IDBI, the largest term-lending institution, said that it is necessary to prevent a group of minority shareholders from misusing the powers bestowed on them as shareholders by the Companies Act, 1956, in order to derive benefits or extract concessions from the management. The Companies Act contains in-built provisions to protect the interests of minority shareholders against the decisions of the majority.

There have been numerous occasions of individual shareholders filing suitsfor injunctions restraining the holding of annual general meetings of companies in the jurisdiction where they resided, which had no relevance to the location of the registered office of the company. Injunctions granted by the civil courts had to be vacated to facilitate the holding of AGMs involving substantial expenditure. Justifying the rule of majority, IDBI said that corporate decisions are based on the principles of majority.

The courts have consistently held that the majority will and shall prevail unless it is a fraud on minority or if it is taken by following an irregular procedure. Citing another example, IDBI said that it has often been observed that the provision relating to demand for poll is resorted to by a group of minority shareholders to pressurise the management to concede to their illegal demands.

Such instances impose financial burden on the firm and result in practical problems, the institution added. As a measure to restrict the minority shareholders from misusing their rights, IDBIhas suggested an upward revision in the fee (currently Rs 500) to be accompanied with the notice to the management which could be forfeited, or alternatively, a higher percentage of shareholding can be considered for giving such notices.

In the case of filing suits for injunctions, the Companies Act may be amended by excluding the jurisdiction of civil courts in the matter holding general meeting of shareholders and conferring jurisdiction on high courts with reference to the location of the registered office of the company which alone could decide granting an injunction against the holding of the general meeting.

However, IFCI suggested that investment by individuals should be encouraged through mutual funds which should play their due role. Also, it would be useful to make it obligatory for shareholders who propose to move resolutions at AGMs to get their resolution backed/seconded by at least five per cent of the shareholders. The institutions can help thwart this oppression by stalling specialresolutions affecting the interests of the majority shareholders, said GIC.

UTI suggested that the oppression can be avoided to a large extent if the board of directors is constituted in such a way that the number of non-executive directors exceeds the number of executive directors. In cases where the promoter group is a minority shareholder, a large number of independent professionals (other than friends and relatives of promoters) ought to be appointed as non-executive directors. Institutions holding more than 25 per cent in the company and acting in concert can stall special resolutions affecting the interests of the majority shareholders, said LIC.

In case of companies which are likely to run into problems and are potentially sick, institutions can appoint nominee directors on the board of the company by virtue of their loan or debenture agreement, said LIC, adding that institutions can suspend further assistance to such companies.