[T]he rule in Foss v. Harbottle does not preclude a claim for reduction in the value of the shares where the shareholder has his own cause of action for an injustice done to him and the company that has suffered a loss but is not a cause of law entrusted to him does not have a cause of action. The Court of Chancery dismissed the applicants` claim, holding that, since the impugned acts had caused damage to the company, only the company had the right to bring an action, i.e. the company was the „right plaintiff“ in the particular case and not the shareholders. It was also decided that minority shareholders could not bring an action for wrongdoing, which could be ratified by the majority shareholders. Two rules were proposed – (1) the „Appropriate Plaintiff Rule“, which states that in the event of an injustice inflicted on a company, only the company has the right to take legal action, i.e. only the company is the right plaintiff; and (2) the „majority rule“, which provides that the decisions of the majority shareholders are binding on the corporation and that the court would not intervene in the event of an injustice that could be ratified by the majority shareholders. The „appropriate plaintiff rule“ is also referred to as „the rule in Foss v. Harbottle.“ The origin of the formulation of this rule lies in the doctrine of internal management. According to the doctrine of domestic management, the court will not and does not have the power to interfere in the internal management of companies acting within its powers. According to settled case-law, an action must be brought prima facie by the company itself in order to redress an injustice committed against the undertaking or to obtain damages. To mitigate the severity of the rule, four exceptions to the plaintiff`s correct rule when litigation is allowed: In Rajahmundry Electric Supply Corpn. v.
A. Nageshwara Rao, 1956 AIR SC 213, the court found that the conduct of which the defendant is accused is an injury not only to the plaintiff but to society as a whole. In such cases, the rule is that the company must bring an action in its own name and in its corporate character. It is not obvious that individual members of a corporation are thus declaring the right to bring an action on behalf of the corporation. In law, society and all members of society are not the same. According to that provision, if the exception to personality rights is requested under the rule, the member must prove that the infringement of his right is due to a breach of the company`s articles of association and not to a mere internal irregularity in the internal management of the company. [4] Rights such as „the right to register one`s name and to participate in the register of members[5], the right to vote[6], the right to register one`s vote, the right to stand for election[7], the right to elect directors[8], the right of access to the register of members[9], the right to convene a general meeting[10]“ are some of the personality rights deriving from the Treaty and ordinary law. The first objection raised in the defendants` pleadings was that individual members of the corporation cannot bring an action in the form in which this bill is worded. During oral arguments, I alluded to an opinion with which I fully agree on reflection, namely that the rule on the part of the defendant was far too broad. I think there are cases where a prosecution could be properly framed.
Such undertakings, which are private in nature, are in reality little more than private partnerships; and in cases that can easily be invoked, it would be an exaggeration to believe that a corporation of individuals who have grouped themselves into enterprises which, although beneficial to the general public, are nevertheless private property, should be deprived of, inter alia, its civil rights, because, in order to make their common objectives more achievable, the Crown or the legislature may have given them the advantage of a corporate character.