Class Action Suits under Companies Act, 2013

The concept of Class Action Suits is among one of the many novelties introduced by the
Companies Act, 2013. Thought the concept per se is not new but in Indian context it has found
statutory recognition and enforceability now only by means of Companies Act 2013.

The first time class action suit came to the spotlight in the context of securities market was when
the Satyam scam broke out in 2009. At that time, the Indian investors in India couldn't take any
legal recourse against the company while their counterparts in USA filed class action suit
claiming damages from the company and the auditing firm.

Credit to the Satyam scam, India has introduced class action suit in the new Companies Act,
2013 by means of Section 245 which is yet to be notified by the Ministry of Corporate Affairs.

In simple terms, a class action suit refers to a lawsuit that allows a large number of people with a
common interest in a matter to sue or be sued as a group. It is a procedural device enabling one
or more plaintiffs to file and prosecute a litigation on behalf of a larger group or class, wherein
such class has common rights and grievances.

PROVISIONS RELATING TO CLASS ACTION SUIT AS CONTAINED IN

COMPANIES ACT, 2013

Section 245 of the Companies Act, 2013 (Act) contains provisions regarding Class Action Suits
which are discussed in detail below:

Who can file Class Action Suits?

As per Section 245 (1) read with Section 245 (3), a Class Action Suit may be filed by:

1. Member or members or any class of them, as described below

in the case of a company having a share capital,

- any 100 or more members of the company, or members equal to or exceeding 10% of the total
number of its members, whichever is less, or

- any member or members singly or jointly holding atleast 10% of the issued share capital of the
company, subject to the condition that the applicant or applicants has or have paid all calls and
other sums due on his or their shares
 in the case of a company not having a share capital, members equal to or exceeding 1/5th of the
total number of its members.

2. Depositor or depositors or any class of them, as described below

- any 100 or more depositors of the company, or depositors equal to or exceeding 10% of the
total number of its depositors, whichever is less, or

- any depositor or depositors singly or jointly holding atleast 10% of the total value of
outstanding deposits of the company.

3. The Central Government, if it is of the opinion that the affairs of the company are being
conducted in a manner prejudicial to public interest

Before which authority class action suit needs to be filed?

Application for class action suit has to be filed before the National Company Law Board
Tribunal (NCLT/Tribunal).

When can a Class Action Suit be filed?

Members or depositors or any class of them, as indicated above, may file a class action suit if
they are of the opinion that the management or conduct of the affairs of the company are being
conducted in a manner prejudicial to the interests of the company or its members or depositors
seeking all or any of the following orders, namely:.

(a) to restrain the company from committing an act which is ultra vires the articles or
memorandum of the company;

(b) to restrain the company from committing breach of any provision of the companys
memorandum or articles;
(c) to declare a resolution altering the memorandum or articles of the company as void if the
resolution was passed by suppression of material facts or obtained by mis-statement to the
members or depositors;

(d) to restrain the company and its directors from acting on such resolution;

(e) to restrain the company from doing an act which is contrary to the provisions of this Act or
any other law for the time being in force;

(f) to restrain the company from taking action contrary to any resolution passed by the members;

(g) to claim damages or compensation or demand any other suitable action from or against

(i) the company or its directors for any fraudulent, unlawful or wrongful act or omission or
conduct or any likely act or omission or conduct on its or their part;

(ii) the auditor including audit firm of the company for any improper or misleading statement of
particulars made in his audit report or for any fraudulent, unlawful or wrongful act or conduct; or

(iii) any expert or advisor or consultant or any other person for any incorrect or misleading
statement made to the company or for any fraudulent, unlawful or wrongful act or conduct or any
likely act or conduct on his part;

(h) to seek any other remedy as the Tribunal may deem fit.
Against whom a Class Action Suit can be filed?

Class action suit can be filed against the:

Company,

Any of its directors

Auditor, including audit firm

Expert or advisor or consultant or any other person

In case of any claim against an audit firm, the liability shall be of the firm as well as of each
partner who was involved in making any improper or misleading statement of particulars in the
audit report or who acted in a fraudulent, unlawful or wrongful manner

What action will be taken by NCLT on a class action suit application?

