INTRODUCTION order to protect the interest of company

INTRODUCTION :  “It is that general principal that when there
has been a wrong done to the company, the company should act only through its
proper organ- generally the Board of directors”1. “In the Foss v Horbottle
court laid down the Majority rule which is  as follows -the only person who can sue in
respect of a wrong done against any corporation is the corporation”2. “For this reason
ordinarily shareholders can not bring any actions themselves and obtain a
remedy with regard to an injury done to the company”3. “Derivative claim is a
deviation from the general rule of majority, one of the key, principles of
company law and hence derivative action is an exception to the majority rule”4. “Such exceptions apply
when the majority are not permitted to ratify the wrong committed against the
company and these cases has described as the wrong which can be characterised
as ‘fraud’ within the meaning of the term in equity and the alleged wrongdoers
are the controllers of the company”5. This concept has been
introduced in the company act, 2013 through chapter XVI section 241-246,
chapter named as prevention of oppression and mismanagement. The concept has
been brought in order to protect the interest of company vis-à-vis shareholder
in those cases where management body or the board of directors of the company
does not act in reasonable manner and which results in the loss to the company
or shareholder interest. It provides a mechanism to the shareholders specially
minority shareholders to bring action against the directors of  the company, on behalf of company which is
not a general recoursefor filing suit on company’s behalf and hence an
exception to the general procedure of filing a suit on behalf of company.
Derivative action as mentioned earlier is an creation of equity however Company
Act has brought the concept within its framework. It was created for use only
in case of necessity, where a wrong would otherwise go unredressed and where
the interest of the minority shareholder is at stake. There are four exceptions
to the rule in foss and horbottle which are ultra vires and illegality, Actions
requiring a special majority, invasion of individual rights,frauds on the

OBJECTIVE :  Discussing A case for allowing derivative
suits in india












Andrew Charman, Johan Du Toit, Shareholder Action, 109  ( 2013)

2  Ibid  101


4  Ibid 110

5  ibid