Shareholder Disputes and Oppression and Mismanagement in Family-owned Companies – Key Considerations

Family companies are typically incorporated and managed basis informal family arrangements and mutual trust, often without any third-party involvement such as professional executives and advisors. Indian courts and tribunals treat family-owned companies differently and often grant wide ranging equitable reliefs in oppression and mismanagement disputes. Although not statutorily recognised, closely held family companies are held and treated to be quasi partnerships. Absence of negotiated and documented shareholders agreement, lack of documented secretarial processes for board and shareholders’ meeting and decision making and general disregard to statutory compliance become relevant in the context of oppression and mismanagement claims.

In this article, we discuss the standards of care assessed by courts particularly for closely held family companies and lay out some practical considerations that become relevant for shareholder disputes and in adjudication of oppression and mismanagement claims under Indian law.

Oppression and Mismanagement in Family-owned Companies

While Indian Companies Act, 2013 does not distinguish family-owned companies, Indian courts have been sensitive to business realities. Family owned and controlled companies are scrutinised with a finer lens when it comes to claims of oppression and mismanagement. The parties’ intent and understanding (whether express or implied), and subsequent conduct become relevant factors to determine if the company is to be treated as a quasi-partnership.¹

Indian Courts have been consistent that the management of a family company must be carried on with utmost good faith and fair play. Any action or conduct that deviates from this duty and standards of fair play, affecting the interests of family members constitutes oppression and mismanagement.² On rare occasions, traditional thresholds³ for claims of oppression and mismanagement have been relaxed and even directorial complaints alleging oppression and mismanagement can be investigated. Similarly, contrary to the general rule that a series of prejudicial actions would establish a pattern of prejudicial and oppressive conduct, in the context of family run companies, even a single act can cause continuous oppression.⁴

The standard of governance and fiduciary duties are higher in closely held family companies.⁵ Hence, an aggrieved shareholder claiming oppression and mismanagement must factor in these principles and accordingly, establish a well-documented case.

Common Instances of Oppression and Mismanagement in Family-owned and Controlled Companies

It is not uncommon for majority shareholders in family-owned companies to use power imbalances for collateral motive and personal benefits. Lack of probity in the company’s dealings where directorial duties are disregarded, unaccounted cash transactions and misappropriation of company property for the benefit of an individual or a particular group of shareholders are often scrutinised in oppression and mismanagement cases. This assessment is factual and there cannot be a formulaic determination.⁶

Some common instances of oppression and mismanagement in family-owned companies include:

1. Misuse of Board Control – Use of casting vote by the company’s chairman to appoint relatives to the company’s board under the pretext of maintaining balanced representation and taking critical decisions like approving financial statements through circular resolutions have been held to be oppressive.⁷ Do note that the standard articles of association in Table F of Companies Act, 2013 do vest chairman with a casting vote in case of equality of votes.
   
2. Creation of third-party rights basis informal discussions and family arrangements – Creation of third-party rights in company property basis informal discussions and unwritten family arrangements to bypass formal requirements of corporate approvals and negotiated positions in articles of association and shareholders agreement can constitute suppression of shareholder rights and have been considered oppressive and prejudicial to company interests.
   
   For instance, a shareholder group contended that the disputed lease deed in relation to the company’s sole immovable property was executed pursuant to an ‘oral settlement’ and in violation of the procedure laid out in the company’s charter documents. National Company Law Appellate Tribunal, the specialised appellate court for claims involving oppression and mismanagement, could not locate any ‘oral settlement’ and in the absence of 100% members’ written consent as required under the negotiated articles, the terms of the lease deed were held to be unconscionable and against the company interests.⁸
   
3. Blocking of statutory inspection rights – Shareholders’ rights to inspect company’s statutory registers and books and papers to assess the legality of suspect share transfers is well recognised.⁹ Suspect share allotments, related party transactions and exclusion from meetings and withholding financials in the context of shareholders’ inspection and access rights is also held to be oppression and mismanagement.