On receipt of a class action suit application, the Tribunal will look into the following before
admitting it:
o whether the member or depositor is acting in good faith in making the application for seeking
an order;

o any evidence before it as to the involvement of any person other than directors or officers of
the company on any of the matters on which an order can be passed;

o whether the cause of action is one which the member or depositor could pursue in his own right
rather than through an order under this section;

o any evidence before it as to the views of the members or depositors of the company who have
no personal interest, direct or indirect, in the matter being proceeded under this section;

o where the cause of action is an act or omission that is yet to occur, whether the act or omission
could be, and in the circumstances would likely to be

- authorised by the company before it occurs; or

- ratified by the company after it occurs;

o where the cause of action is an act or omission that has already occurred, whether the act or
omission could be, and in the circumstances would be likely to be, ratified by the company.

If the application is admitted, the Tribunal will

o Issue a public notice to all the members of the class by publishing the same within 7 days of
admission of the application once in a vernacular newspaper in the principal vernacular language
of the state in which the registered office of the company is situated and circulating in that state
and at least once in English in an English newspaper circulating in that State.

o Require the company to place the public notice on the website of such company, if any, in
addition to publication of such public notice in newspaper and such notice shall also be placed
on the website of the Tribunal, if any, on the website of Ministry of Corporate Affairs, on the
website, if any, of the concerned Registrar of Companies and in respect of a listed company on
the website of the concerned stock exchange(s) where the company has any of its securities
listed, until the application is disposed of by the Tribunal.

o Consolidate all similar applications prevalent in any jurisdiction into a single application and
the class members or depositors shall be allowed to choose the lead applicant and in the event the
members or depositors of the class are unable to come to a consensus, the Tribunal shall have the
power to appoint a lead applicant, who shall be in charge of the proceedings from the applicants
side

o Not allow two class action applications for the same cause of action.

A copy of every application made under this section shall be served on the Regional Director
and Registrar of Companies.

The Tribunal shall give notice of every application made to it under this section to the Central
Government and shall take into consideration the representations, if any, made to it by that
Government before passing a final order under those sections.
 Where any application filed before the Tribunal is found to be frivolous or vexatious, it shall,
for reasons to be recorded in writing, reject the application and make an order that the applicant
shall pay to the opposite party such cost, not exceeding Rs. 1 Lakh, as may be specified in the
order.

Penalty for non-compliance of order passed by Tribunal

Any company which fails to comply with an order passed by the Tribunal under section 245 shall
be punishable with fine which shall not be less than Rs. 5 Lakhs but which may extend to Rs. 25
Lakhs and every officer of the company who is in default shall be punishable with imprisonment
for a term which may extend to 3 years and with fine which shall not be less than Rs. 25,000/-
but which may extend to Rs. 1,00,000/-.

Under Section 425 of the Companies Act, 2013 the Tribunal has also been conferred the same
jurisdiction, powers and authority in respect of contempt of its orders as conferred on High Court
under the Contempt of Courts Act, 1971.

Other points relating to Class Action Suits:

The cost or expenses connected with the publication of the public notice shall be borne by the
applicant and shall be defrayed by the company or any other person responsible for any
oppressive act.
 Any order passed by the Tribunal shall be binding on the company and all its members,
depositors and auditor including audit firm or expert or consultant or advisor or any other person
associated with the company.

Provisions relating to class action suits do not apply to a banking company.

Introduction
The introduction of class action suits is one of the major changes introduced by the
Companies Act, 2013. The major objective behind the provision of class action suits
is to safeguard the interests of the minority shareholders. So, class action suits are
expected to play an important role to address numerous prejudicial and abusive
conduct committed by the Board of Directors and other managerial personnel as it
has been statutory recognized under the Companies Act, 2013.
What is class action suit?
A class action suit is a lawsuit where a group of people representing a
common interest may approach the Tribunal to sue or be sued.
It is a procedural instrument that enables one or more plaintiffs to file and
prosecute litigation on behalf of a larger group or class having common rights
and grievances.

Who are entitled to file class action suits?

1) Members:
a) In case of a company having share capital, member or members:
not less than 100 members of the company or

not less than 10% of the total number of its members, whichever is less or

any member or members singly or jointly holding not less than 10% of the
issued share capital of the company.
Provided that the applicants have paid all calls and other sums due on their shares.
b) In case of a company not having a share capital, member or members:
not less than 1/5th of the total number of its members.

2) Depositors:
The number of depositors shall not be less than 100 or

not less than 10% of the total number of its depositors, whichever is less or

any depositor or depositors singly or jointly holding not less than 10% of the
total value of outstanding deposits of the company.

