Abhijeet Singh Rathore

BA0140001

TITLE:

Fiduciary Duties of Controlling Shareholders

The law imposes a fiduciary duty on anyone who has the power to control the property of
another person. For this reason, fiduciary duties exist in relations such as; a trustee towards a
beneficiary, an agent towards principal, a guardian towards a legally competent person and a
director towards a company. Both directors and controlling shareholders are vested with the
power to exercise control over the property of others. While the company law has recognized
strict fiduciary duties binding the directors of a company, it has refused to impose a general
fiduciary duty on controlling shareholders. Controlling shareholders have the power to control
the property of others; they may make decisions concerning the companys property and
influence the right of other shareholders. The majority can direct the companys actions and may
bind the minority by its decisions. As controlling shareholders effectively control the companys
and the minoritys property, such a general fiduciary duty should apply to controlling
shareholders.

However there are two different approaches towards this, while the English Common law denies
the imposition of a fiduciary duty on controlling shareholder to minority shareholders. As it
recognized a shareholders voting right as property. The owner of such right may use them as
they wishes. As Jessel, M.R., put it, Those who have the right of property are entitled to
exercise them, whatever their motives may be for such exercise that is as regards a court of Law
as distinguished from a court of morality or conscience, if such a court exists. On the other
hand the United States has recognized the existence of a fiduciary duty incumbent on controlling
shareholders. In order to determine whether the fiduciary duty has been breached, various criteria
have been put forward such as valid purpose and compelling business reason. And recently
Israel, Supreme Court also considered the existence of a fiduciary duty on controlling
shareholders concerning the sale of control.

So therefore while controlling shareholders rights are quite vast, their duties tend to be very
limited. The researcher in his paper therefore explores the duties that controlling shareholders
must owe to minority shareholders, either directly or indirectly. At the same time will analyze
the approach developed by the two legal systems: The English common Law and the American
Law & the Israel Law. And will throw light on some important issues like should the controlling
shareholders fiduciary duty be equivalent to the fiduciary duty owned by the directors of a
company. How this concept can be enacted in Indian scenario. And at the same time will try to
link this concept with the morality on part of controlling shareholders.