Updated with all latest amendments upto 10 JANUARY 2021
User friendly book providing information in a Simplified Language along with CHART ANALYSIS.
All important & relevant judicial pronouncements, circulars, notifications, clarifications, etc. have been incorporated.
THIS BOOK ISvery professional should possess both the knowledge of and the skills in Resolution of Corporate Disputes, Non-Compliances & Remedies in order to reach the pinnacle of success. In today’s scenario there should be proper blend of knowledge and presentation to attain the goals beyond imaginations.
This book will prove to be very helpful for attaining full-fledged knowledge of SEBI Act, SEBI Regulation, FEMA, SCRA and Companies Amendments Act, 2019. While preparing this book implications faced by the Learners were kept in mind. This book is consists of many special features to provide comprehensive knowledge like:
100% Coverage of Amendments in SEBI Regulations.Consist of all the Past years Questions along with Answers
Ø Tabular Presentation of the concepts in order to make user friendly.t is hoped that this book will be utmost use to the person who are keen to learn and I am very thankful to almighty God for blessing me with such a golden opportunity to prepare this book.
Shareholders’ Democracy &
1) INTRODUCTION OF SHAREHOLDERS’ DEMOCRACY
In that context the shareholders democracy means the rule:
➔ of shareholders,
➔ by the shareholders’, and
➔ for the shareholders’
Precisely it is a Right to Speak, Congregate (Assemble), Communicate with co-shareholders and to
learn about what is going on in the company.
In other words, Shareholders Democracy, we mean “to avoid concentration of ownership in few hands”
The concept of shareholders’ democracy in the present-day corporate world denotes the
SHAREHOLDERS’ SUPREMACY in the governance of the business and affairs of corporate
sector either directly or through their elected representatives.
“The members are only passive investors rather than active participants in the governance of the
The shareholders are the owners of the Co. But in fact, they are seldom able to exercise any
ownership rights EXCEPT to sometimes cast votes at AGM.
Despite the powerful weapons handed over to the shareholders by the Companies Act, 2013, the
shareholders have not been able to use them and most of the provisions remain dead provisions and
have not been used by the shareholders as potential weapons:
➔ to correct any wrongful act on the part of the directors or
➔ to give them any directions.
Consequently, the Board of directors of a large number of companies are elected only by a few
shareholders who attend the AGM and those who can muster (TOGETHER) sufficient number
of proxies and can demonstrate their voting power.
means the Rule
Of People, By People
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Still the directors, as per law, are answerable to the shareholders, may be at least for 2 REASONS:
❖ Firstly, to feel sure about the safety of their investment and
❖ Secondly, being the recognised owners of the company to enforce their rights to control the company as and
when the company enters into contractual relationship with third persons thereby incurring greater obligation.
Recognising the supreme authority of the shareholders’, the Companies Act has given authority to
them to appoint directors at the Annual General Meetings to direct, control, conduct and manage the
business and affairs of the company.
Thus, the shareholder’ democracy can play an important role in:
➢ Stimulating (encouraging) the Board of directors,
➢ Raising company performance, and
➢ Ensuring that the community at large takes a greater interest in Industrial Progress.
2) DELEGATION OF POWERS
Although constitutionally all the acts relating to the company can be performed in General Meetings
but most of the powers in regard thereto are DELEGATED to the Board of directors by virtue of:
❖ THE CONSTITUTIONAL DOCUMENTS: of the company viz. the Memorandum of
Association and Articles of Association.
❖ THE COMPANIES ACT, 2013: Under Section 179, a general power has been conferred on the
Board of directors. Board of directors of a company shall be entitled to exercise all such powers
and to do all such acts and things, as the company is authorised to exercise and do.
Proviso to this section restricts the power of the Board of directors to do things which are
specifically required to be done by shareholders in the General Meetings under the provisions of
Companies Act or Memorandum of Association or the Articles of Association.
