Ruling on Shareholder Rights to Inspect Company Records

[The following guest post is contributed by Dheeraj Kumar Sharma, who is a Manager at Vinod Kothari & Company]


The Mumbai Bench of the Company Law Board (‘CLB’), through its order dated April 16, 2015 in the case of Mr. Anil Kumar Poddar v. Bonanza Industries Limited, dismissed the application of a shareholder who demanded copies of records of a company and sought inspection of the register, minutes, annual returns, and the like, on the ground that such an application was mala fide and frivolous. 

Facts of the Case

In the present case, the applicant is a professional shareholder named Mr. Anil Kumar Poddar (hereinafter referred to as the ‘Applicant’) who holds 5 to 10 shares in various listed companies and, exercising shareholders’ rights, demands copies of the company records, registers, minutes, etc. Bonanza Industries Limited is the company against whom the present application has been filed (hereinafter referred to as the ‘Defendant’), which states that the shareholder complaint is a vexatious one and that the shareholder harbours mala fide intention in his acts. 

While responding to the application, that the Defendant submitted that the Applicant holds a very nominal or negligible shareholding in various listed companies spread all across the country. Being a shareholder, the Applicant has various rights, which include right to obtain copies of records being maintained by the companies and to seek inspection thereof. The Applicant has adopted a modus operandi to slap notices under section 20 of the Companies Act, 2013 (hereinafter referred to as the “Act”) to the companies seeking various records, including minutes, registers, annual returns and financials of the companies against payment of charges for providing such records. However, the intention has never been that of a genuine shareholder who is being concerned of the performance of the company as his shareholding of 5-10 shares in each company shows a contrasting picture. For this purpose the Defendant cited the case of Reliance lndustries Ltd, and Ors. v. Anil Kumar Poddar, in which the Bench of the CLB had observed that the Applicant approached with unclean hands and as a black mailer seeking finance in cash/cheque, therefore making it an application filed with ulterior motive, which was consequently was rejected. The Defendant submitted that the Applicant also gave warning that non-fulfillment of his demands may lead to dire consequences. 

CLB’s Findings

The Hon’ble Bench observed the case in light of approximately 150 other such applications which were filed by the Applicant and were pending before the Bench. The Bench also considered the ruling pronounced by the Calcutta High Court in the matter of Phillips Carbon Black Limited & Ors. V. Anil Kumar Poddar & Anr., where the Applicant was barred from exercising his rights as a shareholder along with his accomplices. The Bench reiterated that to prevent the abuse of the process of the Court, the CLB is entitled to pass such orders as may be necessary having regard to the facts of the case, and since the information demanded by the Applicant is available in public domain as it is a matter common knowledge that the statutory records of all companies are available on MCA portal, hence the Bench concluded that the Applicant is in the habit of making such frivolous applications and is apparently not a bona fide applicant. 

Provisions of Law

Section 20, which deals with the mode of service of documents to and by the company, reads as follows:


(1) Xxx

(2) Save as provided in this Act or the rules made thereunder for filing of documents with the Registrar in electronic mode, a document may be served on Registrar or any member by sending it to him by post or by registered post or by speed post or by courier or by delivering at his office or address, or by such electronic or other mode as may be prescribed: 

Provided that a member may request for delivery of any document through a particular mode, for which he shall pay such fees as may be determined by the company in its annual general meeting.


Arguments by both the Parties


It was argued by the Applicant who appeared in person before the Hon’ble Bench that the Defendant has made wrong allegations of harassing the management through unfair means just to malign the image of the Applicant and hence the intentions of the Defendant are mala fide. He demanded inspection of the records of the company and the copies of such records in his capacity as a shareholder, as such right is vested in him by the statute.


However, counsel representing the Defendant argued that the shareholder holds only 10 shares in the Defendant and has been harassing the company and the management by illegally demanding copies of the records of the Company, despite the fact that the records which he demands can easily be obtained through the portal of the Ministry of Corporate Affairs, website of the stock exchange where the shares of the company are listed or even on the Company’s website. Attention was drawn by the Defendant towards the fact the Applicant had filed 14 more applications against different companies, which were enlisted for hearing on the same day of this hearing, to bring to light the fact that the acts of the Applicant are frivolous in nature and hold no substance. Hence, the Defendant made a request that the application be quashed by the Bench.

