A Shareholder activist is a person who tries to bring change within the
corporation using his rights as a shareholder of a public traded company. They
can influence the decision of the company by using their rights as they are the
partial owners of the corporations. The main source of law for shareholder
activism in India lies in the Companies Act 2013. Besides company law, SEBI also
provides certain rights to the shareholders in India against the company and its
Shareholders put pressure on its management and directors by using an
equity stake in the company. India is seeing a very high trend in Shareholder
activism and the investors are viewed as a positive participative force. India
has witnessed that in the past, the concept of shareholder activism is holding a
good place in unlocking the true value of all the shareholders.
Need of the shareholders activism:
Shareholders use their right to increase their value by acting as a positive
catalyst in the growth of the company. This helps to ensure that the management
will also tries to maximize the long term returns on the investments made by the
They help in maximizing the profit by safeguarding the company resources. They
ensure that the company resources are utilized in a just and prudent manner.
Activist shareholder collectively raises their voice against the injustice more
often. For example in a company, the raw material is purchased in a very high
price from the ruling party. After strong opposition by these shareholders can
force the company to stop this malpractice and change the terms of the contract.
Legal provisions for shareholders activists:
- Mismanagement & Oppression under Companies Act 2013
- Section 241 of the companies act says that if the company affairs are
being conducted in an oppressive and prejudice manner then the shareholder
can file an application before the tribunal court.
- However the government can itself file for an application, if he thinks
that the affairs of the company are prejudicial to the public interest.
- Electronic voting under Companies Act 2013 and SEBI
- Section 108 of Companies Act 2013 prescribes a manner in which a member
of the company can cast his vote through electronic means. Additionally it
is suggested to the company to conduct meeting by providing video
conferencing connectivity in at least 5 different locations.
- Usually general meetings are conducted at the registered office which
makes it difficult for small shareholder to travel to these locations. So
these shareholders should be allowed to cast their vote electronically i.e.
- In July 2012, SEBI mandate the listed companies to start the facility
of E-voting. Currently the top 500 listed companies of BSE & NSE provides the
facility of e-voting to their shareholders. However it is now extended to all
the listed companies.
- Proxy advisory firms in India:
- Proxy advisory firms are the research organizations which evaluate the
pros and cons of the matters such as acquisitions, merger, CEO appointments,
CEO pay, etc. These firms do a deep analysis and produce a detailed report
to advice shareholders on how they should work to safeguard their interest.
- Since 2010, India has a burst in the industry of proxy advisory firms.
Within a short period of time, 3PFA have been published in India and they
have published hundreds of recommendation to the shareholders like
appointment of directors and auditors, major transactions and mergers.
- Now with the recommendation of PFA, the companies can now no longer
exploit the small shareholders and can take part in corporate decision making.
- Minority shareholder approval necessary for related party transaction:
- Section 188 of Companies Act 2013 states that if a company want to enter
into contract with related party then it has to take the consent of the
directors and the report with the justification for entering into such a
contract should be sent to the shareholders.
- If the contract is entered without the approval of the board and if it
has not been ratifies by the shareholders within 3 months then the contract
will be voidable at the option of the board and the directors will be responsible for
the loss, if any occurred.
- Appointment of director by the small shareholders:
- According to Section 151 of the Companies Act 2013, at least one
director must be elected by small shareholders in accordance with the
Central government's terms and procedures.
- A small shareholder is the one who hold the maximum share value of Rs.
20,000 or any other sum as may be prescribed.
Recent campaigns of shareholder activism:
Important case laws:
- Shareholder activism with respect to blocking transactions
There has been plethora of cases where shareholders block transactions which may
bring adverse effects to the shareholder’s interest. As we know the law that the
shareholder cannot vote to approve any decision if he/she has interest in the
related party. In this scenario the interest of minority shareholders has taken
a lot of importance. Some of the instances when shareholder activism leads to
the block of transaction are:
- In 2016, HDFC Standard life insurance co. ltd. and Max life insurance co.
ltd. announced a merger to create a new insurer. A non-compete fee of Rs 8.5
billion rupee has also been paid to one of the promoters.
- In July 2017, the deal between Raymond and its promoters faced a heavy
opposition due to the related party transaction. I t was alleged that there
has been sale of asset at a very low value.
- Shareholder activism with respect to forcing renegotiation of terms
Sometimes the shareholders force the company involving in large transactions to
renegotiate on the terms of the contract.
- For instance in 2014, Maruti Suzuki was highly criticized when he fails to
get approval from the shareholders for the large transactions. Various
shareholders including the infamous shareholder activist LIC come in between the
deal challenging the transaction.