Under the Companies
Act the powers have
been divided between
One is the Board of
The Directors exercise
their powers through
meetings of Board of
The other is of
their powers through
By means of an
Ordinary Resolution or
a Special Resolution.
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Some of the businesses which can be
transacted at meetings of shareholders are:
Powers to be exercise by Board only at a
Board Meeting namely: [Section 179(3)] ✓ Alteration of MOA and AOA. [Sec. 13&14] ✓ Further issue of share capital.
✓ To transfer some portions of uncalled
capital to reserve capital to be called up only
in the event of winding up of the company.
✓ To reduce the share capital of the company.
✓ To shift the registered office of the
company outside the state in which the
registered office is situated at present.
✓ To decide a place other than the registered
office of the company where the statutory
books, required to be maintained may be kept.
✓ Payment of interest on paid-up amount of
share capital for defraying the expenses on
Construction when plant cannot be
commissioned for a longer period of time.
✓ To appoint auditors.
✓ To approach Central Government for
investigation into the affairs of the company.
✓ To allow Related Party Transaction.
✓ To allow a director, partner or his relative
to hold office or place of profit.
✓ Payment of commission of more than 1% of
the net profits of the company to a managing
or a whole- time director or a manager.
✓ To make loans, to extend guarantee or
provide security to other companies or make
investment beyond the limit specified.
✓ To borrow money and to charge out the assets
of the company to secure the borrowed money.
✓ To appoint directors.
✓ To increase or reduce the number of directors
within the limits laid down in AOA.
✓ To cancel, redeem debentures etc.
✓ To make contribution to funds not related to
the business of the company.
✓ to make calls on shareholders in respect of
money unpaid on their shares;
✓ to authorise buy-back of securities under
✓ to issue securities, including debentures,
whether in or outside India;
✓ to borrow monies;
✓ to invest the funds of the company;
✓ to grant loans or give guarantee or provide
security in respect of loans;
✓ to approve financial statement and the
✓ to diversify the business of the company;
✓ to approve amalgamation, merger or
✓ to take over a company or acquire a
controlling or substantial stake in another
✓ any other matter which may be
In addition to the powers specified Section
179(3) of the Act, the following powers shall
also be exercised by the Board of Directors
only by means of resolutions passed at
meetings of the Board:
❖ to make political contributions;
❖ to appoint or remove key managerial
❖ to appoint internal auditors and
In view of the rights conferred on shareholders to be exercised at General Meetings, the Act casts an
obligation on the directors to send notices for convening general meetings or else the meetings shall
be declared to be void as also all proceedings transacted thereat.
Apart from the rights which are vested in the shareholders to be exercised in relation to the conduct of
the business of the company, the directors of the company have certain obligations towards the
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3) DUTIES OF DIRECTOR
The courts have determined 2 broad duties to be performed by a director:
4) DEFICIENCIES AND FLAWS OF SHAREHOLDERS
DEMOCRACY IN COMPANIES
GOVERNMENT COMPANIES ARE
IN OTHER COMPANIES, however, the
shareholders democracy is dependent upon:
In Government Companies all the directors
are appointed on the advice of the
Government by the President of India or
the Governor of concerned State. Hence,
theoretically it can perhaps be said that the
shareholders democracy is absolute in such
▪ The voting strength of shareholders and
▪ Also, to a great extent on the availability of
members attending their General Meetings
either by themselves or through their proxy.
▪ This again depends on the proximity of
Registered Office of the company to the place
of residence of the shareholders.
▪ Apart from this most of the shareholders do not
have enough time to spare from their busy
schedules to concern themselves with the affairs
of the company in which they have invested.
▪ Besides, they are not always educated enough
and experienced enough to be conversant with
the working of the joint stock companies.
Although the concept of shareholders’ democracy has been enshrined in the Companies Act, yet,
because of the aforementioned DEFICIENCIES AND FLAWS in the general body of shareholders as
a whole, it is not reflected in the constitution of the Boards of directors of many companies in India.
