Corporate Law Practice: Shareholder Disputes, NCLT and Directors' Duties

What does a corporate lawyer actually do for a company?

A corporate lawyer handles the legal relationships inside a company and the company's legal exposure outside it. Inside, that means shareholders, directors, the articles of association, board and general meetings, share transfers and the registers. Outside, it means the Registrar of Companies (ROC), the NCLT, regulators, and the contracts the company signs.

In day-to-day terms, the work splits into three kinds. There is advisory work: reading the articles and a shareholders' agreement and telling a director what he can and cannot do. There is compliance work: making sure the board meets, the annual return and financial statements are filed, and the minutes actually record what was decided. And there is dispute work: a petition before the NCLT, a suit over a shareholders' agreement, an arbitration, or the defence of a director who has received an ROC show cause notice.

The three overlap more than people expect. A shareholder dispute is usually won or lost on the paperwork: whether the board meeting that removed a director was properly called, whether the allotment that diluted a shareholder was made for a genuine need, whether the minutes were signed. That is why we start with the records, not with the grievance.

Can a minority shareholder file an oppression and mismanagement case at NCLT?

Yes. Section 241 of the Companies Act 2013 allows a member to apply to the NCLT where the company's affairs are being conducted in a manner prejudicial to public interest, or oppressive to any member, or prejudicial to the company, or where a material change in management or control is likely to make the affairs prejudicial. Section 242 then gives the NCLT wide powers to put an end to the matters complained of.

The right is limited by section 244. In a company with share capital, the petition must be filed by at least 100 members or one tenth of the total number of members, whichever is less, or by members holding at least one tenth of the issued share capital. The NCLT can waive these requirements on an application, and it often does so where the petitioner is a founder or family member with a real stake but a small shareholding. A waiver is not automatic: you have to show why the case deserves to be heard despite the shortfall.

Oppression is not the same as being outvoted. A majority is entitled to run the company by majority decisions. What the NCLT looks for is conduct that is burdensome, harsh or wrongful towards the minority, or a lack of probity and fair dealing: being shut out of information, being removed from the board without due process, an allotment of shares meant to reduce your holding, diversion of the company's business to another entity, or the company's money used for one group's benefit. A single decision you dislike is rarely enough. A pattern usually is.

The provisions of the Companies Act 2013 that come up most

These are the sections we read first in almost every company dispute. The rules framed under the Act (incorporation, management and administration, accounts) fill in the procedure.

What relief can the NCLT give in a shareholder dispute?

Section 242 lets the NCLT make any order it thinks fit to bring the oppression or mismanagement to an end. The commonly sought orders are: regulating how the company's affairs are conducted in future, directing one group to buy the other's shares (or the company to buy them, with a reduction of capital), setting aside a transfer, allotment or other transaction, removing a managing director or other director, restricting transfers of shares, and recovering losses caused by misconduct.

Interim relief matters more than people realise. Under section 242(4) the NCLT can pass interim orders, for example restraining a further allotment, keeping the shareholding as it is, directing that no assets be sold, or that a disputed board resolution not be acted on. These orders are often decided on the first few dates, on the strength of the documents filed with the petition. A petition that is drafted in a hurry, without the minutes, the allotment record and the MCA filings, tends to lose the interim round and with it much of its practical value.

A buyout order is the most common real outcome in closely held companies, but it brings its own fight over valuation: on what date, by what method, and whether the oppressed shareholder should get a value that ignores the damage done by the oppression. It helps to think about the number you would accept before you file, not after.

What are the duties of a director under section 166?

A director must act in accordance with the articles, act in good faith to promote the objects of the company for the benefit of its members as a whole and in the interests of the company, its employees, shareholders, the community and the environment, exercise due and reasonable care, skill and diligence with independent judgment, avoid situations where his interest conflicts with the company's, not achieve or attempt any undue gain for himself or relatives, and not assign his office. A director who makes an undue gain is liable to pay an equal amount to the company.

