The hypothesis that a shareholder who holds a large percentage of shares in a corporation is actually in control of that corporation has been a subject matter of great discussion. The fundamental jurisprudence of company law is that a company is a separate legal entity i.e. it is distinct from its members. Further, the ownership and control does not ordinarily vest in the same hands. Whereas , it is the shareholders who are technically the so called "owners" of the company, it is ultimately the board of directors who in essence control the day to day affairs of the company. The reasoning for the above conclusions can be deduced by examining several provisions of the Companies Act and judicial pronouncements related thereto [ which, I shall explore in a later post].
However, in the backdrop of the above, the Bombay High Court has made an interesting observation in BCCI v. Jaipur IPL Cricket Pvt. Ltd. ( Arbitartion Appeal No. 30472 of 2010). Here is the relevant extract:
"As I observed in my judgment dated 8.3.2010 in KPH Dream Cricket Pvt. Ltd. versus Board of Control for Cricket in India, Arbitration Petition (Lodging) No.1303 of 2010, control is a matter of substance and not of form. A person can hold shares without any control over them or the voting rights in respect thereof. Conversely, a person can exercise control over shares, including the voting rights in respect thereof without being a registered holder thereof. The question therefore is whether the said owners in fact controlled the shares of the respondent at all material time (emphasis mine)."- Para. 32
Thus it is safe to say that as per the above observation of the Bombay High Court, in essence who is in control of the company is a question of fact. I shall explore the correctness of this finding in a subsequent post.
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