Preparing for Oppression and Mismanagement Disputes in Family-owned Companies

In closely held companies, it is not uncommon for majority shareholders to run company affairs as personal fiefdoms to the exclusion of minority shareholders. Aggrieved shareholders often struggle to establish a clear well-substantiated case for oppression / mismanagement as there is little paperwork to demonstrate wrongdoings, and such aggrieved shareholders are often restricted from exercising their access and inspection rights. The Companies Act, 2013 entitles shareholders¹⁰ to seek statutory remedies if the company’s affairs are conducted in a manner prejudicial to the company’s or its members’ interests or to public interest. Promoter-Directors being excluded from company’s management in a family owned and controlled company can approach the jurisdictional National Company Law Tribunal and seek remedies against oppression and mismanagement. ¹¹

Preliminary Considerations

Incorporating rights and restrictions in the company’s charter documents – Family owned and controlled companies typically tend to adopt standard form articles prescribed under the applicable Indian Companies Act. Subsequently, company affairs are conducted basis informal family agreements or loosely drafted contractual arrangements which are not incorporated in the company’s articles.

Informal or verbal arrangements around shareholder covenants related to company’s management that are not incorporated in the company’s articles and/or shareholders agreement often face enforceability challenges. Accordingly, promoters would be well advised to have shareholders’ / family agreement in place to formally document rights and restrictions, affirmative voting items, etc., in relation to managing company affairs in the company’s charter documents. Depending on the facts, family groups could also assess trust structures to govern complicated family holdings.

Evidencing On-going Compliance

Record-keeping of procedural compliances – Closely held companies typically neglect legal and corporate secretarial processes and compliances are an afterthought. For instance, for most privately held family owned and controlled companies, board meetings are never actually conducted, and minutes are signed end of the year to document paper meetings. Allegations of statutory non-compliance in convening board or shareholder meetings often hinge on missing notices, inadequate agendas, lack of proof of service, and prolonged failure to circulate minutes.

Tribunals and courts assess documentary proof of compliance with Companies Act, 2013, Secretarial Standards and the company’s articles to determine validity of board or shareholder meetings and resolutions passed therein.¹² That said, tribunals and courts do not consider a narrow technical and hyper-legalistic view of alleged statutory non-compliances as oppression and/or mismanagement.¹³

Courts also weigh in business realities as majority directors-shareholders often invoke “business judgment” or “company interests” as a shield against oppression claims. In the absence of records evidencing compliance with legal processes, courts may also perceive ‘business interest’ rationale as an afterthought.

Flagging Governance Issues and Seeking Reliefs

Documenting internal disputes and governance concerns – As a preliminary test, Courts determine whether there is prima facie material evidencing that the company’s affairs are being run in a manner prejudicial to the company’s or its members’ interests. In our experience, the interim reliefs sought and the initial hearings to establish a prima facie case for seeking such reliefs assume material significance. Interim reliefs and injunctions granted at the initial stage typically remain in force throughout the proceedings, as oppression and mismanagement cases are fact-heavy and often progress slowly, with IBC matters receiving administrative priority. At this stage, aggrieved shareholders may also assess if data, fraud and quantum experts should be engaged and if such experts’ opinion could back claims by offering credibility and specialist data.

While an isolated illegal act may not amount to oppression and mismanagement, a series of actions evidencing ongoing oppressive conduct by the majority shareholders would entitle the minority shareholders to seek reliefs.¹⁴ That said, in establishing a case for oppression and mismanagement, an applicant will be well advised to not feign complete ignorance about company’s internal affairs. For instance, the claims of ignorance raised by certain shareholders in relation to the company’s allotment of shares was held to be an afterthought and inconsistent with the shareholders’ own conduct and pleadings in the company petition. Courts consider the fact that the shareholders had access to company’s documents and registers, held management positions in the company’s subsidiary, had actively participated in the general meetings where the disputed share allotments were discussed and approved, and even benefitted from the transactions that they claimed to be unaware of.¹⁵

A key strategic step for minority shareholders in family run companies would be to first document governance concerns, exclusion from management or mismanagement of company affairs in the short to mid-term. While family held disputes remain volatile and primarily emotion driven, discussions often veer into non-core personal family affairs which may be legally irrelevant. Aggrieved shareholders must bring back focus on the requirements under Companies Act, 2013 and look at established jurisprudence to guide their claims and actions. The controlling shareholders’ conduct in response to such correspondences can be used as potential evidence to show mismanagement and oppressive conduct, including through correspondences exchanged through instant messaging applications. From a defence perspective, majority shareholders well be well advised to comply with the letter of the law, including the secretarial standards for conducting board meetings and shareholder meetings, and be mindful of legal, optical and equity considerations.

