Companies Pay Attention to Minority Shareholders as Investor Awareness Rises 

In a typical company boardroom, the majority's voice is bound to triumph over business decisions. However, the Indian regulatory framework has evolved over the years to consider the interests of minority shareholders of companies.   

With many companies going for public listing and the participation of shareholders across the country rising, the role of minority shareholders is under the spotlight. Experts indicate that the corporate governance standards of a firm can be measured in how they reach consensus on business decisions.   

A report released by primeinfobase.com this week showed that institutional shareholders' dissent declined in the recently concluded proxy season between April and September 2024. According to the data, Shareholder resolutions in which more than 20 per cent of institutional shareholders expressed their dissent declined to 16 per cent, down from 17 per cent in FY24 and FY23.   

Pranav Haldea, Managing Director at PRIME Database Group, indicated that the trend is a healthy sign for corporate governance standards. He noted, “This is an encouraging sign as it shows that companies are continuing to take cognizance of minority shareholders’ interests and are also engaging with investors to understand their concerns before proposing resolutions.”  

Experts suggest that the attention on minority shareholders will increase even further in the coming time.   

Investors Step Up  

The year 2024 has seen some flare-ups between promoters of firms and minority shareholders. Take for instance the case of Jindal Poly Films. In March, a group of shareholders filed a class action lawsuit against the promoter entity.  

As per the allegations, the actions of promoters caused a loss close to Rs 2,500 crore to the minority shareholders who own close to 10% of shares in the company. Notably, this was the first class action lawsuit filed in India. Such lawsuits allow a group of people to file a suit on behalf of others who have suffered similar losses.    

The precedence of such a lawsuit may also give more voice to minority shareholders in the country. Vaibhav Kakkar, Senior Partner at Saraf and Partners, says that such lawsuits allow a good avenue for minority shareholders.  

“The precedent of a class action suit in the Indian context will provide another avenue for protection of minority shareholders and ensure that the standards of transparency and corporate governance in Indian companies, especially listed companies where public funds are involved, are further bolstered,” he says.  

Another firm in the scanner for the treatment of minority shareholders is ICICI. Minority shareholders of ICICI Securities questioned the valuation methodology and claimed that they could have got a better deal. Some shareholders have moved various courts in the case, including the Bombay High Court and National Company Law Tribunal.   

Effective Regulations?  

Recent cases have also brought into question the effectiveness of the regulatory framework. Experts say regulations already provide enough protection to minority shareholders in many aspects under the Companies Act 2013.   

Ramya Subramanian, Chief Strategy Officer at Aparajitha Corporate Services, explains that establishing trust with shareholders is crucial for companies to survive in the long term.  

She says, “Minority shareholders are gaining a more significant voice in governance due to evolving corporate frameworks, regulatory reforms, and the increasing focus on ESG principles. Several provisions under the Companies Act, 2013, SEBI regulations, and ESG disclosure requirements strengthen the rights of minority shareholders.”  

Kakkar agrees that the regulatory framework allows for enough guardrails for the shareholders. “Illustratively, the law requires a listed company to obtain a ‘majority of minority approval’, which is approval by a majority of the minority public shareholders before undertaking any ‘related party transactions’ above a prescribed monetary threshold,” he notes.   

Such provisions ensure that promoters cannot hive off funds and assets from the listed companies to their privately run firms.   

But with more small and big companies hitting the markets, the task is cut to the regulators to ensure the governance norms are followed to protect the rights of all shareholders.