Shareholder Disputes: Cause & Resolution

Shareholders comes with different background and perspective, where having disagreement over trivial points to matters related to the management of the company is a common issue now days. Out of such disagreement, there are always few issues which are failed to be resolved amicably and convert into a legal dispute which not only affect the shareholders but also paralyzed the management and day to day business affairs of the company. From time to time, we have saw emergence of such shareholders dispute at regular intervals, such as McDonald and Vikram Bakshi, Tata and Mistry and recent ongoing infamous shareholders dispute among Kishore Biyani, Future Group & Amazon; Invesco Group and Zee etc.

Shareholders dispute is different from the contractual disputes among two opposite parties, as the shareholder dispute is not only limited to the balance of rights among the disputed shareholders but it impacts the overall business of the company. The dispute between McDonald and Mr. Vikram Bakshi led to closure of majority of outlets by McDonald and disrupted the entire business model. McDonald is still yet to recover the losses and get it’s market position back even after the settlement happened two years ago in 2019 after a six year long litigation.

The eight long year shareholders dispute between Tatas and Mistry finally come to an end after hon’ble Supreme Court upholds Tatas actions. Summary of dispute and details are below for a better understanding:

December 2012:- Cyrus Mistry was appointed a chairman of Tata Sons to head the group;
October 2016:- Cyrus Mistry was ousted as chairman of Tata Sons;
December 2016:- SP Group and other shareholders owning 18.4% shares in Tata Sons ( these firms are in support/owned by Cyrus Mistry) approached NCLT against ousting of Cyrus Mistry as chairman of Tata Sons;
July 2018:- NCLT rejected shareholders plea for removal of Cyrus Mistry as chairman of Tata Sons;
August 2018:- SP Group challenged NCLT’s order in NCLAT
December 2019:- NCLAT set asides NCLT order and restores Cyrus Mistry on Tata Sons’ board;
January 2020:- Tata Sons approached Supreme Court, which stay he NCLAT order;
September 2020:-Supreme Court restrain SP Group from pledging or transferring any Tata Sons’ shares;
March 2021:- Supreme Court set aside NCLAT order and allowed all the prayers of Tata Sons.

Few of the most common reasons of disagreement among the shareholders which led to dispute are listed below:

a. Differences over management, direction of the business, governance and operational issues;
b. Breach of fiduciary duties and misconduct;
c. Breach of shareholders agreement and / or articles of association;
d. Discrimination of minority shareholder/s;
e. Conflict over roles and responsibilities in the company.

If such disagreement between shareholders arises which can escalate into a dispute, some immediate actions should be taken to protect the interest are listed below:

To review the existing shareholders agreement and the memorandum & articles of the company in order to identify the provisions which a party may have breached or is their any contravention to the governing byelaws of the company;
ii.To resolve the disagreement in amicable way and address the grievances of the aggrieved party, which may not be serious at the moment but can lead to potential dispute;
iii. Take proper legal advice and formulate a complete strategy at the commencement of the shareholder dispute which includes to define the key objectives and the concessions which the party is ready to offer to the other party for resolution;
iv.To understand your rights and liabilities, which may arise with the escalation of the dispute. The party may need to analyze the impact on the management and directors who are been appointed by the shareholders in dispute;
v.To call for all shareholders meeting and present the facts of the case for discussion among all the shareholders and to find out a balanced resolution for the disagreement among two or more shareholders at dispute in the company;
vi.To explore for early settlement and make reasonable offer to aggrieved shareholder which includes but not limited to provide an exit to the other party from the company with minimum disruption on the day to day business of the company;
vii. In general, the shareholders agreement provides for resolution mechanism under which informal negotiation or through arbitration or litigation. Even in absence of any such provision in the shareholders agreement, the Companies Act, 2013 vests National Company Law Tribunal to adjudicate any dispute among the shareholders.

Depending upon the nature and gravity of dispute, the shareholders need to initiate necessary legal action within specified time period at appropriate forum.

If you are in a shareholder dispute, and need to learn more about shareholder dispute resolution, you may connect with us at admin@equicorplegal.com / 8448824659