Judgment of CLB, Mumbai

The CLB Bench of Mumbai observed that the Applicant is in the habit of making such applications. Acknowledging the Defendant’s submission regarding the availability of records of companies on various websites of regulators and records of the Registrar of Companies (“RoC”) and yet the act of the Applicant filing such applications makes him appear to be a non-bona fide applicant. The Bench dismissed the application stating - “the rights of inspection of documents should be exercised in good faith and taking into consideration the company’s best interest.” It therefore advised the Applicant from resisting himself from filing such frivolous and mala fide applications. However, the Bench also observed that pursuant to the powers vested by the CLB Regulations upon it, it is not competent to pass an order for investigation into charges levelled by the Company. 


Shareholders’ rights have been now discussed in length and at par at various forums. However, it was in the year 1930 in the matter of Johnson Ranch Royalty v. Hickey that the shareholders’ rights were magnified. In that case, it was held that the fundamental principle is that the shareholders own the corporation, including all property possessed by the corporation, including all the information and all the records. Those in charge of the corporation are merely the agents of the stockholders who are the real owners, and the owners are entitled to information as to the manner in which the corporate business is conducted. While the corporation holds the legal title to its property, the stockholders are deemed the real and beneficial owners thereof and, as such, are entitled to information concerning the management of the property and business they have confided to the officers and directors of the corporation as their agents. A stockholder''s assertion of right to inspect the corporation''s books and records is sometimes said to be one merely for the inspection of what is his own. Further, it was declared in the same case that the right to inspect corporate books and records exists so that the shareholder may “ascertain whether the affairs of the corporation are properly conducted and that he may vote intelligently on questions of corporate policy and management.”[1]

The intent of introducing the concept of demanding inspection and copies of records of the company was to facilitate more transparency and governance in the interest of the shareholders where a matter may affect their rights. The same was also introduced to give shareholders control over the company as its their money which is invested in the company and they should have right to obtain information on how their investment is being channelized by the company so as to see if they will get their desired returns from the company or not. However, on the contrary, a ruling pronounced in Guthrie v. Harkness, 199 U.S. 148 (1905) by the United States Supreme Court noted that courts will not compel the inspection of a bank''s books under all circumstances. “In issuing the writ of mandamus the court will exercise a sound discretion, and grant the right under proper safeguards to protect the interests of all concerned. The writ should not be granted for speculative purposes, or to gratify idle curiosity, or to aid a blackmailer, but it may not be denied to the stockholder who seeks the information for legitimate purposes.” Though the ruling was pronounced for inspection of a bank’s records, but the intent is to safeguard the records from going into wrong hands. 

However, vexatious shareholders have been misusing the rights, which could create unnecessary problems for the companies. The Act missed out on the provisions which could require that a shareholder hold a minimum number shares before exercising the shareholders’ right for inspection of documents and other similar rights. In their absence, such rights could be misused by some shareholders to make vexatious demands without legitimacy, including before the judicial platforms and drag companies into unnecessary litigation. 

Carve out for companies to avoid vexatious shareholders

The companies, when faced with such vexatious claims, find themselves in a difficult situation. The Act has vested the shareholders with such rights, and the companies do not have the option to avoid them but to treat their request and act upon it. The lack of power in the hands of companies to fix a minimum threshold of shareholding for exercising the rights of shareholder has left the companies without ammunition in the war with such vexatious members. 

In the era of e-governance and with the various regulators requiring companies to make continuous disclosures with changes on their websites, there seems to be less need for a shareholder demanding documents as in the instant case. Moreover, copies of records are also available to the portal of the Ministry of Corporate Affairs from where one can seek information and copies, so there seem less reasons why a shareholder would have to walk to the company’s offices and ask for copies/information. 

Although there is no specific carve out available to the companies, care must be taken by the officials of the company to discover the motive of the shareholder seeking such inspection and copies of records from the companies. If there appears to be an ulterior motive, then such a request shall be forestalled by the companies by approaching the tribunal/court. 

Impact of Judgement

In my view, this order of CLB will send out a strong message of good corporate governance to the stakeholders and try to curb the fraudulent and mala fide practices being conducted by vexatious shareholders who will also look before they leap. The judgement will surely create an awareness in the corporate world for companies to know and learn the way to tackle such claims and for the investors to equally learn about their rights which are meant to be used in the best interest of the company and the shareholders at large instead of using them for their personal interest or maliciously. Since we are in an era of digitalization, inspection of records and registers shall only be exercised when there is utmost need and matters are serious in nature, so as to avoid the wastage of time and efforts of both the company as well as the shareholders.  

- Dheeraj Kumar Sharma

[1] Note, however, that the notion of ownership rights of shareholders in the property and records of the company may be limited to law as was applicable in the US, and may not necessarily comport with notions of shareholder rights in countries like India.

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