression and mismanagement. Such a suit is only maintainable if the shareholders have come with “clean hands”. Certain elements of a derivative action can be found in “class action” suits, which are alternate remedies available to minority shareholders (see 2.11 Challeng- ing a Resolution ). The major difference is that a class action is to sue on behalf of the entire class, whereas in a derivative action the directors and officers are sued on behalf of the corporate entity. Shareholder activism is growing. Various legal and regulatory provisions or tools are available to activist shareholders under the Act and SEBI regulations to encourage/promote their activism, such as: • information and inspection rights available to the shareholders; • the ability of shareholders to appoint and remove directors; • the facility of e-voting to vote from remote places without physically attending the meeting; • the right to approve the remuneration of directors in public companies; 11. Shareholder Activism 11.1 Legal and Regulatory Provisions • shareholder approval required for the appointment and removal of the director, the payment of divi- dends, etc; • shareholders have a right to request a sharehold- ers’ meeting by requiring the board to call an EGM on the agenda of their choice and concern; • shareholders’ approval is required in the case of a listed company for material related party transac- tions and in an unlisted company where the trans- actions are above the prescribed threshold; and • shareholders have several legal remedies against the prejudicial and oppressive conduct of the com- pany or its directors/officers.
of the Tribunal), the liquidator realises and distributes the assets in the order of priority, resulting in a water- fall method as provided under the law. The claims of the equity shareholders over the proceeds from the sale of assets rank last after the insolvency resolution process costs, workers’ dues, debts owed to secured creditors, the wages of other employees, govern- ment taxes and dues, amounts payable to preference shareholders, etc.
10. Shareholders’ Remedies 10.1 Remedies Against the Company
Shareholders may approach the Tribunal if they believe that the company’s affairs are being conducted in a manner that is prejudicial to the public interest or the interest of the company, or that is oppressive to the shareholders concerned or any other shareholders, provided that the complaining shareholders meet the criteria for making such an application (as mentioned in 2.11 Challenging a Resolution ). They may also bring a class action suit against the company. 10.2 Remedies Against the Directors Shareholders can bring legal action against a director(s) for: • any act done in a manner that is prejudicial to the interest of the company; • fraud on the company; • any act that goes against the law or the charter documents; • negligence or breach of their duties as directors; • any act done in a mala fide manner; or • the diversion of company funds. Shareholders can also bring an action against any officer or employee of the company for wrongfully obtaining the possession of any property or wrongly withholding or applying such property for purposes other than those expressed or directed in the articles and authorised by the Act. Shareholders can also remove a director by passing an ordinary resolution and following the process as provided under the Act (see 6.1 Rights to Appoint and Remove Directors ).
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