Abstract
Shareholder activism in India has evolved from a peripheral notion to a focal point of corporate governance discourse, driven by regulatory reforms, increased institutional participation, and rising expectations from corporate stakeholders regarding transparency, accountability, and fairness. This article examines whether the present momentum is a passing phase due to novelty or a structural shift in the relationship between shareholders and corporate management. By analysing legal statutes, case law, empirical instances (proof), and judicial precedents, the article concludes that shareholder activism in India is likely to endure and strengthen, though hurdles remain. Finally, some frequently asked questions (FYQs) are addressed to clarify common misconceptions.
Introduction
In corporate law, shareholder activism refers to a set of strategies employed by equity holders to influence corporate behaviour, governance, or policy, beyond merely exercising voting rights. Such activism may involve requisitioning meetings, class actions, voting against management or promoter proposals, demanding board representation, confronting related‐party transactions, or seeking judicial recourse in case of oppression or mismanagement.
India’s corporate governance framework has historically been dominated by promoter-controlled structures, limited separation between ownership and management, and relatively passive minority shareholders. However, over the past decade, significant legal and regulatory changes – notably under the Companies Act, 2013 (“Act”), rules made thereunder, and decisions by SEBI (Securities and Exchange Board of India) – have provided tools and incentives for minority shareholders and institutional investors to become more assertive. The question now is: is what we observe merely an episodic flare-up, or is it indicative of a durable transformation in corporate practice?
The Proof: Evidence & Trends
Below are factual and empirical indicators that suggest shareholder activism is growing, including legal instruments activated, notable cases, and regulatory/regime changes:
1. Regulatory Enablers
The Companies Act, 2013 introduced improved minority shareholder protection via provisions such as Sections 241–246 (oppression & mismanagement), Sections 98–100 (rights to requisition meetings, notice of general meetings, etc.), class action mechanism (Section 245).
SEBI has encouraged transparency via rules on related‐party transactions, enhanced disclosure, virtual general meetings, electronic voting, proxy advisory firms etc.
Proxy advisory firms (e.g. Institutional Investor Advisory Services, IiAS) have grown in influence, enabling institutional shareholders to assess and act on resolutions meaningfully.
2. Empirical & Case‐Based Evidence
In Tata Motors (FY 2013–14), shareholders rejected proposals for paying higher remuneration to three executive directors, because the company had incurred losses/inadequate profit. The special resolutions failed to get the required special majority (75%).
Jindal Poly Films: Minority shareholders (about 4.99% stake, led by Ankit Jain) filed a class action under Section 245 of the Companies Act, alleging mismanagement and oppression, including the sale of financial instruments (OCPS, RPS) to promoter entities at undervalued rates, causing huge losses (alleged to be in the order of ₹2,500-₹2,800 crore). This is India’s first major class action suit since relevant rules became operational.
In the Zee-Invesco episode: Institutional shareholder Invesco requisitioned an EGM to seek changes in board composition. The board resisted; legal proceedings ensued over validity of the requisition notice under Sections 98-100 of the Act.
3. Judicial Precedents & Case Law
Miheer H. Mafatlal vs. Mafatlal Industries Ltd (1996): This Supreme Court decision remains a bedrock in Indian jurisprudence concerning fairness to minority shareholders. The Court held that in schemes of amalgamation or corporate restructure, the fairness of the scheme must be judged from the point of view of minority shareholders and the mechanism must ensure they are not “cornered” by controlling shareholders. The case illustrates long-standing legal recognition of minority interests.
The jurisprudence under Sections 241-246 (Companies Act) has been used to challenge acts of mismanagement, related party transactions, delay in restructuring schemes, etc. (for instance in the ZEEL-SPNI failed merger context).
4. Challenges & Hurdles
Concentration of promoter shareholding in many Indian listed companies still limits efficacy of minority or institutional shareholder pressure. Promoter control often translates into control over board, voting, and thus over agenda.
Legal complexities: delays in judicial process; interpretation of “valid requisition” (e.g., procedural vs substantive aspects) can be contested; burden of proof is high in oppression/mismanagement claims.
Economic disincentives: costs of litigation, risk of retaliation by promoters or management; epistemic or information asymmetry, limited access to inside information.
5. Market & Behavioural Indicators
Institutional investors and mutual funds are increasingly voting against management resolutions seen as unfavourable to minority shareholders. Proxy advisories publish voting recommendations, creating peer pressure.
Greater media attention, investor awareness, and corporate governance rating systems have increased reputational stakes for companies.
Case Law(s)
Here are some significant judicial or quasi-judicial pronouncements relevant to shareholder activism in India:
Miheer H. Mafatlal vs. Mafatlal Industries Ltd, 1996
A scheme of amalgamation was challenged by minority shareholder who alleged unfair treatment by majority/promoters to corner minority interest. The Supreme Court held that fairness must be judged from the viewpoint of minority shareholders; schemes must not deprive them without adequate compensation; control, voting power, influence must be considered.
