Shareholders: Their rights in India

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Because of a few high-profile standoffs between significant institutional shareholders on one hand and the promoters, directors, and management of the companies in question on the other, the constraints, if any, on shareholders’ rights are under focus.

When it comes to shareholder rights, the focus is always on the little retail shareholder, with large institutional shareholders receiving far less attention. 

However, at times, institutional shareholders’ displeasure, genuine or imagined, manifests itself in the form of a lack of trust in the promoter and the Boards.

The first point to consider in any such dispute is when the dissatisfaction or discontent originated, and whether it was motivated by any specific event involving the company. 

It is not impossible for a positive relationship between an institutional shareholder and the promoter/company to deteriorate without warning. Institutional shareholders must understand that the company’s interests come first. 

As a result, every action, no matter how well-intentioned, should not be disruptive and should not obstruct the company’s operations.

Simultaneously, promoters and boards must consider the genuine concerns of large and small shareholders about Corporate Governance, as well as how the company is handled. Even if the issue is not resolved, a meaningful discourse between the two sets of stakeholders might help to decrease it. 

Despite the restrictions of law and regulations, a big shareholder’s wishlist for the composition of the Board of Directors cannot become a reality fast.

The question also arises as to what, if any, remedy a significant shareholder has when the promoter and the Board appear to be unconcerned about the concerns voiced. 

If the unhappiness becomes insurmountable, one option is to call a General Meeting to remove the entire Board of Directors. In the unlikely event that the requisition does not meet with the Board’s approval, the shareholder can call a General Meeting on its own.

What would happen if the resolution to replace all of the Board of Directors is passed? The corporation can’t afford to have a void in the boardroom.

As a result, the resolution shall also include a request to the National Company Law Tribunal (NCLT) to appoint a provisional Board of Directors until successors are found, following the appropriate procedures.

Corporate conflicts do not appear anywhere. It’s possible that some of the institutional shareholders’ actions didn’t pan out, leading to unhappiness with the promoters and the Board.

This isn’t a problem that couldn’t be solved by reaching out to the Chair of the Board and, through her or him, the Board, to express reasonable concerns.

Every example demonstrates how, in the absence of efficient communication, doubts, discords, and arguments will arise, destroying the corporate organization. 

The strengthening of corporate entities and ensuring that their business processes are established on the pillars of transparency, disclosure, and stakeholder interest are all part of good corporate governance.

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