Minority Squeeze out- ‘Protection of Minority Interest’ under Company Law
Minority Squeeze Out & Protection of Minority Interest under Company Law
1. What is Minority Squeeze Out?
Minority Squeeze Out refers to a situation where the majority shareholders or promoters use their power to force out minority shareholders from the company.
It involves tactics or mechanisms to buy out or dilute minority interests, often at unfair prices or terms.
It raises concerns of oppression and unfair prejudice against minority shareholders.
2. Why is Protection of Minority Interest Important?
Minority shareholders have limited power to influence company decisions.
They risk being ignored, exploited, or unfairly treated by the majority.
Protecting minority rights ensures fairness, accountability, and trust in corporate governance.
Promotes investor confidence and market integrity.
3. Legal Provisions Protecting Minority Interests
(Example: Indian Company Law - Companies Act, 2013)
A. Oppression and Mismanagement (Sections 241-246)
Minority shareholders (holding at least 10% of shares or voting power) can apply to the National Company Law Tribunal (NCLT) if:
The affairs of the company are being conducted in a manner oppressive to minority.
There is mismanagement or abuse of power by majority.
The Tribunal can:
Pass orders to prevent oppression.
Regulate conduct of company affairs.
Provide relief like buyback of shares or other remedies.
B. Minority Squeeze Out under Shareholders Agreement or Takeover Code
In case of acquisition or merger, if majority shareholders cross a certain threshold (usually 90%), they can squeeze out minority shareholders by buying their shares compulsorily.
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations:
Provides guidelines for compulsory acquisition of minority shares after a takeover.
Ensures fair price and exit opportunity for minority shareholders.
C. Buyback of Shares (Section 68 of Companies Act, 2013)
Company can buy back shares from shareholders, including minorities, under prescribed procedures.
Buyback must be fair and comply with regulatory approvals to protect minority interests.
D. Class Action Suits
Minority shareholders can file class action suits for fraud, mismanagement, or violation of shareholder rights.
4. Key Judicial Principles
Courts and tribunals tend to protect minority shareholders from majority tyranny.
They ensure equitable treatment and uphold the doctrine of ‘fair play’ in corporate dealings.
Acts or decisions causing oppression without justification can be set aside.
5. Practical Measures to Protect Minority Interests
Transparent and timely disclosure of information.
Right to attend and vote in meetings.
Appointment of independent directors.
Legal recourse through tribunals/courts.
Restrictions on transfer of shares to avoid unfair dilution.
6. Summary Table
| Aspect | Protection Mechanism | Description |
|---|---|---|
| Oppression & Mismanagement | Sections 241-246, NCLT | Legal remedy against majority abuse |
| Takeover & Squeeze Out | SEBI Takeover Code | Compulsory buyout at fair price |
| Buyback | Section 68 (Companies Act) | Fair buyback to protect shareholders |
| Class Action Suit | Judicial remedy | Collective action for shareholder rights |
| Corporate Governance | Independent directors, disclosures | Prevent misuse of power |
Why is this important?
Ensures minority shareholders are not marginalized.
Promotes good corporate governance.
Helps maintain investor confidence in the capital markets.
Landmark case summaries on minority oppression
Sample petitions for oppression remedy
Detailed explanation of SEBI takeover regulations
Do write to us if you need any further assistance.
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