The Majority Rule

The Majority Rule

1. "The cardinal principle of corporate management is the rule by the majority of shareholders." Elucidate this statement by citing the relevant case law. Also mention the exceptions, if any, to this rule with the support of case law.
OR
"Majority will have its way but the minority must be allowed to have its say."
Discuss.
"The rule in Foss Vs. Harbottle has presently lost its importance because of
adequate statutory provisions made in the Companies Act, 1956."
Discuss how adequate are the provisions of the Companies Act, 1956 in this regard.
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Rule in Foss Vs. Harbottle
The management of companies is based on the majority rule. Practically, every question (barring a few exceptions) relating to the management of the affairs of the company is required to be decided upon either by a simple majority or by a special majority of shareholders. This principle of majority rule was first given recognition in
the case of Foss Vs. Harbottle.1 .
In this case, two members of an incorporated company took legal proceedings against the Directors of the company charging them guilty of fraudulent acts resulting in loss to the company. They prayed the Court to ask the Directors to pay damages to the company for the loss sustained on account of their acts. The company in general meeting, by majority, resolved not to take any action against the Directors. The Court held that the actions were capable of confirmation by the majority.
The principle of majority rule has since then been applied to a number of cases.2 In Rajahmundry Electric Supply Company Vs. Nageshwara Rao,3 the Supreme Court observed that lithe court will not, in general, intervene at the instance of shareholders in matters of internal administration, and will not interfere with the management of the company by its Directors so long as they are acting within the powers conferred on them under the Articles of the company. Moreover, if the Directors are supported by the majority shareholders in what they do, the minority shareholders can, in general, do nothing about it".
Exceptions to the Rule in Foss Vs. Harbottle. The aforesaid rule of majority's supremacy as laid down in Foss Vs. Harbottle case, however, does not hold good in all situations. Not only that certain provisions of the Companies Act offer protection to the interest of the minority shareholders but over a period of time quite a few situations have been identified in terms of judicial decisions where majority rule shall not prevail.