A rule of corporations law: So named in reference to the case in which the rule was developed. Harbottle provides that individual shareholders have no cause of action in law for any wrongs done to the corporation and that if an action is to be brought in respect of such losses, it must be brought either by the corporation itself through management or by way of a derivative action.
Harbottle is actually rule of majority supremacy. It means that once a resolution is passed by majority, it is binding on all the members.
Also the courts will in such cases not interfere to protect the minority interest. This is based on the rational that on becoming a member, each person impliedly consents to submit to the will of majority.
Said in another way it is a corollary to the rule that only the company can sue, which again translates to the wish of the majority. Since this principle is based on the case of Foss v. Harbottle [ 2 Hare ] a brief mention of the fact would not be out of place.
In this case action was brought by two shareholders against the alleged fraudulent and illegal transactions by the directors and to make up for the resultant loss to the company. It was held that since the loss is to the company, only the company can bring an action and not the minority shareholders.
Palmer Says… …that the rule refers to two distinct but linked li nked propositions of law. First, the court will not intervene in case of internal irregularity. Second, in case of an alleged wrong, the company is the plaintiff.
Gardiner… …the real reason behind the rule is given. It was said that where an illegal thing is done which can be rectified by the majority, there is no use of litigating, as the ultimate end will be that a meeting will be held, and the majority wishes will be granted.
Jenkins in Edward Vs. Halliwell Said… …that where the majority majority is in favour of what is done then, cadet quaestio i. This is essential because, in its absence the company cannot function smoothly.
Palmer points out, and rightly so, that a proper balance of right of majority and minority shareholder is essential for the smooth functioning of the company. Therefore it is necessary for the courts to do justice; there must be some exceptions to the rule.
In other cases every shareholder may sue in representative character of the corporate interest i. Ultra Vires or Illegal Act: Harbottle rule is inapplicable. If the person against whom the relief is sought is himself in control, the rule of majority supremacy cannot be applied. Where the act is not for the benefit of the company and discriminates between majority and minority shareholders, action can be brought by the minority.
Where a shareholder because of inadequate notice, could not present himself in the meeting where a resolution against him is passed, the rule does not apply.
Where a resolution requiring special majority is actually passed by simple majority, an exception to the rule is found.
Harbottle is not applicable.
Meaning of Ultra Vires: Ultra vires means those things which are outside the scope.ICSI – CS Executive Important Questions / Topics / Chapters For June Exams In the previous post, we have given CS Executive Program Study Material June Today we are providing CS Executive Important Questions / Topics June Caditquaestio is used to indicate that a dispute or an issue is no longer in timberdesignmag.com in Foss v.
Harbottle is actually rule of majority supremacy. It means that once a resolution is passed by majority, it is binding on all the members. After Years, Foss v. Harbottle Still Rules By Albert S.
Frank, LL.B. When a company is harmed, this naturally affects the shareholders. The harm would undermine the value of their shares. Can the shareholders sue if the harm was contrary to law? Foss v. Harbottle Almost years ago the case of Foss v.
Harbottle said no, the shareholders cannot sue. Rule in Foss v Harbottle Definition: A rule of corporations law: shareholders have no separate cause of action in law for any wrongs which may have been inflicted upon a corporation.
So named in reference to the case in which the rule was developed.
harbottle – the case: Since this principle is based on the case of Foss v. Harbottle [() 2 Hare ] a brief mention of the fact would not be out of place.1/5(1). THE RULE OF FOSS V/S HARBOTTLE There are 2 elements present for this rule to happen. They are found in the case of Edwards v/s Halliwell.
•It is the proper plaintiff in an action in respect of a wrong done to a company is prima facia the company itself.