Mediation for Family Business Disputes

In family businesses, where family relationships and business objectives are inter twined , dispute and disagreement are not only inevitable but are also more complex . While dispute presents challenges for any organization, for family businesses it has a special complexity. Disagreement and dispute in families with business interests  affects familial relationships and can also bring businesses to a standstill impacting  the larger industry,  their supply chains as well as employees and their families . For a family business, managing conflicts   constructively, and many a time confidentially, is a necessity. 

Mediation is the most effective tool available to help families confidentially and effectively manage and resolve disputes that are embedded in personal relationships, past histories, and across generational values. 

Case Study - A Family Business Dispute

  • X was the founder of a manufacturing business
  • X died without a will. 
  • Disagreement set in amongst his 4 children – his sons A and B and his daughters D and E – regarding inheritance. 
  • All the siblings who were once close to each other now fought over receiving fair share in the business. 
  • Y, the mother who tried hard to resolve the differences between her children was diagnosed with a terminal illness. It was her dying wish that her children find peace again.
  • All the siblings agreed to come for Mediation at CAMP.

The process:

  • Mediation uncovered that X had always wished for his sons to run the business and his daughters to own the real estate upon his death.
  • D and E were concerned that many of the real estate properties had been mortgaged to support the business.
  • D and E felt that not having any share in the business was unfair in a home that treated the girls equally with the boys.
  • A and B were of the opinion that the running and operations relating to the company should be left entirely with them because D and E had never been involved with the business. Both D and E have been living abroad for the past 30 years since they got married. 

The Outcome

  • The siblings reached a settlement within a week.
  • D and E were assured that the mortgages against the properties would be cleared by the company.
  • A and B took charge of the company.
  • Over time D and E eventually got more than they asked for in the settlement.
  • All the siblings are still in touch with each other and the family stays united.

Use of ODR

  • D and E both lived abroad.
  • Timing was critical since the mother was given a short period of time to live after her diagnosis.
  • Through technology, mediator was able to quickly commence mediation with the participation of all the siblings and their sick mother. To accommodate various time zones, parties were able to attend mediation sessions that were held early in the morning or late at night. Technology played a very critical role in supporting resolution for this family.
  • Post the mediation, mediator continued to work with the parties to ensure execution of the terms. Mediator also worked with D for a few months after the signing of the settlement agreement to address some of her emotional concerns until she felt satisfied and a sense of closure.

Case Law

Duvvuru Rami Reddy and Ors. v. Duvvuru Srinivasa Reddy and Ors., the Supreme Court of India emphasized the importance of mediation in resolving disputes among shareholders and stakeholders of a company.

Shri Ramalinga Raju v. Satyam Computer Services Limited, the National Company Law Tribunal (NCLT) held that disputes among the stakeholders of a company should be resolved through mediation.

The Bombay High Court in the case of Nusli Wadia v. Tata Sons Limited, held that disputes between shareholders and stakeholders of a company should be resolved through mediation before proceeding to litigation.