Disputes between directors and shareholders are among the most sensitive and complex conflicts in corporate governance. Such disputes often involve control of management, financial transparency, decision-making authority, and protection of minority interests.
A recurring question faced by businesses and professionals is:
Should such disputes be taken to civil courts, or is the National Company Law Tribunal (NCLT) the appropriate forum?
This article explains when and why NCLT is the right forum for director and shareholder disputes, with practical insights drawn from company law principles and litigation experience.
1. Nature of Director & Shareholder Disputes
Director and shareholder disputes usually arise in situations such as:
Allegations of oppression of minority shareholders
Mismanagement of company affairs
Diversion or siphoning of funds
Exclusion of shareholders from management
Removal or appointment of directors in violation of law
Non-holding of board or general meetings
Non-disclosure of financial records
These disputes are not ordinary civil disputes. They directly relate to the internal management and governance of a company, which is regulated under the Companies Act, 2013.
2. Why Civil Courts Are Often Not the Correct Forum
Many aggrieved directors or shareholders instinctively approach civil courts seeking injunctions or declarations. However, this approach frequently results in jurisdictional objections and dismissal.
Key Reason:
The Companies Act provides special remedies before the NCLT, thereby ousting the jurisdiction of civil courts in matters specifically entrusted to the Tribunal.
Courts have consistently held that where the statute provides a special forum and remedy, parties must exhaust that remedy.
3. Statutory Jurisdiction of NCLT in Corporate Disputes
The National Company Law Tribunal has exclusive jurisdiction over several company-related disputes, including:
🔹 Oppression and Mismanagement
Sections 241 & 242 of the Companies Act, 2013
Reliefs include regulation of company affairs, removal of directors, appointment of independent directors, and protection of minority interests
🔹 Rectification of Register of Members
Section 59
Disputes relating to shareholding, transmission, or illegal allotment
🔹 Investigation into Company Affairs
Cases involving fraud, mismanagement, or public interest etc
4. When NCLT Is Clearly the Right Forum
NCLT is the appropriate forum where the dispute:
✔ Relates to internal management of the company
✔ Involves statutory rights of shareholders or directors
✔ Requires corporate restructuring or governance-related reliefs
✔ Cannot be effectively resolved through damages alone
✔ Requires ongoing supervision or corrective directions
Strategic Insight:
If the relief sought affects the structure, management, or governance of the company, NCLT is usually the correct forum.
5. Eligibility and Threshold Requirements
Not every shareholder can invoke NCLT jurisdiction under Sections 241–242.
The Act prescribes eligibility thresholds, including:
Minimum shareholding percentage, or
Waiver of requirements by NCLT in appropriate cases
Proper assessment of locus standi and maintainability is crucial before initiating proceedings.
6. Importance of Strategic Pleadings in NCLT Matters
Unlike ordinary civil suits, NCLT petitions require precise and strategic pleadings.
Common mistakes include:
Treating NCLT petitions like civil plaints
Over-emphasis on personal grievances
Lack of documentary support
Failure to demonstrate oppression or mismanagement
Successful petitions clearly establish:
Continuous oppressive conduct
Lack of probity in management
Prejudice to shareholders or the company itself
7. Interim Reliefs Before NCLT
One of the major advantages of approaching NCLT is the availability of effective interim reliefs, such as:
Stay on board resolutions
Restraint on asset alienation
Suspension of director appointments
Status quo orders
In many cases, interim relief shapes the final outcome of the dispute.
8. NCLT Proceedings and Settlement Possibilities
NCLT proceedings do not rule out settlement. In fact, well-structured petitions often encourage:
Negotiated settlements
Exit of minority shareholders
Buy-out arrangements
Governance restructuring
Strategic litigation before NCLT can therefore act as a catalyst for resolution, not merely adjudication.
Conclusion
Director and shareholder disputes require a forum-specific, statute-driven approach. Approaching the wrong forum can result in loss of time, escalation of conflict, and procedural setbacks.
Where disputes relate to corporate governance, oppression, mismanagement, or statutory rights under the Companies Act, NCLT is often the most effective and appropriate forum.
Timely legal assessment by professionals familiar with company law and NCLT practice is essential to protect corporate and shareholder interests.
🔹 Disclaimer:
This article is for general informational purposes and does not constitute legal advice. Each dispute requires case-specific analysis.