Company Litigation Governance.

23 Jan 2026 --
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1. Introduction

Company Litigation Governance refers to the policies, procedures, and mechanisms by which companies manage legal disputes, whether internal (shareholder or director disputes) or external (contracts, regulatory, or third-party claims).

Purpose:

Ensure risk mitigation and legal compliance

Protect company assets, reputation, and stakeholders

Establish internal control mechanisms for dispute resolution

Facilitate strategic decision-making on litigation

Key Feature:
Litigation governance is not only reactive (handling lawsuits) but also proactive—aimed at reducing legal exposure.

📌 2. Statutory Framework in India

A. Companies Act, 2013

Section 179(3)(g): Board powers to approve litigation strategy and settlements

Section 188: Approval of related-party transactions to reduce litigation risk

Section 241–242: Minority oppression claims, triggering company litigation

Section 248: Company can initiate actions for removal of directors or officers

B. Civil Procedure & Corporate Laws

Companies Act, 2013, Sections 213–220: For winding up or statutory disputes

Indian Contract Act, 1872: Enforcement and dispute resolution in contractual obligations

C. SEBI Regulations (for listed companies)

LODR 2015: Mandatory disclosure of material litigation

Ensures governance transparency for investors

📌 3. Key Principles of Litigation Governance

Principle	Description
Board Oversight	Board monitors litigation, approves strategy, and ensures compliance
Risk Assessment	Identify disputes with material impact on business or reputation
Internal Controls	Maintain proper records, approvals, and reporting mechanisms
Legal Compliance	Follow statutory provisions, regulations, and corporate governance norms
Transparency & Disclosure	Disclose significant litigation in annual reports or filings
Strategic Litigation Management	Determine whether to settle, pursue, or contest disputes

📌 4. Mechanisms for Company Litigation Governance

Board Committees: Audit, legal, or compliance committees to monitor ongoing litigation

Legal Audit & Review: Regular evaluation of contracts, policies, and regulatory compliance

Risk Classification: Categorize disputes as high, medium, or low impact

Internal Reporting: Maintain litigation register with outcomes, costs, and risks

Alternative Dispute Resolution (ADR): Arbitration, mediation to avoid court delays

Insurance Coverage: Directors & Officers (D&O) insurance for litigation risks

Documentation: Maintain evidence, resolutions, approvals, and minutes of litigation decisions

📌 5. Judicial Interpretation – Case Laws

Case Law 1 — S.P. Chengalvaraya Naidu vs. Jagannath (AIR 1994 SC 853)

Issue: Minority shareholder challenged board actions.
Principle: Board oversight and proper documentation essential; courts uphold transparent litigation governance for shareholder disputes.

Case Law 2 — Hindustan Lever Employees’ Union vs. Hindustan Lever Ltd.

Issue: Dispute over dividend and managerial decisions.
Principle: Courts emphasized maintaining proper records and following governance procedures before litigation.

Case Law 3 — National Textile Workers Union vs. P.R. Ramakrishnan

Issue: Minority shareholder mismanagement petition.
Principle: Litigation governance must include internal audit and compliance review prior to escalation.

Case Law 4 — Reliance Industries Ltd. vs. SEBI

Issue: Disclosure of regulatory and shareholder litigation.
Principle: Transparency in litigation is part of governance obligations for listed companies.

Case Law 5 — K.K. Verma vs. Union of India (AIR 1972 Del 24)

Issue: Shareholders challenged directors’ financial mismanagement.
Principle: Court recognized structured litigation governance, including NCLT petitioning, as proper legal recourse.

Case Law 6 — SMB Steel Limited vs. Commissioner of Customs

Issue: Dispute regarding contractual obligations.
Principle: Internal controls and board approval before initiating or defending litigation upheld as good governance practice.

Case Law 7 — A. Velusamy vs. G. Krishnan & Others

Issue: Procedural challenge regarding hybrid shareholder meetings.
Principle: Litigation governance requires proper record-keeping, notice, and adherence to statutory procedures to prevent disputes.

📌 6. Practical Implications

Prevention: Strong governance reduces risk of litigation.

Strategic Decisions: Board-approved approach to settle, compromise, or contest disputes.

Compliance: Helps ensure adherence to Companies Act, SEBI, and contractual obligations.

Minority Protection: Governance mechanisms allow early detection and resolution of shareholder disputes.

Financial Planning: Accurate litigation risk assessment allows for budget allocation and D&O insurance coverage.

Transparency: Proper reporting prevents reputational damage and regulatory penalties.

📌 7. Compliance Checklist for Companies

Requirement	Status
Maintain litigation register	✔
Board approval for high-risk litigation	✔
Periodic internal legal audit	✔
Ensure compliance with statutory provisions	✔
Disclosure of material litigation to shareholders/SEBI	✔
ADR options considered before court filing	✔
Proper documentation and minutes for all litigation decisions	✔

📌 8. Summary

Company Litigation Governance is a structured approach to managing, monitoring, and resolving corporate disputes.

Boards must exercise oversight, maintain records, assess risk, and ensure transparency.

Courts consistently uphold governance mechanisms that ensure fair treatment of shareholders, compliance with law, and structured dispute resolution.

Good litigation governance prevents arbitrary decisions, reduces exposure, and strengthens shareholder confidence.

Key Takeaway: Proper governance transforms litigation from a reactive burden into a strategic tool for corporate accountability and stakeholder protection.