Settlement and Exit

Discussions and documentation around family settlement impacting company affairs also become relevant for determining party conduct while analysing claims of oppression and mismanagement. For instance, in a dispute between two shareholder family groups with equal shareholding in the company, the National Company Law Tribunal held that a validly executed family settlement agreement, despite deficiencies (unstamped and unregistered) would bind the parties, particularly in light of parties’ subsequent conduct.¹⁶ Tribunals are also mindful of parties intention and previous discussions for amicable resolution while granting reliefs around exit and buy-outs.

However, since shares of a private company are not fungible or freely transferable, aggrieved shareholders would be well advised to approach settlement discussions strategically given the benefits of certainty in outcome. Practically, minority shareholders should evaluate whether pursuing an oppression and mismanagement claim to its conclusion and waiting for a court-ordered exit at a negotiated fair value makes commercial sense given the constraints and limitations of valuation methodology adopted in Court mandated exits and buy-outs.

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1. Ebrahimi v. Westbourne Galleries Limited, (1972) 2 All ER 492 (House of Lords) ↩︎
2. Prabhu Dayal Chitlangia v. Trinity Combine Associates P. Ltd., (1999) 4 Comp LJ 514 (CLB-PB) ↩︎
3. Section 244 of the Companies Act, 2013 prescribe that (i) in case of a company having share capital, at least 100 members or at least 1/10th of the total number of its members, whichever is less, or any member or members holding at least 1/10th of the issued share capital of the company, or (ii) in case of a company without a share capital, at least 1/5th of the total number of members, shall have the right to seek reliefs under Section 241 of the Companies Act, 2013. ↩︎
4. Naresh Mohan Mittal v. Sangeeta Construction P. Ltd., (2013) 178 Comp Cas 188 (CLB):2011 SCC Online CLB 120 ↩︎
5. M.S.D.C. Radharamanan v. M.S.D. Chandrasekara Raja, (2008) 143 Comp Cas 97: (2008) 6 SCC 750 ↩︎
6. Shailja Krishna v. Satori Global Limited and Ors, (2025) 259 Comp Cas 1: 2025 SCC Online SC 1889 ↩︎
7. Venus Petrochemicals (Bombay) Private Limited v. Sunil M. Thakkar, dated 14 August 2024 in Company Appeal (AT) No. 65/2022 ↩︎
8. Ajay Kumar Agrawal v. Rancy Construction Private Limited and Others, (2024) 251 Comp Cas 69: 2024 SCC Online NCLAT 516 ↩︎
9. Dinesh Jhunjhunwala v. Citixsys Technologies Ltd. & Ors, 2022 SCC Online 2263 ↩︎
10. Section 244 of the Companies Act, 2013 prescribe that (i) in case of a company having share capital, at least 100 members or at least 1/10th of the total number of its members, whichever is less, or any member or members holding at least 1/10th of the issued share capital of the company, or (ii) in case of a company without a share capital, at least 1/5th of the total number of members, shall have the right to seek reliefs under Section 241 of the Companies Act, 2013. ↩︎
11. Anant Ram Sarangal v Balwant Bros. P. Ltd., (2008) 145 Com Cases 642 (CLB): 2006 SCC Online CLB 85 ↩︎
12. Shailja Krishna v. Satori Global Limited and Ors (Supra) ↩︎
13. Seth Mohanram Ganpatram v. Sayaji Jubilee Cotton & Jute Mills Co. Ltd., (1964) 34 Comp Cas 777: 1964 SCC Online Guj 66 ↩︎
14. Sangramsingh P. Gaekwad v. Shantadevi P. Gaekwad, (2005) 123 Comp Cas 566: (2005) 11 SCC 314 ↩︎
15. Sangramsingh P. Gaekwad v. Shantadevi P. Gaekwad, (Supra) ↩︎
16. C. Valli Narayan v. C. Krishniah Chetty and Sons Private Limited and Ors., 2025 SCC Online NCLAT 1533 ↩︎