In disputes, section 166 works in two directions. A minority shareholder uses it to show that the controlling director has been running the company for himself. A director who has been sidelined uses it to explain why he objected to a transaction and why he cannot be blamed for it. Either way, the board minutes and the director's own emails become the main evidence.

Personal liability is the part directors underestimate. A director can be an "officer who is in default" for filing failures, and in fraud cases section 447 provides for imprisonment from six months to ten years. Signing financial statements or a declaration you have not read is not a defence. If you are a nominal or family director who never took part in management, say so in writing now, and resign properly (with Form DIR-11 and the company's DIR-12) rather than simply walking away.

Can shareholders remove a director, and can a director be removed by the board?

Shareholders can remove a director, other than one appointed by the NCLT, by an ordinary resolution under section 169, before the end of his term. The resolution needs special notice (at least 14 days before the meeting), a copy must be sent to the director, and he has the right to be heard at the meeting and to have his written representation circulated. A removal that skips these steps is open to challenge.

The board, on its own, generally cannot remove a director. It can remove a managing director or whole-time director from that executive role if the articles and his service terms allow, but his seat on the board remains unless the shareholders remove him or he vacates office under section 167 (for example by being absent from all board meetings for twelve months without leave). We see many cases where a director has been "removed" by a board resolution and a DIR-12 filed with the ROC. The filing does not cure the illegality, and the NCLT can set it aside.

Removal as a director is also separate from termination as an employee. A founder who is a whole-time director may have an employment contract, shares subject to vesting, and a shareholders' agreement with buyback rights. Each needs to be dealt with on its own terms.

Share transfer refused, or name missing from the register: what can you do?

If a private company refuses to register a transfer of shares, or does not respond within the time allowed, the transferee can appeal to the NCLT under section 58. If your name has been removed from the register of members, or someone else's has been entered without sufficient cause, section 59 allows an application to the NCLT for rectification of the register. Section 430 bars civil courts from deciding matters that the NCLT is empowered to decide, so these applications go to the tribunal, not to a civil suit.

Rectification is also the route against forged share transfers, which are more common in family companies than people admit: a transfer deed signed in blank years ago, a share certificate that was never handed over, or an allotment shown in the MCA filings but never authorised. Where the facts are seriously disputed and depend on forgery or fraud, the NCLT may decide it can still examine the evidence, or it may leave parts of the dispute to the appropriate forum. Get the original share certificates, transfer deeds, the register of members and the return of allotment before you take a view.

Which forum hears which company dispute?

Choosing the wrong forum costs months. This is the usual division, though the facts of each case can move a matter from one column to another.

If you are not sure which column you fall in, bring the papers and we will tell you at the first meeting. Matters before the tribunal are covered in more detail on our page for NCLT cases in Delhi.

Is a shareholders' dispute arbitrable if the agreement has an arbitration clause?

Partly. A claim that is really about a contract, such as a failure to honour a put option, a breach of a non-compete in a shareholders' agreement or a dispute over the price of shares, can usually be referred to arbitration, and a court or tribunal can be asked to refer the parties under section 8 of the Arbitration and Conciliation Act 1996. A genuine oppression and mismanagement petition, which seeks statutory relief that only the NCLT can give, is generally not sent to arbitration merely because an arbitration clause exists.

The line is drawn on the substance of the petition, not its label. If an oppression petition is a contract claim dressed up as oppression, expect the other side to apply for reference, and expect the NCLT to look closely at it. If you have both kinds of claims, you may need two proceedings, and the order in which you start them matters. Our page on arbitration and conciliation explains the arbitration side, including interim relief under section 9.

What happens if a company stops filing annual returns and financial statements?

Every company must file its financial statements (Form AOC-4) and annual return (Form MGT-7 or MGT-7A) with the ROC each year. When these stop, the consequences pile up in a particular order. First come additional fees, which keep increasing with time. Then penalties under the Act, imposed on the company and its officers in default through adjudication by the ROC under section 454.

