The Oppressive Majority and the Minority Shareholder
ABC Ltd is a private company with three shareholders: Mr. Alam (60%), Mr. Bashir (25%) and Ms. Chowdhury (15%). The articles provide that the board shall have three directors, but Alam, as majority shareholder, has convened a general meeting to pass a special resolution removing Bashir as director and appointing Alam's son instead. The notice of the meeting was sent 10 days before the meeting, although the articles require 21 days' notice. At the meeting, Alam voted his 60% in favour; Bashir and Chowdhury were present and objected. The resolution passed with 60% in favour. Bashir alleges oppression and mismanagement, and also claims that Alam has been diverting company funds to a sister concern. Chowdhury wants to challenge the resolution but is unsure of her standing.
1. Can Bashir challenge the removal resolution on the ground of inadequate notice, and what is the effect of the short notice?
Read the worked answer
The removal of a director is governed by the Companies Act 1994. Section 91 provides that a company may by ordinary resolution remove a director before the expiry of his period of office, notwithstanding anything in the articles or in any agreement. A special resolution is not required for removal, but a special resolution was purportedly passed here.
The key issue is notice. The articles require 21 days' notice; only 10 days were given. Under section 87, a general meeting may be called by shorter notice only if consent is given by shareholders holding at least 95% of the voting rights (or such higher percentage as the articles require). Here, Alam holds only 60%, so short notice was invalid unless all shareholders consented. Bashir and Chowdhury did not consent.
The consequence is that the meeting was not validly convened, and the resolution passed at it is void. The defect is not merely procedural: the short notice deprived Bashir of the opportunity to prepare and to canvass support. The court will set aside the resolution. Even if the resolution had been an ordinary resolution for removal under section 91, the notice defect would still invalidate it. Bashir should seek a declaration that the resolution is void and an injunction restraining implementation.
2. What remedies are available to Bashir for oppression and mismanagement, and what must he prove?
Read the worked answer
Bashir may seek relief under the Companies Act 1994 (sections 233 and 234) and under the court's equitable jurisdiction.
Oppression and mismanagement: Bashir must show that the affairs of the company are being conducted in a manner oppressive to him as a member or in a manner prejudicial to the interests of the company. The diversion of company funds to a sister concern, if proved, is mismanagement and a breach of directors' duties. The removal of Bashir as director may be oppressive if it is part of a pattern of excluding the minority from management and diverting assets.
Remedies:
- Injunction restraining the implementation of the void resolution and restraining further diversion of funds.
- Declaration that the resolution is void.
- Order for investigation into the company's affairs under section 212.
- Derivative action on behalf of the company to recover diverted funds, since the wrong is to the company.
- Winding-up on just and equitable grounds (section 234), though courts are reluctant where a lesser remedy exists.
- Buy-out order requiring Alam to purchase Bashir's shares at a fair value.
Bashir must prove the diversion with evidence (accounts, bank statements, related-party transactions). Mere disagreement over management is not oppression; he must show unfairness and lack of probity.
3. Does Chowdhury have standing to challenge the resolution or to seek relief, and what procedural steps should she take?
Read the worked answer
Chowdhury has standing as a member of the company. Any member may challenge a resolution passed at an invalidly convened meeting, because the defect goes to the validity of the meeting itself, not merely to the individual's interest. She may:
- Apply for a declaration that the meeting and the resolution are void for want of proper notice.
- Seek an injunction restraining the implementation of the resolution.
- Join Bashir in an oppression petition, since the diversion of funds affects all shareholders.
- Requisition an extraordinary general meeting under section 84 if she and Bashir together hold the requisite percentage (they hold 40%).
- Seek inspection of the company's books under section 211.
Procedural steps:
- Issue a statutory notice to the company demanding that the resolution be withdrawn and that a properly convened meeting be held.
- If the company refuses, file a petition before the High Court Division (Company Bench) seeking the reliefs above.
- Apply for interim relief to preserve the status quo.
- Consider a derivative action if the company fails to sue for the diverted funds.
Chowdhury's 15% holding is sufficient for standing; there is no minimum shareholding requirement for a member to challenge the validity of a meeting.