Derivative Action is a form of protection afforded by the existing legal regime to minority shareholders in a Company. The Companies Act, 2015 allows a member of a company to institute a legal action and/or seek remedy on its behalf. This remedy is available to minority shareholders who desire to challenge harsh conduct, if any, by the majority shareholders and is aimed at enhancing accountability. In the past, a Derivative Action could only be brought under certain instances and exceptions e.g. where the company had acted ultra vires, in instances of fraud by the majority shareholders etc. This was the case because only the Company, being a separate legal entity from its members, could institute claims for any wrongs it had suffered. Currently however, derivative claims may be instituted in instances of acts or omissions that involve negligence, default, breach of duty or breach of trust by a director or any other member of the company.
