Disputes between directors and shareholders are among the most sensitive and complex issues in corporate governance. These disputes often involve control of the company, management decisions, shareholding rights, and allegations of unfair conduct.
Under the Companies Act, 2013, many such disputes fall within the specialised jurisdiction of the National Company Law Tribunal (NCLT). Choosing the correct forum at the outset is critical, as wrong forum selection can defeat otherwise legitimate claims.
1. Nature of Director and Shareholder Disputes
Director–shareholder disputes commonly arise in situations such as:
Allegations of oppression or mismanagement
Exclusion of shareholders from management
Removal or appointment of directors
Dilution of shareholding
Boardroom deadlock
Misuse of majority power
These disputes are not merely contractual in nature; they often involve statutory rights and obligations under company law.
2. Why the NCLT Was Created for Such Disputes
The Companies Act, 2013 established the NCLT as a specialised forum to deal with company law matters requiring:
Expertise in corporate governance
Speed and uniformity in adjudication
Avoidance of parallel civil proceedings
The legislative intent was to ensure that disputes involving the internal affairs of companies are decided by a dedicated tribunal rather than ordinary civil courts.
3. Statutory Basis of NCLT Jurisdiction
The NCLT derives jurisdiction over director and shareholder disputes primarily from:
Sections 241–242 – Oppression and mismanagement
Section 58 & 59 – Refusal of transfer and rectification of register of members
Section 169 – Removal of directors (where challenged)
Section 213 – Investigation into company affairs
Where the Companies Act provides a specific remedy before the NCLT, the jurisdiction of civil courts is generally excluded.
4. When Civil Courts Lack Jurisdiction
Civil courts typically cannot entertain disputes that:
Arise from statutory rights under the Companies Act
Seek reliefs that only the NCLT is empowered to grant
Involve internal management or corporate governance issues
Attempts to frame such disputes as civil suits—through injunctions or declarations—have repeatedly been discouraged by courts.
👉 Jurisdiction cannot be created by drafting; it must flow from statute.
5. Common Mistakes in Forum Selection
From practice, the following errors are frequently seen:
Filing civil suits in shareholder oppression matters
Seeking injunctions from civil courts affecting NCLT proceedings
Parallel proceedings before civil courts and NCLT
Treating governance disputes as private contractual issues
Such mistakes often result in dismissal at the threshold, delay, and loss of strategic advantage.
6. Practical Indicators That NCLT Is the Right Forum
NCLT is likely the appropriate forum where:
The dispute concerns control or management of the company
Relief sought affects the company’s internal affairs
Statutory remedies under the Companies Act are invoked
Collective shareholder interests are involved
Conversely, disputes arising purely from share purchase agreements or personal contracts, without statutory elements, may still lie before civil courts or arbitration forums.
7. Importance of Pre-Litigation Legal Assessment
Early legal assessment helps in:
Identifying the correct forum
Preserving limitation periods
Avoiding jurisdictional objections
Framing reliefs consistent with statutory powers
In many cases, the fate of a dispute is decided before the first hearing, purely on jurisdiction.
8. Strategic Considerations for Directors and Shareholders
Directors and shareholders should keep in mind:
NCLT proceedings are remedy-centric, not punitive
Reliefs are flexible and equity-oriented
Tribunal orders can reshape management and governance
Poorly framed petitions weaken even genuine grievances
A measured, legally grounded approach is essential.
Conclusion: Forum Selection Is a Strategic Decision, Not a Technicality
Director and shareholder disputes strike at the heart of corporate governance. Under the Companies Act, 2013, the NCLT plays a central role in resolving such conflicts. Choosing the correct forum at the outset is often the difference between effective redress and procedural failure.
Early legal clarity and strategic forum selection remain indispensable in protecting corporate and shareholder interests.
Practitioner’s Note
A significant number of director–shareholder disputes fail not on merits, but due to incorrect forum selection. Jurisdictional clarity at the pre-litigation stage is one of the most critical aspects of corporate dispute strategy.
Disclaimer:
This article is intended for informational purposes only.
For professional consultation or legal opinion on director and shareholder disputes or forum selection under the Companies Act, 2013, requests may be submitted through the Advisory page.