Who may be sued through class action suits?

A class action suit may be filed against the following authorities:
A company or its directors for any fraudulent, unlawful or wrongful act or
omission;
 an auditor including audit firm of a company for any improper or misleading
statement of particulars made in the audit report or for any unlawful or
fraudulent conduct.
an expert or advisor or consultant for an incorrect or misleading statement
made to the company.

Which reliefs may be claimed through class action suits?

Any member or depositor on behalf of such members or depositors may file a class
action suit before the National Company Law Tribunal (NCLT) to:
A) restrain the company from committing an act which is beyond the powers of the
articles or memorandum of association of the company;
B) restrain the company from committing breach of any provision of companys
memorandum or articles;
C) to declare a resolution as void for altering the memorandum or articles of the
company or passed by suppression of the material facts or obtained by mis-
statement to the members or depositors;
D) to restrain the company and its directors from acting on such resolutions;
E) restrain the company from committing any acts which is contrary to the
provisions of the Act or any other law for the time being in force;
F) restrain the company from taking action contrary to any resolution passed by its
members;
G) claim damages or compensation on demand any other suitable action against :
i) the company or its directors for any fraudulent, wrongful or unlawful act;
ii) an auditor including audit firm of a company for any improper or misleading
statement of particulars made in the audit report or for any unlawful or
fraudulent conduct.
iii) an expert or advisor or consultant for an incorrect or misleading statement made
to the company.

Considerations by NCLT on receipt of an application [Section 245(4)]

On receipt of an application, the NCLT shall take into account:
whether the member or depositor has acted in good faith while making the
application to seek an order;
any evidence which identifies the involvement of any person other than the
directors or officers of the company on matters claimed as reliefs;
 whether the cause of action could be pursued by the member or the
depositor in his own right than through an order;
any evidence relating to the views of members or depositors who have no
personal interest directly or indirectly in the matter;
whether the cause of action is an act or omission that is yet to occur or
already occurred and in the circumstances is likely to be:
a) authorized by the company before it occurs or
b) ratified by the company after it occurs.

Publication of notice by NCLT on admission of a class action suit [Section

245(5)]:
The Tribunal shall-
I. serve a public notice on admission of the application to all the members or
depositors of the class in prescribed manner;
II. all similar applications may be consolidated into a single application and a
lead applicant be appointed who shall be in charge of the proceedings on the
applicants side;
III. two class action application for the same cause of action shall not be
allowed;
IV. cost or expenses connected with the class action suit will be paid by the
company and any other persons responsible for the oppressive act.

Penalties for non-compliance with NCLT order

1) An order passed by the NCLT shall be binding on the company, members,
depositors, auditors including audit form, consultant or advisor or any other person
associated with the company [Section 245(6)]
2) A company, which fails to comply with the order of the NCLT under Section
245(7):
shall be punishable with a minimum fine of INR 5 lakh which may extend to
INR 25 lakh and
every officer of the company who is in default shall be punishable with
imprisonment which may extend to 3 years with fine of minimum INR 25
thousand which may extend up to INR 1 lakh.
3) If an application is found to be frivolous or vexatious, NCLT may reject the
application by recording the reasons in writing and order the applicant to pay a
compensation not exceeding INR 1 lakh to the opposite party [Section 245(8)].
4) No provision relating to class action suit under Section 245 of the new Act shall
be applicable to banking company [Section 245(9)].
Conclusion
It may be concluded that class action suits will be an apt platform for members and
depositors to raise their grievances against the management of a company
including directors, advisors, consultants, auditors etc for acts or omission that is
prejudicial, unlawful or wrongful to the interest of the company. Class action suits
may be undertaken as a redressal tool by minority shareholders having common
interest for promotion of transparent corporate governance.
INTRODUCTION:
The conception of Class Action Suits is one of the many improvement introduced in
the Companies Act, 2013 vide Section 245. The concept of Class Action is not new
but in Indian context it has found recognition and enforceability now only by means
of Companies Act, 2013. The class action suit first time came to the highlight in the
context of securities market was when the Satyam scam broke out in year of 2009.
Subsequently, the Indian investors in India couldn't take any legal remedy against
the company while their counterparts in USA filed class action suit claiming
compensations from the company. This mechanism evolved to overcome the well
known `Collective Action' problem, where suits by smaller stakeholders are not cost
effective, and so may never get filed. As such, this is applicable not just in corporate
law, but across the board.
CONCEPTUALIZATION IN INDIAN SCENARIO
It gained its momentum with "India's Enron"- Satyam Fiasco case: where lakhs
of shareholders of Satyam Computer Services (now Mahindra Satyam) came
together and sued the company. The shareholders claimed damages worth Rs.5000
Crore but India had no law enabling class action lawsuits (where a large group
collectively brings a claim to court and/or in which a class of defendants is sued).
The shareholders went from the National Consumer Disputes Redressal Commission
to the Supreme Court, and had their claims rejected. But the US Investors who
owned American Depositary Receipts (ADRs) demand a settlement to the tune of
USD 125m (about 700 Crore) by mounting a class action suit. Shareholders of
Satyam were able to claim $125 million (about Rs 700 Crore) from the company.
WHO CAN FILE CLASS ACTION SUITS?
As per Section 245(1) r/w Section 245(3), the suit may be filed:-
a) In case of a company having share capital, member or members:
not less than 100 members of the company or

