Exceptions to the decision of Foss v. Herbottle
(Exceptions to the Decision given in Foss Vs. Harbottle Case)
From the above discussion it appears that in a company the majority of the shareholders dominate and they cannot be prevented from doing any work done irregularly and crossing the limits, but in reality the situation is different from this and done by majority. Actions and their desire are not effective in every situation. There are some actions which, however high the majority may be, cannot be adopted by right conduct. In this case any shareholder can file a suit on his behalf for the loss caused to the company. He can do this while representing the company. These circumstances are the exception of majority dominance or the decision of Foss vs. Herbottle, which are as follows:
1. Acts outside rights- If the company or directors do any such act which is outside the powers conferred by the councilor memorandum, then the rule of dominance of majority will not apply.
Such actions cannot be confirmed by the majority. The case of Bharat Insurance Vs Kanhaiya Lal 1935 is important in this regard.
2. Illegal act If any illegal or unlawful act is done by the company, then no matter how much majority this work is done, it cannot be confirmed. Taking loans in excess of the limit, distribution of dividends from the capital and forfeiture of shares in an arbitrary manner are such functions.
3. Company to do business requiring special majority without passing a resolution
A special motion in the General Assembly before doing certain things under the provisions of the Act.
is required to be passed. Such acts if the company without passing a special resolution
If so, any shareholder of the company can challenge such act in court.
4. If control is in the hands of wrongdoers, if the control of the affairs of the company is in the hands of wrongdoers, then the courts apply the rule of majority dominance while giving decisions keeping in mind the interests of minority shareholders. In such a situation, the court can also allow one of the shareholders to present the latter on behalf of the company against the majority of the shareholders.
5. If the personal rights of the member are taken away – Every shareholder has some special rights in the company such as the right to get information of the assembly, the right to vote in the event of a vote, to receive dividend and to contest for the post of director etc. has a right. If the shareholder is deprived of any of his rights, then no matter how much majority it is done by passing a resolution, the shareholder can submit a petition in the court to stay such motion and get his rights. In this case the rule of majority rule will not apply.
6. In case of fraud with minority shareholders, if the majority shareholder does not exercise his rights
If the minority is used to cheat the shareholders, then in this case the dominance of the majority
The rule does not apply. Any shareholder may sue against a motion that
Through the motion the majority shareholders are cheating the minority shareholders. 7. In the case of injustice and mismanagement, if the majority shareholders do injustice to the minority shareholders and are involved in such activities which are spreading mismanagement in the company, then the court can issue an injunction on the petition of the minority shareholders.