Majority Rule, Minority Rights& Class Action Suits - Satyam Scam

Majority rule

• Majority rule is a decision rule that selects alternatives which

have a majority, that is, more than half the votes.

• Freeze-out : a way to oust the minority shareholders

• Section 395 of the old Act – rarely used

• Minority share holders can be squeezed out if 9/10 rule met

• Sandvik Asia Limited vs Bharat Kumar Padamsi

• Parent Company – 95.4 % shares

• 4.46 % shares to be bought back at Rs 850 per share

• Nothing contrary to law, however question of fairness raised

.

Minority Rights• Minority rights are rights guaranteed to minorities that cannot be removed or modified, even by a vote of the majority.

• Their basic rights cannot be taken away from them, and they will still be represented.

• Even though the majority rule is in play, the people without the popular vote will still have the same benefits as the people with the majority or winning vote.

• Approaching Company Court• Approaching Civil Court• Approaching Company Law Board

Majority rule & Minority Rights

• Sterlite Industries Limited ,2002

• Buying back shares unless intimidated by writing

• Approved by Bombay High court

• Opposed by SEBI & Central Govt

• Ruled out by High Court – SEBI held no power

• Sub-clauses requiring listed companies to seek the prior approval of stock exchanges when they initiate schemes of arrangement introduced by SEBI

• Unlisted companies – bolder schemes squeezing out minority share holders

Class Action Suits

A class action suit is a type of lawsuit where one of the parties is a group of people who are represented collectively by a member of that group.

A lawsuit in which many people join together to sue because they all say they were harmed by the same person or group

For example, group of shareholders or depositors filing a law suit against a company in case of mismanagement.

Section 399 – Protection to Shareholder/Member

Satyam Scam

Fraudulent representation of accounts to stakeholders in

alliance with auditors & CA’s

Web of 356 investment companies was used to allegedly

divert funds

Selling Maytas Infrastructure and Maytas Properties to

Satyam for an estimated Rs 7,800 crore 

2009 ,Ramalinga Raju confession

CBI estimated loss of about Rs 14,000 crore

 Indian arm of PwC fined $6 million by the SEC

Satyam Scam

300,000 minority shareholders of Satyam sued the company for their fraudulent activity.

Claimed damages worth Rs.5,000 crore.

Denied of their right to claim back their invested amounts

Class action suits filed by shareholders – Companies Act 2009 by Indian Parliament

Satyam Scam

2009 - Tech M acquired Satyam for Rs 2,889 crore

2012 – Amalgamation with Tech Mahindra

 Minority shareholders are objecting to the 2:17 share swap ratio, not merger

Net profit of Rs.1,306.06 crore in FY11-12

Loss of Rs.147.23 crore during FY10-11, the period under consideration while deciding the swap ratio

Scheme cleared by CCI , BSE,NSE,Bombay High Court

Change of Provisions in Companies Acts

Provisions Companies Act, 1956 Companies Act , 2013

Combined Provisions for relief related to oppression

and mismanagement

Sec 397/398 : Granting relief only for mismanagement

Sec 241 : Mismanagement & oppression combined as one - relief for both

Protection of Minority ClassSec 399 :Protection to shareholder/member

Sec 245 : Members & depositors

Class Action NA

Sec 245 : Class action can be filed against company/auditors by minority class including depositors

Change of Provisions in Companies Acts

Provisions Companies Act, 1956 Companies Act , 2013

Reconstruction and amalgamation

Sec 395 : Transfer of shares on approval by at least 9/10th value shareholders

Sec 100 : Capital reduction by special resolution (75 % approval)

Sec 235 : Notification ValuationSec 235 (4) : Separate bank account , time limit Sec 236 (1)(2):Acquirer’s roleSec 236 (3):Minority’s roleSec 236 (5):Transferor’s role

Minorities upgraded

 

Sec 151: Appointment of independent directors by small shareholders in listed companies

References

http://indiacorplaw.blogspot.in/2009/05/squeezing-out-minority-shareholders.html

http://www.ezylaws.com/siteadmin/uploaded/IMPACT%20ON%20CORPORATE%20RESTRUCTURING.pdf

http://www.livemint.com/Companies/ZNl0MTwxHCb0iQTkCYqlBM/Satyam-minority-shareholders-object-to-share-swap-ratio.html

http://indiacorplaw.blogspot.in/2009/05/squeezing-out-minority-shareholders.html

http://www.ezylaws.com/siteadmin/uploaded/IMPACT%20ON%20CORPORATE%20RESTRUCTURING.pdf

http://www.livemint.com/Companies/ZNl0MTwxHCb0iQTkCYqlBM/Satyam-minority-shareholders-object-to-share-swap-ratio.html

http://indiankanoon.org/doc/1309415/ http://indialawjournal.com/volume6/issue-2/articl

e5.html http://indiankanoon.org/doc/274449/