If you are stuck in such a situation, here is what to do.

A complex situation arises when a lawyer, who is also a shareholder in a company, is asked to represent another shareholder in a dispute against a third shareholder within the same company. This scenario took place in the city of Alipur, where Mr. Arjun, an advocate, held a small stake in a tech startup, “NextGen Innovations Pvt. Ltd.” Recently, another shareholder, Mr. Vikram, approached him for legal representation in a case of alleged operational mismanagement against a major shareholder, Ms. Diya.

Mr. Arjun was faced with a significant ethical and professional dilemma. His personal financial interests as a shareholder could potentially conflict with his duty to provide unbiased and zealous representation to his client, Mr. Vikram. The core question is whether his dual role as a shareholder and a legal representative creates a conflict of interest that is prohibited under Indian law, and what recourse is available for the parties involved.

Advice in such cases

Navigating such a situation requires a clear understanding of professional ethics and legal duties. A lawyer’s primary duty is to their client, but this cannot come at the cost of professional integrity.

• Immediate Disclosure: The lawyer must immediately disclose their shareholder status to the potential client. Full transparency is the first step to addressing any potential conflict.
• Assess the Conflict: The lawyer must objectively assess whether their financial interest as a shareholder would interfere with their professional judgment and their ability to provide impartial advice. If there is any potential for bias, they should decline the case.
• Review Bar Council Rules: The Bar Council of India Rules on professional conduct strictly prohibit a lawyer from representing a client where there is a conflict of interest. It is crucial to review these rules to ensure compliance.
• Prioritize Professional Duty: The duty to the client and the court is paramount. Any personal interest, financial or otherwise, must be secondary. Representing a client in a matter where the lawyer has a pecuniary interest is a serious breach of professional ethics.
• Advise Independent Counsel: The most ethical course of action is often to refuse the engagement and advise the shareholder to seek independent legal counsel who has no personal stake in the company.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

Applicable Sections of Law

This issue is primarily governed by professional ethics and company law rather than criminal codes like the Bharatiya Nyaya Sanhita (BNS). However, if the dispute involves criminal allegations, BNS provisions could apply.

• The Advocates Act, 1961: This Act empowers the Bar Council of India to frame rules on professional conduct and etiquette for advocates.
• Bar Council of India Rules: Part VI, Chapter II, Section II outlines the “Duties to the Client.” Rule 15 states that an advocate should not be a party to fomenting litigation. Rule 9 prohibits an advocate from acting or pleading in any matter in which they have a pecuniary interest. This is the most direct rule applicable to this situation.
• The Companies Act, 2013: The underlying dispute between shareholders, such as oppression and mismanagement, would be governed by Sections 241-242 of this Act, with proceedings typically taking place before the National Company Law Tribunal (NCLT).
• Bharatiya Nyaya Sanhita, 2023 (BNS): If the shareholder dispute includes allegations of criminal activities like fraud, cheating, or criminal breach of trust, relevant sections of the BNS, such as Section 318 (Cheating), may be invoked.

If you are the complainant

If you are the shareholder seeking representation from a lawyer who is also a shareholder in the same company, you should proceed with extreme caution.

• Question the Lawyer: Directly ask the lawyer about any potential conflicts of interest, including their status as a shareholder.
• Seek Unbiased Counsel: It is in your best interest to be represented by a lawyer who has no personal stake in the outcome of the dispute. Their advice will be objective and solely focused on your legal interests.
• Understand the Risks: Representation by a conflicted lawyer can jeopardize your case. The opposing party can challenge the lawyer’s standing, leading to delays and potential dismissal of your counsel from the case.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

If you are the victim

If you are the opposing shareholder and you discover that the lawyer representing your adversary is also a shareholder, you have specific legal remedies.

• Raise the Objection in Court: Your first step should be to file an application before the NCLT or the relevant court, seeking the disqualification of the opposing counsel on the grounds of conflict of interest.
• File a Complaint with the Bar Council: You can file a formal complaint against the lawyer with the State Bar Council for professional misconduct. The Bar Council has the authority to investigate and take disciplinary action, which can include reprimand, suspension, or even removal from the rolls.
• Document Everything: Gather evidence of the lawyer’s shareholding, which is publicly available from the Ministry of Corporate Affairs (MCA) portal, and document all instances where their conflict of interest may have influenced the proceedings.
• Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.

How the police behave in such cases

Police generally do not get involved in shareholder disputes as they are considered civil matters falling under the jurisdiction of the National Company Law Tribunal (NCLT). The police will typically direct the parties to approach the NCLT or the appropriate civil court. However, police intervention can occur if a criminal complaint (FIR) is filed alleging specific offenses under the Bharatiya Nyaya Sanhita (BNS), such as:

• Cheating and Dishonesty (Section 318 BNS): If it is alleged that one shareholder has fraudulently deceived another.
• Forgery (Section 335 BNS): If company documents or shares have been forged.
• Criminal Breach of Trust (Section 316 BNS): If a director or shareholder entrusted with property or dominion over property misappropriates it.

In such cases, the police will register an FIR and conduct an investigation as per the procedure laid out in the Bharatiya Nagarik Suraksha Sanhita (BNSS). However, they will not intervene in the professional misconduct aspect of the lawyer’s conflict of interest, as that is a matter for the Bar Council.

FAQs people normally have

What legally constitutes a “conflict of interest” for a lawyer in India?

A conflict of interest arises when a lawyer’s personal interests, or their duties to another client, past or present, interfere or appear to interfere with their duty to act in the best interests of their current client. A pecuniary (financial) interest in the subject matter of the litigation is a direct conflict of interest under the Bar Council of India Rules.

Are there any “loopholes” or exceptions?

No, there are no “loopholes.” The ethical rules are strict. The prohibition on representing a client in a matter where the advocate has a pecuniary interest is clear. Attempting to find a loophole would itself be considered unethical.

What action can the Bar Council take against a lawyer for such misconduct?

If found guilty of professional misconduct, the Disciplinary Committee of the Bar Council can impose penalties ranging from a reprimand, suspension from practice for a certain period, to the permanent removal of the advocate’s name from the rolls.

Can a lawyer represent the company itself if they are a shareholder?

This is also a grey area. While a lawyer might be able to perform non-litigious work, representing the company in a dispute, especially an internal one between shareholders, would still present a significant conflict of interest, as their personal interests as a shareholder may not align perfectly with the company’s interests as a whole.

What evidence is required?

To challenge a lawyer on the grounds of conflict of interest, you will need clear evidence:

• Proof of Shareholding: Company records from the Registrar of Companies (RoC), such as the annual return or register of members, which list all shareholders.
• Proof of Representation: The Vakalatnama filed by the lawyer in court, which is a document authorizing them to represent their client.
• Correspondence: Any emails, letters, or legal notices sent by the lawyer on behalf of their client, which establishes their role in the dispute.

How long will the investigation take?

The timeline for resolving such issues can vary significantly:

• Disqualification Motion in Court: An application to disqualify counsel is usually decided relatively quickly by the court or tribunal, often within a few weeks or months, to ensure the proceedings can continue without prejudice.
• Bar Council Complaint: Disciplinary proceedings before the Bar Council are more time-consuming. It can take anywhere from several months to a couple of years for a final order to be passed, depending on the complexity of the case and the workload of the committee.
• Main Shareholder Dispute: The underlying case of oppression and mismanagement at the NCLT can be a lengthy process, often taking two to five years or more to reach a final resolution.

Advocate Sudhir Rao, Supreme Court of India