If the company fails to file for three continuous financial years, every director of that company becomes disqualified under section 164(2) from being appointed or reappointed as a director of any other company for five years. In practice this has meant directors finding their DIN flagged and being unable to act for their other, fully compliant companies. The ROC can also start strike-off under section 248 against a company that has not been carrying on business or has defaulted in filings, and once the name is removed the company cannot operate its bank account or enforce its contracts.

Most of this is recoverable if you act early. Pending returns can be filed with additional fees, defaults can be compounded under section 441 or penalties paid on adjudication, and a struck-off company can be restored by the NCLT under section 252 if the application is made in time and the company was in fact carrying on business. A routine calendar avoids all of it; our corporate law consultancy page sets out a typical compliance calendar.

How we handle a company dispute, from first meeting to order

The sequence below is how most of our NCLT and shareholder matters run. Some stop at step three.

1. Read the constitution and the records

   We read the memorandum and articles, any shareholders' or founders' agreement, the register of members, board and general meeting minutes, and the company's filings on the MCA portal. Advocate Sadhna Singh usually builds the chronology from these before the first strategy discussion.

2. Identify the forum and the remedy

   We decide whether the matter belongs before the NCLT, a commercial court, an arbitral tribunal, the ROC or a criminal court, and what you actually want: control, an exit at a fair value, reversal of a transaction or protection from personal liability.

3. Write before you file

   A properly drafted notice or a requisition for a general meeting often produces information or a settlement. It also puts the other side on record, which helps later when they claim you never objected.

4. File with the documents that win interim relief

   The petition, the waiver application if section 244 is not met, and the interim application are filed together, with the minutes, filings and bank records that show the wrong. Interim orders are often argued on the first few dates.

5. Pleadings, hearings and the mediation option

   The respondents file replies, we file a rejoinder, and the matter is heard. Adjournments are common. The NCLT may suggest mediation, and many family and founder disputes settle at this stage with a buyout or a division of assets.

6. Order, compliance and appeal

   An NCLT order is followed through: filings with the ROC, changes to the register, payment of the buyout price. An appeal lies to the NCLAT within 45 days under section 421, extendable by another 45 days for sufficient cause, and from there to the Supreme Court on a question of law.

Documents to bring for a company law matter

Bring what you have. If you are locked out of the company's records, tell us; much of it can be downloaded from the MCA portal or demanded through the NCLT.

The contracts behind most company disputes

Most shareholder disputes we see could have been settled in a day if the shareholders' agreement had answered three questions: what happens if we fall out, at what price does one side buy the other, and who decides in a deadlock. Agreements downloaded from the internet usually answer none of them, or answer them in a way that conflicts with the articles. Where the articles and the agreement disagree, the articles generally bind the company, so important rights (pre-emption, tag-along, drag-along, reserved matters, board seats) should be written into both.

Founders' agreements need vesting of shares, assignment of intellectual property to the company, and a clear rule on what happens to an outgoing founder's shares. Investment agreements need the conversion and anti-dilution terms understood by the founders before they sign, not explained to them afterwards. Director service agreements need termination terms that fit the company's articles. We draft and review these on our page for commercial contracts and agreements; on this page, the point is simply that a dispute is decided by what was signed.

Related party transactions, loans to directors and siphoning allegations

Allegations of siphoning usually begin in three places: a related party contract under section 188 (rent paid to a director's relative, purchases from a director's firm), a loan to a director or his concern that falls foul of section 185, or loans and investments beyond the limits in section 186. The Act requires board approval, and above certain thresholds shareholder approval, with the interested director not taking part. Transactions in the ordinary course of business at arm's length are exempt from the approval requirement, which is why the pricing evidence matters.

When we are acting for the minority, we look for the trail: the board minutes approving the transaction (or their absence), the register of contracts under section 189, the disclosure of interest by the director, and the bank entries. When we are acting for the director, the same documents are the defence. A transaction that was disclosed, approved and priced sensibly is hard to attack even if it later turned out badly.

Some disputes cross into criminal law. Diversion of company funds can lead to an FIR for criminal breach of trust (BNS s.316) or cheating (BNS s.318), and in serious cases to an investigation by the Serious Fraud Investigation Office. If that is a possibility in your case, read our pages on economic offences and SFIO cases, and do not file a police complaint as a pressure tactic without advice, because it often hardens the other side and complicates the NCLT case.

