Protection of Minorities Against Oppression Under Section 206 of the Companies Act, 1948
| Author | D. G. Rice |
| DOI | http://doi.org/10.1111/j.1468-2230.1958.tb00499.x |
| Date | 01 November 1958 |
| Published date | 01 November 1958 |
PROTECTION
OF
MINORITIES AGAINST
OF
THE
COMPANIES ACT,
1948
OPPRESSION UNDER SECTION
206
SECTION
206
of the Companies Act,
1948,
provides that, where a
compromise
or
arrangement is proposed between a company and its
creditors and/or shareholders, the court may
on
applicntion to
it
summon
a
meeting of the classes concerned and
if
a threequarter
majority in value of each class, voting in person
or
by proxy,
approve the compromise
or
arrangement, and
if
the court also gives
its sanction, the compromise
or
arrangement will bind all the
members of each class.’ Now clearly such a provision exposes the
minority members of a particular class to possible oppression at the
hands of the majority. The purpose, then, of this article is to
examine the safeguards that exist to protect the minority against
such a fate.
It
is quite clear from the provisions of section
206
that the
minority’s real protection lies in the necessity of obtaining the
court’s sanction to any scheme brought under the section, and the
court
will
withhold its consent
in
any of the three following
circumstances
:
(1)
where the mnjority of each class have not acted bona fide
in the interests of that class
(2)
where the scheme of arrangement cannot be regarded as
fair and reasonable and
(8)
at the court’s discretion, where the dissentient minority
have not been granted the same right to be bought out
as
that enjoyed by dissentient shareholders under section
287.
We will consider each safeguard in turn, beginning with
(1).
The first protection presents no difficulty and can easily be
stated. “In exercising its power of sanction under
[s.
2061
the
court
will
see
. . .
that the statutory majority are acting bona fide
and are not coercing the minority in order to promote interests
adverse to those of the class whom they purport to represent.”*
Thus, no consent will be given
if
the majority have subordinated
the interests of the class
in
question to those of ahother class of
1
If
a particular claae hoe no intereet in the arrangement,
it
will. of course,
be unnecessary to obtain
its
approval:
Re
Tea
Corpn., So:sbie
v.
Tea
Corpn.
[1904] 1
Ch.
12
(C.A.).
2
Per
Aetbury
J.
in
Re Anglo-Continental SuppIy
Co.
[1922]
2
Ch.
723
at
p.
736.
See
ale0
Lindley
L.J.
in
Re Alabama, etc., Rail.
Co.
[1691] 1
Ch.
213
(C.A.)
at p.
239
and Lopee
L.J.
in
Re English, Scottish
L
Awtralian
Chartered Bank
[1803]
3
Ch.
385
(C.A.) at pp.
414, 415.
623
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