COMMERCIAL LOW MINORITY SHARE-HOLDERS RIGHTS UNDER SHARE-HOLDERS AGREEMENT - This is with reference to the article in the ET dated 2nd Dec, 2010. Reference was made to the decision of the CLB in Jindial Vijay-angar Steel to put forth the position of CLB that clauses of JV or Shareholders Agreement which provide for consensus or other rights of minority shareholders would be void when inserted in the Articles by way of amendment since these clauses run contrary to the spirit of Company Law (Section 9).! Since the existing company law cases have set a precedent that a company is not bound by shareholders Agreement to which it is a party (it need not be, but sometimes it could be made a party along with the shareholders) if the Agreement requires the company to do or not to do actions which run against the Articles and the company law provisions. Moreover, Articles are the constitutionary documents under law which alone can mandate the company on certain affairs. In this context, it is necessary to understand the concept of waiver of private rights by way of contracting out such rights. The SC in Shri Lachoo Mal Vs.Shri Radhey Shyam AIR1971SC2213 explained the law on this subject by referring to Halsbury’s Laws of England as follows: In Halsbury’s Laws of England, Volume 8, Third Edition, it is stated in paragraph 248 at page 143 : “As a general rule, any person can enter into a binding contract to waive the benefits conferred upon him by an Act of Parliament, or, as it is said, can contract himself out of the Act, unless it can be shown that such an agreement is in the circumstances of the particular case contrary to public policy. Statutory conditions may, however, be imposed in such terms that they cannot be waived by agreement, and, in certain circumstances, the legislature has expressly provided that any such agreement shall be void.” In paragraph 6 of the judgment the SC explains the above position as follows “The general principle is that every one has a right to waive and to agree to waive the advantage of a law or rule made solely for the benefit and protection of the individual in his private capacity which may be dispensed with without infringing any public right or public policy. Thus the maxim which sanction the nonobservance of die statutory provision is cuilibet licat renuntiare juri pro se introducta. (See Maxwell on Interpretation of Sta tutes, Eleventh Edition, pages 375 & 376.) If “there is any express prohibition against contracting out of a statute in it then no question can arise of any one entering into a contract which is so prohibited but where there is no such prohibition it will have to be seen whether an Act is intended to have a more extensive operation as a matter of public policy.” In your article you have stated the violation of shareholder’s statutory rights under the law if the consensus clauses are incorporated in the Articles in matters over which company law requires decisions by simple majority or special majority (basically these are provisions imposing additional threshold limits over and above the required majority under law on certain issues). Can it be said that additional threshold violates rights of the shareholders under the company law? Let us see the effect of the clauses in shareholder’s agreement and in Articles of the company. A majority shareholder who agrees under the shareholder’s Agreement not to vote in favour of some issue unless the minority shareholder expresses his consent in favour of the issue is waiving away his statutory right willingly. It is perfectly valid in law to waive away such private right unless it is proved that such waiver is against the public policy or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent (Section 23 of the Indian Contract Act, 1872). Here court had explained the meaning of “to defeat the provisions of law” as follows: “What makes an agreement, which is otherwise legal, void is that its performance is impossible except by disobedience of law. Clearly no question of illegality can arise unless the performance of the unlawful act was necessarily the effect of an agreement.” The shareholder’s Agreement in effect requires additional majority than that is prescribed by law. If the law requires 51% majority the Agreement might require 99% majority. These clauses are not contrary to what is prescribed under law but are only additional thresholds limits agreed by the shareholders (including the majority). As long as the Agreement is not prescribing lesser percentage like 45% it is not against the law. Even if the contention is the violation of majority shareholder rights, it is voluntary waiver of his rights which is not prohibited in company law or any other law. In the event of insertion of these consensus clauses in the Articles of Association, it is binding on the company legally (as opposed to contractual obligation). But will such clauses run contrary to the spirit of company law and therefore overruled by company law sections as held by the CLB? Can it be called a contradiction of law if the Articles require 75% majority and the law requires at least 51% majority, ! HAVE A NICE DAY ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, FRIENDS ! 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Posted on: Mon, 17 Nov 2014 07:38:46 +0000
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