Mistakes that weaken a shareholder's or director's case

• Waiting too long. Delay is not fatal in an oppression petition, but years of silence after an allotment you knew about will be used to argue that you accepted it.
• Resigning in anger. A director who resigns loses access to board papers and the standing to object inside the board. Decide on resignation after advice, not after a heated meeting.
• Signing minutes you did not read. Minutes signed by you are treated as an accurate record. If something is wrong, record your dissent in writing at once.
• Taking the company's records home. Removing books, laptops or cheque books from the office can expose you to criminal complaints and undermines an otherwise good petition.
• Relying on WhatsApp promises. An assurance that "your shares are safe" carries little weight against a properly filed return of allotment. Get it in writing, in a document that the company is bound by.
• Fighting on every front at once. An NCLT petition, an FIR, a civil suit and a complaint to the ROC filed in the same month look like harassment and spread your resources thin.

When not to go to the NCLT

An oppression petition is a serious step and rarely a quick one. Even with interim orders on early dates, final hearings can take a year or more, and a contested valuation can add more. During that time the company's business often suffers, banks get nervous and employees leave. If what you really want is to leave the company at a fair price, a negotiated buyout with an independent valuation, or a structured mediation, is usually faster and leaves more value to divide.

We also advise against filing where the facts show ordinary commercial disagreement rather than oppression: a dividend not declared because the company needs the cash, a business decision that turned out badly, or a director losing a vote he expected to win. A weak petition costs money, invites costs against you and teaches the majority that your objections can be ignored. Advocate B.K. Singh's usual first question is a practical one: if the NCLT gave you everything you asked for, what would your position be in two years, and can you get there another way?

Mergers, schemes and closing down a company

Mergers, demergers and other compromises or arrangements with members or creditors go to the NCLT under sections 230 to 232, with meetings of shareholders and creditors (which the NCLT may dispense with in some cases), notices to the ROC, Regional Director, Official Liquidator and income tax authorities, and a final sanction hearing. Mergers between small companies, between a holding company and its wholly owned subsidiary, and certain other classes can use the fast-track route under section 233 before the Regional Director, which is generally quicker.

A company that has stopped business and has no liabilities can apply to the ROC for its name to be struck off under section 248(2). A solvent company that wants to wind up formally, with assets to distribute, generally uses voluntary liquidation under section 59 of the Insolvency and Bankruptcy Code. A company that cannot pay its debts is a matter for the IBC; our page for insolvency cases before NCLT Delhi covers that route. Choosing between strike-off and liquidation depends on what liabilities may surface later, including tax and personal guarantees given by directors.

How the firm works on corporate matters

Advocate Sadhna Singh is usually the first person you speak to. She reads the papers, prepares the chronology and the list of documents still needed, and handles the drafting of notices, minutes and pleadings. Advocate B.K. Singh reviews the strategy, decides the forum, and appears before the NCLT, the NCLAT and the courts. His background in computer applications helps when the evidence is in emails, accounting software or server logs, which in company disputes it often is. You can read more on Advocate B.K. Singh's profile.

Where a matter needs a company secretary or chartered accountant (for valuation, forensic accounts or filings), we work with your professional or one you appoint; we do not do audit or tax computation ourselves. Fees are discussed at the first meeting and agreed in writing, stage by stage. Tribunal fees, stamp duty, valuation fees and other out-of-pocket costs are separate.

What to do this week if a company dispute has started

• Download the company's master data and filings from the MCA portal and save copies.
• Write down the dates: when you became a shareholder or director, each disputed meeting, allotment or transfer.
• Keep your original share certificates and agreements in a safe place, not in the company office.
• Record any dissent in writing to the board, by email, calmly and briefly.
• Do not resign, sign new documents or accept a "settlement" sheet until you have had advice.
• Check whether any notice period or limitation date is running, especially for appeals and restorations.
• Send us the papers through the online enquiry or bring them to a meeting.