not less than 10% of the total number of its members, whichever is less or

Any member or members singly or jointly holding not less than 10% of the
issued share capital of the company. Provided that the applicants have paid
all calls and other sums due on their shares.
b) In case of a company not having a share capital, member or members:
Not less than 1/5th of the total number of its members.

DEPOSITORS
The number of depositors shall not be less than 100 or

not less than 10% of the total number of its depositors, whichever is less or

Any depositor or depositors singly or jointly holding not less than 10% of the
total value of outstanding deposits of the company.
WHO MAY BE SUED THROUGH CLASS ACTION SUITS?
A class action suit may be filed against the following Authorities
A company or its directors for any fraudulent, unlawful or wrongful act or
omission;
An auditor including audit firm of a company for any improper or misleading
statement of particulars made in the audit report or for any unlawful or
fraudulent conduct.
An expert or advisor or consultant for an incorrect or misleading statement
made to the company.
WHICH RELIEFS MAY BE CLAIMED THROUGH CLASS ACTION SUITS?
Any member or depositor on behalf of such members or depositors may file a class
action suit before the National Company Law Tribunal (NCLT) to:
(a) To restrain the company from committing an act which is ultra vires the articles
or memorandum of the company;
(b) To restrain the company from committing breach of any provision of the
company's memorandum or articles;
(c) To declare a resolution altering the memorandum or articles of the company as
void if the resolution was passed by suppression of material facts or obtained by
mis-statement to the members or depositors;
(d) To restrain the company and its directors from acting on such resolution;
(e) To restrain the company from doing an act which is contrary to the provisions of
this Act or any other law for the time being in force;
(f) To restrain the company from taking action contrary to any resolution passed by
the members;
(g) To claim damages or compensation or demand any other suitable action from or
against
(i) The company or its directors for any fraudulent, unlawful or wrongful act or
omission or conduct or any likely act or omission or conduct on its or their part;
(ii) The auditor including audit firm of the company for any improper or misleading
statement of particulars made in his audit report or for any fraudulent, unlawful or
wrongful act or conduct; or
(iii) Any expert or advisor or consultant or any other person for any incorrect or
misleading statement made to the company or for any fraudulent, unlawful or
wrongful act or conduct or any likely act or conduct on his part;
WHAT ACTION WILL BE TAKEN BY NCLT ON A CLASS ACTION SUIT
APPLICATION?
1. On receipt of a class action suit application, the Tribunal will look into the
following before admitting it:
whether the member or depositor is acting in good faith in making the
application for seeking an order;
any evidence before it as to the involvement of any person other than
directors or officers of the company on any of the matters on which an order
can be passed;
whether the cause of action is one which the member or depositor could
pursue in his own right rather than through an order under this section;
any evidence before it as to the views of the members or depositors of the
company who have no personal interest, direct or indirect, in the matter
being proceeded under this section;
where the cause of action is an act or omission that is yet to occur, whether
the act or omission could be, and in the circumstances would likely to be

o authorized by the company before it occurs; or

o ratified by the company after it occurs;

