In Foss v Harbottle (), two shareholders commenced legal action against the promoters and directors of the company alleging that they had misapplied the. Foss v Harbottle Rule is an important rule which was discussed and applied by Wallis JA in am important judgment concerning corporate. Foss Vs Harbottle. 1. COMPANY LAW PRESENTATION MS SHAKARI MURUGANDAN; 2. TASK “Majority of members of company are in an.

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The difficulty with this test is determining what amounts to bad faith, or when the property of the company has been misappropriated. Kanhaiya Lal, where the plaintiff, who was a shareholder of a respondent company, complained about several investments being made by the company without adequate security, which was contrary to the memorandum and therefore, seeked a permanent injunction against the company making any such further investments.

In such a situation applying the majority rule would be unjust and impracticable. Moreover, it is not imperative for the court to find cause for winding up in cases of mismanagement to grant relief.

This is not fos prevalent practice in India, however, it would be useful amendment to bring about to further the cause of protection of interest of minority shareholders. In Mac Dougall v.

The minority can now seek redressal form the court for any violation of their rights and are duly protected under fosz laws governing the functioning of companies. In considering whether to give leave, Judge Kelly recorded that the applicant accepted that the onus was on him to demonstrate that he could pursue a derivative action — namely, that he must show that he had a realistic prospect of success in establishing that the company was entitled to the remedy involved and that he fell within one of the exceptions.

Harbottle and the exceptions to it.

Foss v Harbottle – Wikipedia

A shareholder as well as creditors may apply to the Court for leave to carry out such a vx suit in the name of the corporation. Harbottle cannot be applied mechanically in India. The case made with regard to these mortgages or incumbrances is, that they were executed in violation of the provisions of the Harbotyle.

Legislative Reform The rule in Foss v. The difficulties of a minority shareholder seeking to bring a derivative action are legendary.

When the shareholder acquires a share he accepts the fact that the value of his investment follows the fortunes of the company and that he can only exercise his influence over the fortunes of the company by the exercise of his voting rights in general meeting. Save time with our search provider modern browsers only If you find an error or omission in Duhaime’s Law Dictionary, or if you have suggestion for a legal term, we’d love to hear from you!


In this type of situation we are dealing with the position where a wrong has been done to the company, and the minority shareholder is seeking a right to recover on behalf of the company. I think it would not be open to the company to do this; and my opinion already expressed on the first point is that the transactions which constitute the first ground of complaint may possibly be beneficial to the company, and may be so regarded by the proprietors, and admit of confirmation. On the first point it is only necessary to refer to the clauses of the Act to shew that, whilst the supreme governing body, the proprietors at a special general meeting assembled, retain the power of exercising the functions conferred upon them by the Act of Incorporation, it cannot be competent to individual corporators to sue in the manner proposed by the Plaintiffs on the present record.

In other words, the transactions admit of confirmation at the option of the corporation.

Derivative actions and exceptions to Foss v Harbottle

The claim was rejected in respect of those transactions which a majority of the shareholders of the company had the power to confirm or ratify. But after enactment of Sectionif a case of oppression is established, then the Company Law Board, with a view to bringing to an end the matters complained of, uarbottle free to make an order as it thinks fit.

In case of mismanagement, under Sectionthe affairs of the company should be conducted in a prejudicial manner, or a change in the management of the company, should lead to lead to the affairs of the company being conducted in that manner. Mini-perms and PPPs – what do you need to know? This principle of ratification was to bedevil the minority shareholder when attempting to pursue a wrong done to the company by the controllers.

The defendants demurred to the bill on the basis that the plaintiffs were not entitled to represent the Victorian Park Company, and this could not be haarbottle by adding the corporation as a defendant. I think there are cases in which a suit might properly be so framed.

Simply getting standing is very difficult The action was brought on the basis that the directors were guilty of gross negligence in effecting a sale of a valuable asset worth 1, pounds forpounds.


In Fanning v Murtagh 6 Judge Irvine identified that, as a matter of Irish law, there are four recognised exceptions to the Foss v Harbottle rule, which she summarised as comprising the following categories of wrongdoing: It must also be borne in mind that if a derivative action is successful all recovery flows to the company and the plaintiff shareholder only receives a small pro-rata benefit.

The proposition I have advanced is that, although the Act should prove to be voidable, the cestui que trusts may elect to confirm it. Gardiner, the articles empowered the chairman, with the consent of the meeting, to adjourn a meeting fods also provided for taking a poll if demanded by the shareholders.

Rule in Foss v Harbottle Law and Legal Definition

By far and away the most important protection is the unfair prejudice action in ss. With respect to unfair treatment, an aggrieved member can present a relief petition to any court, in practice, all petitions are presented to the Companies Courtwhich can order for the winding up of the company, on the ground of conduct that has proved to be unfair and prejudicial to the interest of the members in general or a minority of the members, including the petitioner.

In this respect, Lexology provides a buffet and I make the assessment.

The rule laid down in Foss v. In the second case, of winding up of a company, an application may be made to the court by the official receiver, the liquidator or by any creditor of the company or with leave of the court, by any present or past member of the company, for an order against any present or past officer of the company, any person who has acted as a liquidator, administrator or administrative receiver of the company or any other person who has been concerned or taken part in the promotion, formation or management of the company, and who in the case of any such person has misapplied or retained or become accountable for any money or property of the company, or has been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company.

Harbottle poses a serious impediment to the minority shareholder seeking to redress a wrong done to the company.