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Legal liability and Stages Of Litigation against a company

Litigation is the process to resolve a dispute by the involvement of a court of law. The term litigation gets derived from the Latin word ‘litigatio‘. The term describes the process of enforcing or defending the legal rights of an entity.

Disputes are generally resolved through litigation when the judge pronounces the final decision. Litigation is a broad term that may have long and complex procedures. A suit has to go through different stages of litigation before judgement. A suit against a company is generally a civil suit. The Code of Civil Procedure, 1908, provides the stages of litigation against the company when it is a civil suit.

Litigation against Company

A company has to get prepared for litigation at any point in time. There are numerous reasons for which a company gets sued. The stages of litigation that a company has to go through is similar to that of other litigation, and a company gets sued for damages.

For example, a company gets sued to receive a claim against the inappropriate quality of the product, for not mentioning proper details of the product, and the reason can be many. But what is common is the procedure for such a case.

To claim damages, either the customer or the plaintiff will go to consumer court or the National Company Law Tribunal (NCLT). Once a party goes to the NCLT or Civil Court for claiming damages, he would have to go through the stages of litigation as provided by the Code of Civil Procedure, 1908. The provisions of the Companies Act, 2013 also apply in companies’ cases.

Who can imitate litigation against a company

A litigation proceeding can be initiated against the company by the following persons:

  • A consumer: A consumer can be any person who uses the product or avails of the service provided by the company.
  • People associated with the company: An employee of a company or a person who does any transaction with a company can sue a company. Such a person can be a seller, a money lender (the creditor), an agent, or an employee of the company.
  • Shareholders or members of the company: Shareholders are an integral part of the company. They have the right to participate in the meetings of the company. They can sue the company for defaults or doing any act against the law.
  • Government: Government can also sue a company for doing any activity that may lead to unfair or trade practices.

Stages of Litigation against a company

A lawsuit against a company filed in an NCLT or civil court has to go through the stages of litigation as provided by the Code of Civil Procedure, 1908. The stages include:

  • Stage 1: Presentation of the plaintiff. (Order 7)
  • Stage 2: Service of summons to the defendant (Order 5)
  • Stage 3: Appearance of parties or Ex- Parte Decree (Order 9)
  • Stage 4: Filling of a written statement by the defendant (Order 8)
  • Stage 5: Production of documents by both parties, plaintiff and defendant
  • Stage 6: Examination of parties
  • Stage 7: Framing of issues by the court (Order 14)
  • Stage 8: Summoning and attendance of witness (Order 16)
  • Stage 9: Hearing of Suits and examination of witnesses
  • Stage 10: Argument
  • Stage 11: Judgement by the court
  • Stage 12: Preparation and Execution of Decree

Reasons to Sue a Company

A Company gets sued for many reasons. Some of the reasons are:

  • Illegal termination of the company.
  • Anyone gets harassed either while working or visiting the company as a patron.
  • The company does not pay salaries to the employees of the company.
  • A company fails to clear its liabilities.
  • A company misleads about the product or the financial situation of the company.
  • A company infringes the right of the person. Use the work or idea or idea of some other person and present it as its own.
  • A company breaches the contract or the warranty.
  • A company causes any injury to any person. For example, a company fails to maintain safe working conditions for its employees.

Types of Companies Can Be Liable

Any company can be held liable for its actions that violate the law.

Companies that can be held liable are:

  • Profit-making organisations.
  • Non- profit organisation
  • Sole- proprietors
  • State or central government agencies
  • Schools, hospitals, general stores etc.

Every form of an organisation forms a different kind of liability. If a person sues a sole proprietor firm, the firm’s proprietor would be liable. On the other hand, if a company gets sued, it gets liable and is represented by a natural person.

How to Sue a Company for Damages?

It is said that before suing a company, it is better to discuss the matter with the company. This is because for suing a company and claiming the damages, the case has to go through various stages of litigation; the process becomes very tiring at times. So it is always seen as beneficial to have words with the company regarding issues and find a solution with mutual consent.

If a company refuses to fix the issue, an individual should consider filing a suit against the company. In such a situation, one must start collecting information that might help about claiming the amount. So, consulting a lawyer is always considered a good option. It will help the individual know what type of damages he can claim as per law. If the amount involved in the case is less, it is better to take the issues to the small cause court. It will save both time and cost. The plaintiff has to prepare himself to go through the stages of litigation.

Impact of Lawsuits and Litigation on Brand Image

Brand image is necessary for the survival of the company. It takes time to build a brand image. Customer’s trust and confidence in the company are seen by its brand image. A company with a clean and clear brand image attract customers and investors. All company resources might be similar, but only the human resources and the brand image are different. It helps a company to stand out from the rest of the companies. Companies with a good brand image have more loyal customers.

A legal dispute cannot always be inevitable, and most companies face a legal dispute at some point or the other. A legal dispute can be because of any reason that may include contract disputes, IPR issues, gender discrimination etc.

A lawsuit leaves an impact on the company. The impacts are:

  • Lawsuit drains the finances of the company. The time, energy and resources get wasted due to a lawsuit.
  • Often the relationship between the parties is destroyed due to the lawsuit between the parties. Sometimes, the relation between the parties is never served up again.
  • The reputation of the company gets destroyed if a lawsuit gets publicised, and disputes like fraud can put the business of the company on hold.
  • The lawsuit can destroy the value of the company.
  • It destroys the interest of investors in the company.

A most recent and prevalent example of this is the case against “Maggie.” This case affected the sale of Maggie badly for almost two years.

Avoiding litigation

There is no hard and fast way to avoid a lawsuit. But such suits can be avoided by taking precautions. Precautions do not take much time for the company, and it just means that work gets done a bit differently. If things are done in such a manner that the company does not have to go out of the legal procedures, it would be more helpful for the company. Also, having legal experts in the company might help the company avoid lawsuits.

Conclusion

Litigation in India is a very lengthy process. There are various stages of litigation through which every case goes through. This lengthy procedure of the court proceeding is tiring and time-consuming.

The lengthy procedures of the court are the reason behind such an increase in the number of pending cases in the courts of India. The companies tend to avoid such proceedings not just because they affect their reputation but also because a case pending in the court means many resources get wasted along with the time.

For any company, it is difficult to survive in this competitive market. The various stages of litigation increase the time spent by the company in the courts and make it even more difficult for the person is claiming damages.

FAQs

What do you mean by litigation?

Litigation is the process, act or practice of resolving a dispute in a court of law.

What are the two reasons for which a company tends to avoid litigation?

The two reasons due to which a company tend to avoid litigation are:

  • Litigation harms the reputation of the company
  • Litigation is a time-consuming process

Why is brand image important for a company?

A brand image is vital for a company as it shows the trust and confidence of the customer in the company.

What are the types of companies that can be held liable?

Companies that can be held liable are:

  • Profit-making organisations.
  • Non-profit organisation
  • Sole- proprietors
  • State or central government agencies
  • Schools, hospitals, general stores etc.

About Author

Anshita Surana, born in the year 1999 in Guwahati, Assam and brought up in Hanumangarh, Rajasthan, where I completed my elementary and secondary education from the CBSE board.

Currently, Pursuing B.B.A.LL.B(H) from K. R. Mangalam University, Gurugram.