Where the cause of action is an act or omission that has already occurred,
whether the act or omission could be, and in the circumstances would be
likely to be, ratified by the company.
2. If an application filed under sub-section (1) is admitted, then the Tribunal shall
have regard to the following, namely:
(a). Issue Public notice shall be served on admission of the application to all the
members or depositors of the class in such manner as may be prescribed;
(b) All similar applications prevalent in any jurisdiction should be consolidated into a
single application and the class members or depositors should be allowed to choose
the lead applicant and in the event the members or depositors of the class are
unable to come to a consensus, the Tribunal shall have the power to appoint a lead
applicant, who shall be in charge of the proceedings from the applicant's side;
(c) Consolidate all similar applications prevalent in any jurisdiction into a single
application and the class members or depositors shall be allowed to choose the lead
applicant and in the event the members or depositors of the class are unable to
come to a consensus, the Tribunal shall have the power to appoint a lead applicant,
who shall be in charge of the proceedings from the applicant's side
Not allow two class action applications for the same cause of action.

1. A copy of every application made under this section shall be served on the
Regional Director and Registrar of Companies.
4. The Tribunal shall give notice of every application made to it under this section to
the Central Government and shall take into consideration the representations, if
any, made to it by that Government before passing a final order under those
sections.
1. Where any application filed before the Tribunal is found to be frivolous or
vexatious, it shall, for reasons to be recorded in writing, reject the application and
make an order that the applicant shall pay to the opposite party such cost, not
exceeding Rs. 1 Lakh, as may be specified in the order.
PENALTY FOR NON-COMPLIANCE OF ORDER PASSED BY TRIBUNAL
Any company which fails to comply with an order passed by the Tribunal under
Section 245 shall be punishable with fine which shall not be less than Rs. 5 Lakhs
but which may extend to Rs. 25 Lakhs and every officer of the company who is in
default shall be punishable with imprisonment for a term which may extend to 3
years and with fine which shall not be less than Rs. 25,000/- but which may extend
to Rs. 1,00,000/-.
Under Section 425 of the Companies Act, 2013 the Tribunal has also been conferred
the same jurisdiction, powers and authority in respect of contempt of its orders as
conferred on High Court under the Contempt of Courts Act, 1971.
Other points relating to Class Action Suits
The cost or expenses connected with the publication of the public notice shall be
borne by the applicant and shall be defrayed by the company or any other person
responsible for any oppressive act.
Any order passed by the Tribunal shall be binding on the company and all its
members, depositors and auditor including audit firm or expert or consultant or
advisor or any other person associated with the company.
Provisions relating to class action suits do not apply to a banking company.
Difference between application for prevention of oppression and
mismanagement u/s 241 to 244 and Class Action Suits under Section
245 of Companies Act, 2013.
CONCLUSION
It may be concluded that class action suits will be a beneficial platform for members
and depositors to raise their grievances against the management of a company
including directors, advisors, consultants, auditors etc for acts or omission that is
prejudicial, unlawful or wrongful to the interest of the company. Class action suits
may be undertaken as a redressal tool by minority shareholders having common
interest for promotion of transparent corporate governance.

Class Actions in the Companies Act, 2013: a Recipe for Confusion?

The Companies Act, 2013 introduces some important changes to the company law
regime in India. In this post, we shall discuss one such new feature: the class action.
The provisions governing class actions are introduced through s. 245 of the Act.
These provisions are included under Chapter XVI Prevention of Oppression and
Mismanagement: however, class actions are evidently not the same as petitions
against oppression/mismanagement. Rules governing applications in respect of
oppression/mismanagement (echoing s. 397-398 of the 1956 Act) are found in
s.241-244: s. 245 introduces a distinct regime of class actions.
Section 245(1) reads:
Such number of member or members, depositor or depositors or any class of
them, as the case may be, as are indicated in sub-section (2) may, if they are of the
opinion that the management or conduct of the affairs of the company are being
conducted in a manner prejudicial to the interests of the company or its members
or depositors, file an application before the Tribunal on behalf of the members or
depositors for seeking all or any of the following orders

The reference to such number as are indicated in sub-section (2) appears to be

a typographical error: the prescription regarding the number of members/depositors
is contained in sub-section (3). The requisite minimum numbers are specified as
being either 100, or such percentage of the total number of members/depositors as
may be prescribed by the rules.
Member is defined in s. 2(55) to mean:
(i) the subscriber to the memorandum of the company who shall be deemed to
have agreed to become member of the company, and on its registration, shall be
entered as member in its register of members; (ii) every other person who agrees in
writing to become a member of the company and whose name is entered in the
register of members of the company; (iii) every person holding shares of the
company and whose name is entered as a beneficial owner in the records of a
depository...

