The Doctrine of “Legitimate Expectation” Under Company Law

Abstract

“The recent Cyrus Mistry-TATA dispute has once again highlighted the doctrine of “legitimate expectation†under Company Law. The Doctrine of ‘Legitimate Expectation’ had been developed and evolved by the English courts in the land mark cases, namely, Yenidje Tobacco Co. Ltd., [1916] 2 Ch. 426 (C.A.)] and Ebrahimi v. Westbourne Galleries Ltd. and Ors., (1972) 2 All ER, which are leading cases on the subject wherein the said doctrine was applied in Company law matters whereas the said doctrine is an administrative law concept.. A limited company is more than a mere juridical entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter-se which are not necessarily submerged in the company structure. In general, members of a company (shareholders) have no legitimate expectations going beyond the legal rights conferred on them by the constitution of the Company, i.e., to say its Memorandum and Articles of Association. Nonetheless, legitimate expectations super imposed on a member’s legal rights may arise from agreements or understanding between the members. The doctrine of “legitimate expectation†applies to closely held companies for the reasons that not only at the time of coming into association, even while continuing with such association, parties undertake obligations with certain legitimate expectations. For the authority on the principles of “legitimate expectationâ€, reference could be made to Boyle & Birds’ Company Law III Edition wherein it is stated that in a quasi-partnership type company, the Court may take account of legitimate expectations of members in deciding the inter-se rights of the shareholder members.

Indian courts have also applied the said concept in various Company Law cases and the same was invoked in the recent case of Cyrus Mistry-Tata dispute before the NCLT/NCLAT which adds an interesting dimension to the Company Law. This article explains the doctrine as evolved in the Company law jurisprudence.â€