Thursday, 19 December 2013

The Principle of Non-Interference (Rule in Foss v. Harbottle)

The General Principle of Company Law is that every member holds equal rights with other members of the Company. In case of difference(s) among-st the members the issue is decided by a vote of majority.
In such cases Minorities of shareholders often feel oppressed . Though the company law provides for protection of minority shareholders when their rights are trampled by the majority, it is not available when the majority does anything in exercise of the powers for internal administration of the company.

 The following are the advantages of rule in FOSS v. HARBOTTLE

1. Recognition of separate legal personality of the Company.
2. Need to preserve right of majority to decide.
3. Multiplicity of futile suits avoided
4. Litigation at a suit of a Minority futile if majority does not wish it.

Exception to this rule are:

a) Action by shareholders UNDER COMMON LAW
 An individual member may sue for declaration that the resolution complained of is VOID in the following cases:

1. ULTRA VIRES acts by directors
2. Fraud on minority
3. Wrongdoers in control
4. Resolution requiring special majority bt passed by simple majority
5. Breach of duty
6. Individual rights AS A MEMBER are affected.

b) Statutory remedies under Companies ACT

1. Variation in class rights
2. schemes of reconstruction and amalgamation
3. oppression and mismanagement can act as a ground
4. Alternative remedy to wind up.
5. Investigation by Government


Post a Comment