IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships

Meridian Textiles Pvt Ltd, an Indian company, suffers a loss because its directors sold a company asset to a relative at an undervalue. Rohan, a minority shareholder holding 3% of the shares, wants to sue the directors personally for the company's loss. Under the rule in Foss v Harbottle, which is followed in Indian company law, what is the general position?

The company is the proper claimant for a wrong done to it, so Rohan cannot ordinarily sue the directors in his own name. Under separate legal personality the loss is the company's, not his, subject to exceptions such as derivative actions or oppression remedies.

1. ARohan can sue in his own name for the full loss because he is a shareholder
2. BThe wrong is done to the company, so the company is the proper claimant and Rohan cannot ordinarily sue in his own nameCorrect
3. CRohan can sue only if he holds at least 51% of the shares
4. DRohan must first sell his shares to the directors before bringing any claim
5. Only the company's auditors can bring proceedings against directors