A depositor is not defined; but a deposit is defined as including any receipt of

money by way of deposit or loan or in any other form by a company, but does not
include such categories of amount as may be prescribed in consultation with the
Reserve Bank of India. If the RBI does permit certain loans or advances under the
latter part of the provision (not include such categories), such that the loans are
not treated as deposits, whether such a lender will nonetheless be considered a
depositor is an open question. It may perhaps be argued that the exclusion from
certain categories of amounts from the definition of deposits is meant to allow
deviation from the provisions of Chapter IV (Acceptance of Deposits), but not for the
purpose of disentitling the concerned lender from remedies u/s 245.

Section 245(1) thus gives the right to the members/depositors to file an application
to the Tribunal if they are of the opinion that the management or conduct of the
affairs of the company are being conducted in a manner prejudicial to the interests
of the company or its members or depositors Insofar as a member is concerned,
the contours of this section are not clearly delineated from the oppression section
(s. 241). Under s. 241, an application can be filed by a member who complains that
the affairs of the company have been or are being conducted in a
manner prejudicial to public interest or in a manner prejudicial or oppressive to
him or any other member or members or in a manner prejudicial to the interests of
the company The ingredients overlap to an extent. One can perhaps argue that
applications u/s 241 can be filed in case of specific oppression to certain members
or classes; and while reference is made to interest of the members in s. 245, it
must mean a reference to all the members as a class. In any case, even such a
(perhaps tenuous) distinction would not result in a clear demarcation between the
two sections. Insofar as depositors are concerned, it appears that s. 245 can be
used only in cases when depositors as a class are being treated in a prejudicial
manner. (Depositors also have other remedies for fraudulent deposits etc. under
other sections see s. 75 for example which we shall discuss separately). The
provision is not free of doubt, however. Clarity has not been aided by the wording of
s. 241 either. (Section 241 also has requirements as to minimum number of
members, and is, naturally, limited to members and not to depositors. The Tribunal
has the discretion to waive the minimum number threshold in the case of s. 241,
however.)

Section 245 states that the application before the Tribunal is to be filed on behalf
of the members or depositors This again raises interesting questions: particularly
because the application may be one to claim damages. The damages in such a case
will presumably be awarded to all those on whose behalf the application is filed.
When the section states on behalf of the members, does it mean on behalf of all
members? If not, how is one to decide what the class is in respect of which the
class action is brought? If one were to say all members, what would happen if
some of the members are also the actors behind the wrongs complained of? How
will principles of ex turpi causa etc. apply in such a case? What principles will the
Tribunal apply to ensure a proper distribution of any monetary award? These
questions do not seem to have any easy answers on the basis of the language of
the sections.
Amongst the orders which can be sought in a proceeding u/s 245, one is [s. 245(1)
(g)] as follows:
to claim damages or compensation or demand any other suitable action from or
against
(i) the company or its directors for any fraudulent, unlawful or wrongful actor
omission or conduct or any likely act or omission or conduct on its or their part;
(ii) the auditor including audit firm of the company for any improper or misleading
statement of particulars made in his audit report or for any fraudulent, unlawful or
wrongful act or conduct; or
(iii) any expert or advisor or consultant or any other person for any incorrect or
misleading statement made to the company or for any fraudulent, unlawful or
wrongful act or conduct or any likely act or conduct on his part

This apparently gives a right to members or depositors to claim damages from third
parties: one wonders what the cause of action is in such cases. The cause of action
cannot be on the basis of a contract with the alleged third party the contract will
be between the company and the third party, not the members. If one were to say
that there is a liability in tort, one would be saying that the common law position on
duties of auditors etc. is modified. The implications indeed, the need or desirability
for this is not clear. The other way of looking at this would be to say that the
statute is effectively allowing a type of derivative action, and is providing that the
Tribunal shall be the forum for such an action. Again, a difficulty arises: clause (i)
allows claims from the company itself: that can barely be a derivative action in the
true sense. Some of the rules governing common law derivative actions do not
seem to find a place in s. 245. In any case, another question which arises is what
the impact of s. 245 would have on the classic derivative action. One could
conceivably argue that given extensive codification, a separate derivative action
should no longer be possible. (This argument was made and rejected in England
in respect of a double derivative action: the English statute however was far clearer
than the mix-and-match solution in sections 241-245.) In sum: what is the
jurisprudential nature of the s. 245 remedy? What does class action really mean in
this context? One will have to wait and watch how the Courts make sense of these
provisions.

