A minority shareholder in a company contended discrimination against minority due to the withdrawal of funds by the control holders while simultaneously injecting funds into the company while diluting the minority holdings.
The Court held that withdrawal of funds by the controlling shareholder and family members thereof constitutes discrimination against the minority. The Court rejected the argument of the controlling shareholder that the management fees were revised by him during the period because management fees to the controlling shareholder require a special resolution of the general meeting and a decision not made in the manner prescribed by law is void, even if the controlling shareholders could seemingly pass anything at the general meeting had it been convened.
By contrast, non-convening of the board of directors when the controlling shareholder is the sole director, is a procedural flaw that does not invalidates decisions that did not require the convening of a general meeting, such as employing relatives of the controlling shareholder under terms that do not constitute an extraordinary transaction of the Company. However, excessive salaries of family members of the controlling shareholder, as in this case, constitute discrimination against the minority.
Once the Court held that minority discrimination took place the appropriate remedy is to order the control holders to purchase the minority shares at a value which is the company's value at the time of submission of the claim plus the value decrease due to the actions of deprivation and less the control premium. The Court can order an earlier date for calculation if it finds that the control holder acted to reduce the company's value.
The Court also held that in light of the acts of discrimination committed by the controlling shareholder the issuance of shares, which diluted the minority shareholder, is void because the company did not required infusion of funds had the acts of discrimination not taken place. Thus, the acquisition of the minority shares will be as if the dilution did not take place.