Every company is headed by a board which is responsible for the profits or losses of the company. The board of directors is the most important decision making body within a company. The very same reason makes it important to place reasonable checks and balances on the directors so as to ensure that the actions of the directors are always in the best interest of the company. During the course of management of the company, the directors get to decide whether a company can enter into a lawsuit or not. A company being a legal personality has the right to sue if there is a wrong committed against the company. However, this duty to sue is vested on the board of directors. In the case of John Shaw & Sons (Salford) Ltd V Shaw , Greer LJ stated that:
…show more content…
One such example is the Satyam scam which came into light in 2009. The Satyam scam otherwise known as the Indian Enron scam has brought into light the consequences of the director’s breach of duty. Soon after the Satyam scam came into light after a confession letter from the chairman, Ramalinga Raju, the shareholders in the United States filed a class action suit for claiming damages from the company as well as to audit the firm. While their counterparts in the United States claimed damages, the Indian shareholders were left without any sort of remedy under the then existing Companies Act, 1956. This resulted in the Indian shareholders suffering a huge loss. The researcher argues that it is circumstances like these which led to the codification of the concept of derivative action in India. Soon after this, the Companies Act, 1956 was amended and one amongst the numerous changes was the introduction of the English concept of Derivative Action which was introduced through Section 245 of the Companies Act, …show more content…
The main flaw associated is the need to have a minimum number of parties to the suit in order to file a suit. The law makes it mandatory that there should not be less than 100 members or any percentage of the total members as prescribed for companies having share capital, not less than one-fifth of the total number of members in case of a company not having share capital and not less that hundred depositors or any such prescribed percentage. Having such a provision limits the scope of the Section and makes it difficult to take action against the
One such example is the Satyam scam which came into light in 2009. The Satyam scam otherwise known as the Indian Enron scam has brought into light the consequences of the director’s breach of duty. Soon after the Satyam scam came into light after a confession letter from the chairman, Ramalinga Raju, the shareholders in the United States filed a class action suit for claiming damages from the company as well as to audit the firm. While their counterparts in the United States claimed damages, the Indian shareholders were left without any sort of remedy under the then existing Companies Act, 1956. This resulted in the Indian shareholders suffering a huge loss. The researcher argues that it is circumstances like these which led to the codification of the concept of derivative action in India. Soon after this, the Companies Act, 1956 was amended and one amongst the numerous changes was the introduction of the English concept of Derivative Action which was introduced through Section 245 of the Companies Act, …show more content…
The main flaw associated is the need to have a minimum number of parties to the suit in order to file a suit. The law makes it mandatory that there should not be less than 100 members or any percentage of the total members as prescribed for companies having share capital, not less than one-fifth of the total number of members in case of a company not having share capital and not less that hundred depositors or any such prescribed percentage. Having such a provision limits the scope of the Section and makes it difficult to take action against the