Minority shareholders vs small shareholders
The Supreme Court docket, whereas rendering its judgment on the broader situation of oppression and mismanagement, Tata Consultancy Providers Restricted v Cyrus Investments Pvt. Ltd. and Ors addressed the comparatively unexplored and topical situation of the rights of small shareholders, within the context of part 151 of the Firms Act 2013.
There was a change within the legislation after the arrival of the 2013 legislation and a paradigm shift occurred from an emphasis on majority management and company democracy to a regime targeted on governance. company governance. The idea of small shareholders discovered its place within the Firms Act 1956 within the restricted context of part 252, which handled the appointment of administrators, and supplied that public enterprises might have a director to symbolize small shareholders. .
In distinction, the 2013 legislation launched Article 151 and the related guidelines, which offers for the election or appointment of a director to the board of administrators of an organization by small shareholders, represented by a minimal of 1 / tenth of the full variety of shareholders or 1000 shareholders.
The worth of small shareholders
For the needs of this provision, a small shareholder means a shareholder holding shares with a par worth not exceeding ₹ 20,000. The rationale for together with this idea within the 2013 legislation was to guard the pursuits of small shareholders, as acknowledged within the Assertion of Objections and Causes.
The elemental distinction between part 252 and part 151 is that the previous allowed the appointment of a director by small shareholders, provided that the general public firm had paid-up capital of not less than ₹ 5 crore, or d ” not less than 1000 small shareholders. Nevertheless, article 151 of the 2013 legislation is relevant to all listed firms with none qualification threshold.
It is usually important to notice that the precise to assert proportional illustration on the Board just isn’t out there to minority shareholders who personal not less than 10 % or extra of the stake in an organization, each beneath Article 252 and Part 151, and is barely out there to a small shareholder.
This was emphasised by the Supreme Court docket within the Tata-Mistry judgment, the place the Court docket noticed that the highlight beneath part 151 of the 2013 legislation solely involved small shareholders and never minority shareholders as such.
The Court docket’s remark
The court docket rejected the Shapoorji Pallonji Group’s argument that it was a small shareholder and had the precise to nominate a director. The Court docket noticed that the group held 18.37% of the shareholding and wouldn’t fall beneath the which means of “ small shareholder ” beneath the 2013 legislation.
With this, the Court docket additionally highlighted the distinction between minority shareholders as a class and small shareholders. There may very well be blocks of minority participation, the face worth of which is nevertheless not sufficiently low to justify the applicability of Article 151.
The aim of part 151 is clearly to make sure that the selections of the board meet the necessities of equity and that small shareholders, by means of a presence on the board, see their pursuits successfully represented. It is usually vital that the legislation implicitly acknowledges that small shareholders have a considerable curiosity within the administration of listed firms. There may be additionally a clearer shift in the direction of company governance, with an emphasis on the accountability of administration to each shareholder, whatever the measurement of the shareholding.
“The judgment, whereas specifying that Article 151 is barely relevant to listed firms, nevertheless clearly acknowledged this as one of many provisions emphasizing the transfer in the direction of the safety of small shareholders. He additionally considerably acknowledged the truth that there may very well be minority shareholders whose participation just isn’t, nevertheless, of the prescribed nominal worth and who can not due to this fact routinely insist on illustration on the board. “
Preeti Mohan, J&M Authorized companion with Ranjana. G and Varsha. B