- In December 2019, RIL announced a swap scheme which many shareholders
threatens to challenge this. However in January 2020 after shareholders
opposition, RIL made the scheme optional.
- Shareholders activism with respect to changes in the board composition
Some instances when shareholders/Investors forces the company to make changes in
their board of directors are:
- Investors made a success by removing the chairman of CG Power and
Industrial Solutions because of the certain irregularity allegations.
- In 2018, 22.20% shareholders voted against the voted against the
reappointment of Deepak Parekh as a director HDFC ltd.
- In Cyrus Investments pvt ltd. Vs. Tata sons ltd.
In this case, the petition was filed in NCLT against tata sons ltd. for getting
relief against the oppression and mismanagement (O&M).
Various allegations were alleged by the petitioner (a shareholder) which
according to him was oppressive and against petitioner’s interest.
These allegations include: continuing the loss making project of Nano, acquiring
corpus group at a very inflated price, allowing Mr Ratan tata to interfere in
the company, removing cyrus mistry from the post of director, and many more.
The court held none of the actions of respondent was oppressive and
mismanaged. Various decisions were taken with the bonafide intentions and not to
cause harm or loss to the company. So it was concluded that the actions were not
oppressive and mismanaged and not a violation of section 241 of the companies
- In Brookefield Technologies Pvt. Ltd., it was held that:
A company is an abstract entity in law. The right to complain about oppression
and mismanagement lies within the members of a company. Fairness and probity
rather than legality are the key factors to be taken into consideration by the
Company Law Tribunal in case of oppression. The kind of oppression or prejudice
or unfairness if any caused in a given case, depends on the injury caused to an
affected person is to be determined according to Section 241 of the Companies
The burden to prove oppression and mismanagement is on the petitioner.
A shareholder approaching the tribunal for oppression and mismanagement must
come with clean hands and bona fide intentions.
- When examining oppression and mismanagement in Shanti Prasad Jain v. Kalinga
Tubes, the court stated that one of the major conditions for a case of
oppression under section 241 by a shareholder is that there must be conduct
amounting to wrongdoing by the majority against the minority. Furthermore, this
behaviour cannot occur in a single case, but rather must be repeated on a
- The NCLT held in the case of Sidharth Gupta & Ors. Vs. M/s. Getit Infoservices
Pvt. Ltd. & Ors. that simply violating the company's articles does not
constitute a breach of section 241 of the Companies Act 2013. To prove the act
of oppression and mismanagement, a continuous action with a motive is needed.
- In the famous case of Vikram Bakshi and McDonalds India Private Limited:
FACTS: Mc Donalds India pvt ltd (MIPL) and mr Bakshi came into the join venture
and both acquired 50% stake in CPRPL (a primary franchisee of MIPL. They had
made 4 board of directors. Each party will got a chance chance to nominate 2
member of his choice. The agreement between Vikram bakshi and MIPL stated that
if Vikram bakshi was not the MD, then MIPL has the right to acquire the share of
vikram bakshi at the fair market price.
In 2007, MIPL offered bakshi to sell his share at 5 million dollar which was
contradicted by Vikram bakshi demanding 100 million dollar. In 2013, Vikram
bakshi was terminated as director by alleging him of diversion of funds and
mismanagemt. Vikram bakshi approached NCLT alleging the action as “oppressive
The NCLT ruled in Vikram Bakshi's favour, stating:
- There is no evidence of mismanagement or diversion of funds in the
company's financial statements. Instead, the organisation seems to be in
good financial shape.
- It's also worth noting that the company continues to give him emails
commending his genuine efforts in developing the brand.
- The NCLT found that the respondent's
prejudice and oppression of Mr. Bakshi has been ongoing. As a result, the court
determined that this was a case of oppression and mismanagement.
- As a result, the court reversed his dismissal and reinstated him as
Director of CPRPL..
The last decade have seen a major development in the shareholder activism.
Numerous reforms have been made in the legal framework still many shareholder
donot understand their role in the company. They should come forward and work
for the betterment of the company. They form a very integral part of the
However the efforts by the various regulatory agencies cannot be said to be go
in vain. Various study shows that there have been changing trends in the
shareholder participation and positive result is being witnessed due to these
reforms. If the shareholder activism is given boost then it not only helps the
corporate sector but also improves the efficiency of the country as a whole.
Written by: Apoorv Bansal,
Law student - BBA LL.B (5yrs. Integrated),
BVIMR, Department of Law, New Delhi
Email id: [email protected]