Tata Motors – Remuneration Resolution Rejection (2014) Company sought special resolution for excess remuneration for three executives in a year of inadequate profits. Shareholders rejected the special resolution — demonstrating that when corporate performance is weak, shareholder vote can override management proposals. This is an example of activism via ordinary/legal voting mechanisms.
Jindal Poly Films Class Action (2024-ongoing) Minority shareholders filed suit under Section 245 alleging mismanagement, related party transactions at undervalue, asset transfers to promoter entities harming shareholder interest. The case is in progress in NCLT but as a procedural precedent marks use of class action tool; demonstrates ability of minority shareholders to collectively challenge promoters.
Zee-Invesco Requisition Case Institutional investor seeks EGM, removal/appointment of board members; questions over validity of requisition notice under Sections 98-100. Courts have indicated that requisition rights of shareholders can be enforced if procedural requirements met, even if management resists; this bolsters corporate democracy rights.
Conclusion
On balance, the evidence points to shareholder activism in India being much more than a passing trend. The legal infrastructure is now well-developed to empower minority shareholders, institutional investors are increasingly willing to assert their rights, regulatory bodies have introduced tools that lower barriers to participation, and courts/NCLT are recognising and adjudicating claims of oppression, mismanagement, or unfair transactions.
That said, several challenges persist: entrenched promoter control, information asymmetry, procedural hurdles, legal cost, delay, and uncertainty in some statutory interpretations (e.g. what constitutes a “valid requisition”; how to value fairness in related party transactions; burden of proof in oppression).
Unless addressed, these might limit the scale or speed of activism. But there are reasons to be optimistic:
As capital markets deepen and shareholdings become more dispersed, the relative strength of institutional and minority shareholders will increase.
Increased awareness (among retail shareholders), better use of technology (e-voting, virtual meetings), more powerful proxy advisory firms, and more recent precedents will cumulatively strengthen the practice.
Reforms (both legislative and regulatory) refining definitions, timelines, remedial powers and improving access (cost, speed) will further consolidate activism.
Thus, shareholder activism in India is increasingly becoming a structural feature of corporate governance rather than a momentary upheaval. It is unlikely to fade; it will evolve in form and strength.
References
1. Minority shareholder activism in light of the Indian Companies Act, 2013, P. Sharma & S. Sachdeva, International Journal of Law and Management.
2. Legal Framework and Emerging Trends of Shareholder Activism in India, Satendra Rajput, IJLMH (2023).
3. Umakanth Varottil, “Shareholder activism is growing in India. But it faces some hurdles”, Indian Express (2021).
4. “The Rise and Rise of Shareholder Activism”, Mondaq, KC Khaitan & Co LLP.
5. Tata Motors remuneration vote case (2014) – “Shareholders reject Tata Motors pay plan proposals of three executives”.
6. Jindal Poly Films class action suit (2024) – “Minority shareholders drag Jindal Poly Films to NCLT over alleged mismanagement”.
7. Miheer H. Mafatlal vs. Mafatlal Industries Ltd, (1996). Supreme Court of India.
Frequently Asked Questions (FYQ)
Q1. What is required legally for shareholders to call an Extraordinary General Meeting or requisition meeting in India?
A: Under the Companies Act, 2013, Sections 98–100 (and associated rules), a requisition by shareholders requires adherence to both numerical thresholds (percentage of shareholding) and procedural compliance (proper notice, requisition in writing, validly signed, etc.). If the board refuses or neglects to call the meeting, shareholders may approach NCLT.
Q2. How strong is the class action remedy under Section 245?
A: The class action (or representative action) is a powerful tool, particularly for minority shareholders to challenge oppression or mismanagement. However, its effectiveness depends on maintaining class homogeneity, adequate proof, timeliness, and that the act challenged indeed falls under the definitions of prejudice, oppression or mismanagement in law. Also, historical inaction or past approvals by shareholders may complicate claims.
Q3. Can shareholder activism backfire or cause negative consequences?
A: Yes. Activism, especially adversarial kinds, can lead to reputational costs, adversarial relations with management beyond boardroom; distraction of management, legal costs, and in some cases, unintended consequences such as regulatory scrutiny. Also, not all shareholders may benefit equally: some conflicts of interest may arise between institutional & retail shareholders.
Q4. Is shareholder activism uniformly effective across all sectors in India?
A: No. Sectors which are highly regulated, with high promoter stakes, or with complex approval regimes (e.g. media, telecom, infrastructure) often present more hurdles. Companies with dispersed shareholding and strong institutional investor presence often see more successful activism.
Q5. What changes would most help consolidate shareholder activism in India?
A: Some possible reforms include: clearer codification of principles like business judgement rule; stronger enforcement and lower litigation cost; better access to information for minority shareholders; refined rules around related party transactions and valuation; enhanced responsibilities (and possibly liabilities) for independent directors; and better stewardship codes for institutional investors.
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