5) SOME MEASURES TO AVOID ABOVE DEFICIENCIES
A) E-VOTING [Section 108 Read with Rule 20] The Companies Act provided an opportunity to shareholders to participate in the decision making
process by introducing provisions relating to passing of resolutions in respect of certain matters through
Duties of utmost care
and skill in managing
the affairs of the
company or else be
liable for damages.
Fiduciary duties to act bona
fide in the interest of the
company, not to exercise
powers for collateral benefit
and not to earn profit from
the position as a director.
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B) ASSOCIATIONS OF SHAREHOLDERS
For achieving the shareholders’ democracy, the shareholders have to unite and organise themselves
on national, state and district levels and get their associations registered under the Societies
Registration Act or any other applicable statute so that their voice is heard and they can assert
themselves and safeguard the interests of their members.
Constitution of such associations should be suitably amended so as to insist upon all the non-
Government companies to allot a minimum number of shares to such associations of shareholders
so that these associations can attend the Annual General Meetings of all the companies and make sure
that the directors elected to company Boards reflect a fair representation.
PAST EXAMINATION QUESTIONS
Q1. “Shareholders Democracy means the rule of shareholders, by the shareholders and for the
shareholders in the corporate enterprise, to which the shareholders belong.” Comment on the
above and enumerate any 5 provisions of the Companies Act, 2013 which demonstrate the same.
MAJORITY POWERS AND MINORITY RIGHTS
➢ In corporate world, all democratic decisions and management of a company are made with the
majority rule which is deemed to be fair and justified.
➢ The majority rule of decision making, quite often than not overlooks the views
of minority shareholders.
➢ A minority shareholder is a person in a company who does not enjoy much
power in the management of the company and their interests are disregarded.
➢ It is, therefore, a cardinal rule of company law that prima facie majority of members of a company
are entitled to exercise the powers of the company and generally to control its affairs.
➢ The basic principal relating to the administration of the affairs of a company is that “the will of the
majority prevails or majority is supreme”.
RIGHT TO VOTE RIGHT OF PROPERTY
Member’s right to vote is recognised as right of property and the shareholder may exercise it as he
thinks fit according to his choice and interest.
Majority Shareholders misuse their power to exploit the rights of minority. In such a case a proper
balance of the rights of majority and minority shareholders is essential for the smooth functioning of
In such a case, Oppression of minority or mismanagement by majority can occur where it has some
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A. JUDICIAL PRONOUNCEMENTS
❖ The resolution of a majority of shareholders, passed at a duly convened and held general meeting,
is binding upon the minority and consequently upon the company. North-West
Transportation Co. v. Beatty (1887)
❖ Where the Act or the Articles require a SPECIAL RESOLUTION [SR] for any purpose, a
3/4th majority is necessary and a simple majority is not enough. Edwards v. Halliwell, (1950)
❖ The majority of the members enjoy the supreme authority to exercise the powers of the
company and generally to control its affairs. But this is subject to 2 very important
DOCTRINE OF ULTRA-VIRES-> (i.e Beyond the Power)
The powers of the majority of members is subject to the
provisions of the Company’s Memorandum and Articles
of association. A company cannot legally authorise or
ratify any act which being outside the ambit of the
memorandum, is ultra vires of the company [Ashbury
Rly. Carriage and Iron Co. v. Riche, (1875)].
The resolution of a majority must
not be inconsistent with the
provisions of the Act or any other
statute, or constitute a fraud on
minority depriving it of its legitimate
B. 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 the same class. In case of difference(s) amongst the members the issue is decided
by a vote of the majority.
Since the majority of the members are in an advantageous position to run the company according to
their command, the minorities of shareholders are often oppressed.
The company law provides for adequate protection for the minority shareholders when their rights are
trampled (CRUSHED) by the majority.
“The articles are the protective shield for the majority of shareholders who compose the board of
directors for carrying out their object at the cost of minority of shareholders”.
“The court will not usually intervene at the instance of shareholders in matters of internal