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Class Action Suit

A Class Action is one where a class or group of people with a common grievance join hands to seek relief. It is a cost effective procedural device whereby few people can sue for the advantage of a larger group. The concept of a class action has been part of the legal system of other countries since decades.

However, this tool was not available to the stakeholders in India until the introduction of the Companies Act, 2013. This is the new provision inserted under Companies Act, 2013. The Companies Act, 2013 provides for class‐action lawsuits, which can allow a large number of people with common interest in a matter to sue or be sued as a group. Sections 245 and 246 of the Act contain these provisions.

Under these, class‐action suits may be filed by investors if they are of the opinion that the affairs of the company are being conducted in a manner prejudicial to the interest of the company, its shareholders or depositors.

The concept of Class action suits did not originate in India. It stems from the US, where it was introduced in the year 1983. The 'Class Action', which is also known as 'Representative Action', is actually a form of lawsuit where a large group of people collectively brings a claim to the court through a representative.

What Is Section 245
Section 245 of the companies Act, 2013 notified on 1st June, 2016 contains the concept of class action, wherein the neighboring provisions have been made with a similar objective i.e. protection of interests of stakeholders. Section 245 given a right to members and depositors of the company to collectively approach Tribunal (NCLT) to initiate Class Action against the company, the directors, auditors, or any advisor or expert who engage in any wrongful, unlawful and fraudulent act or omission or conduct on their part in relation to a company.

Who Can Initiate
  1. In case of a company having share capital, the action may be brought by:

    Not less than 100 shareholders of the company, or not less than a prescribed percentage of the total number of its members.

    Any member or members holding not less than a prescribed percentage of the issued share capital of the company, subject to the condition that the applicant or applicants have paid all calls and other sums due on his or their shares.
  2. In case of a company not having share capital, the action must be brought by not less than one fifth (1/5) of the total number of shareholders.

    Not less than 100 depositors of the company, or not less than a prescribed percentage of the total number of depositors (whichever is less) or any depositor or depositors to whom the company owes a prescribed percentage of total deposits of the company.
Section 245 of the Act clearly indicates the importance given to the minority shareholders and the depositors who also are very important stakeholders, and whose views and decisions are most often overlooked. It can be said that this provision is a means to ensure there is no tyranny of the majority, whereby in the interests of the minority are adversely affected.

Written By: Shubham Parashar

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