The breadth of clause (iii) will also need to be examined: liability is apparently
created when an expert makes an incorrect statement. One assumes that this is
not a strict liability test; nor does it apply in the case of advice given to the
company which is not meant to be acted upon directly by the members. The
language leaves all possibilities open. These issues all seem to arise from the
statute introducing class actions without at all seeing how this would fit in with
existing remedies recognized in company law. The result is a bunch of sections likely
to give rise to serious analytical and interpretative difficulties

The government-Nestle legal battle is the first instance of a class action suit filed in
the country by the Department of Consumer Affairs, Ministry of Consumer Affairs,
Food & Public Distribution, citing the Consumer Protection Act, 1986. Business
Standard reaches out to legal experts to understand the legal intricacies of a class
action lawsuit

What is a class action lawsuit, and who can file it?

Class action is simply filing a law suit in a larger group instead of individual suits
where there are numerous persons having the same interest in that suit. Different
regulations may have a different requirement for filing it, but generally more than
one person can file it. However, the new section in Companies Act, 2013 - which is
still not in force - requires at least 100 members or depositors to file a class action
under Section 245.

Principles of consumer protection are provided under the Consumer Protection

Act, 1986 which is primarily based on principles of "unfair trade practice", points out
Zakir Merchant, Partner, Khaitan & Co.

A class action suit can be filed under Section 12 (1) (c) of the Consumer Protection
Act 1986. "The government can take action under Section 12 of the Consumer
Protection Act, 1986, either in its individual capacity, or on behalf of the
complaining consumers. The government in this case appears to have done so on
behalf of consumers," says Rajiv Luthra, managing partner, Luthra & Luthra.
However any such suit has to be presented along with cogent evidence, thorough
preparation, assisted and accurate quantification of damages, with product liability
cases based on testing, he adds.

A class action suit can also be filed under Section 91, Order 1 Rule 8 of Civil
Procedure Code, 1908. "However different statutes may have different provisions for
filing suit," says Lalit Kumar, partner, J Sagar Associates.

Under what grounds are class action suit filed?

A class action suit can be filed under the Companies Act, 2013 against members of
a company, its auditors, or any expert, advisor, consultant to the company under
several grounds. Some key ones are:

To prevent the company from making any misleading statement, or inclusion

or omission of any matter in the prospectus that goes against the articles or
memorandum of the company
To prevent the company from making any misleading statement, or inclusion
or omission of any matter in the prospectus that goes against the articles or
memorandum of the company;
To restrain the company from doing an act which is contrary to the provisions
of the company law;
Against the auditors for any improper or misleading statement of particulars
in the audit report
According the company law provisions, the order of the National Company Law
Tribunal in any class action suit is binding on a company. Any failure to implement
the order of the tribunal can attract fine in the range of Rs 5 lakh to Rs 25 lakh on
the defaulting company. Further, every officer responsible for such default shall be
liable for imprisonment and fine. Interestingly, if the tribunal finds the application
for filing class action suit frivolous, it may, in addition to dismissing the application,
impose a fine of Rs 1 lakh on the applicant.

What has been the success rate of such lawsuits in India?

Legal experts say class actions suits have not been successful in India till now.
Following the Satyam case such a suit was filed by many shareholders in India but
in vain. This was one of the reasons provisions for bringing in class action suits were
introduced in the Companies Act, 2013.

Legal experts point out class action is prominent and successful globally, especially
in the US. "One reason is that US laws permit contingency fees for lawyers," says
Kumar of J Sagar Associates. Contingency fee is like a success fee paid to the lawyer
arguing the class action for the plaintiff. The fee will only be paid if the order is in
favour of the plaintiff and is paid from the compensation and damages that is
awarded. Indian laws do not permit any such arrangement of contingency fee.

If this class action suit fails, could it have an impact on other similar cases going
forward?

Legal experts do not think so. "Every case is tested on its merits based on its legal
evidence and legal issues involved before dismissal of a class action suit," says
Luthra. Lawyers, however, add that if a class action on the same matter is filed in
another forum, any earlier failure will have a bearing on the new suit.