Royzz & Co
MCA Update: Supreme Court
The Supreme Court has held that minority shareholders are not automatically entitled to a seat on a private company ’ s board
In Tata Consultancy Services Limited v. Cyrus Investment, the Supreme Court has held that minority shareholders or their representatives do not have the same rights as small shareholders and their representatives, in claiming automatic entitlement to a seat on the board of a private company. According to the Companies Act, 2013, small shareholders are those that hold shares of nominal value that does not exceed INR 20,000. As per the Act, companies must have at least one director on the board, elected by small shareholders. No such provision exists for minority shareholders, thereby precluding them from claiming proportionate representation.
Such rights would only be available contractually as provided for in the Articles of Association of a company. The decision does not negate the concept of quasi-partnership; it only requires that minority shareholders have an agreement to that effect.