Legal Liability And Stages Of Litigation Against A Company

Litigation is the process of resolving a dispute by involving the court of law. The term litigation is derived from the Latin word ‘litigatio’ and 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 various 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 a Company

A company should be prepared for litigation at any point in time. A company can be sued for various reasons. The stages of litigation that a company has to go through is similar to that of other litigation, and a company can be sued for damages.

For example, a company is liable to be sued to receive a claim against the inappropriate quality of the product, for not mentioning proper details of the product, or a series of other reasons. The procedure is common in such a case.

To claim damages, either the customer or the plaintiff will go to consumer court or the National Company Law Tribunal (NCLT). When 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 can be initiated against the company by the following persons:

  • A consumer: A consumer is 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 performing 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 is sued for the following reasons:

  • Illegal termination of the company.
  • Anyone is 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. The company uses the work or idea or ideas of some other person and presents it as its own.
  • A company breaches the contract or 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

The following companies can be held liable for its actions violating the law:

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

Every form of an organisation forms a different kind of liability. If a person sues a sole proprietor firm, the firm’s proprietor is liable. By contrast, if a company is sued, then it is liable and represented by a natural person.

How to Sue a Company for Damages?

Before suing a company, it is better to discuss the matter with the company. This step can be invaluable because for suing a company and claiming the damages, the case has to go through various stages of litigation. The process can become cumbersome at times. Therefore, it is always seen as beneficial to have a discussion with the company regarding issues and find a solution with mutual consent.

In case 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 may help claim the amount. Therefore, consulting a lawyer is always a good option. A lawyer 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 the Brand Image

Maintaining a good brand image is necessary for the survival of the company. Building a brand image is time consuming. Customer’s trust and confidence in the company are seen by its brand image. A company with a clean and clear brand image attracts customers and investors. All company resources may be similar, but only human resources and the brand image are different. A good brand image helps a company 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 arise because of many reasons, including contract disputes, IPR issues, and gender discrimination.

A lawsuit has the following impact on the company:

  • Lawsuit drains the finances of the company. Considerable time, energy, and resources are wasted due to a lawsuit.
  • 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 is destroyed if a lawsuit is 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 Nestle’s ‘Maggie’ brand. This case affected the sale of Maggie badly for almost 2 years.

Avoiding litigation

There is no hard and fast way to avoid a lawsuit. However, such suits can be avoided by taking precautions. For the company, taking precautions is more feasible and work is only done a bit differently. Taking precautions is always preferable. Also, having legal experts in the company may help the company avoid lawsuits.


Litigation in India is a very lengthy process. Litigation is a multistage process. This lengthy procedure of the court proceeding is tiring and time-consuming and is the cause of the large 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 are wasted with time.

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


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?

A company tends to avoid litigation for the following reasons:

  • 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 because it shows the trust and confidence of the customer in the company.

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

The following types of companies can be held liable:

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