Aclass action or a class suit means a lawsuit that allows a large number of people with a common interest in a matter to sue or be sued as a group. The concept, which was well prevalent in various developed countries of USA, UK and Singapore, has had no existence in India till date. A provision relating to class suits in the legal veins of an economy gives certain edge to the stakeholders for the retrenchment of their rights.
The Bill provides that a suit under this clause pertaining to class suits may be filed by members or depositors or any class of them, 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 interest of the company, its members or depositors.
However, the Bill explicitly provides for the requisite number of members empowered to file class action as follows:
This would be subject to the condition that the applicant or applicants has or have paid all calls and other sums due on his or their shares;
The requisite numbers of depositors empowered to file class action should be: More than one hundred in number or more than such percentage of the total number of depositors as may be prescribed, whichever is less, or any depositor or depositors to whom the company owes such percentage of total deposits of the company as may be prescribed.
The Companies Bill provides that a class action suit may be filed with the Tribunal seeking following:-
Further, the Bill provides that the Tribunal shall, while admitting a class action suit, take into account that all similar applications, prevalent in any jurisdiction, have been consolidated into a single application and a lead applicant is appointed amongst them.
Section 397 and 398 of the Companies Act, 1956, as is prevalent on date, deals with the filing of petition before the hon’ble Company Law Board in the cases of oppression and mismanagement. One major practical difference between the concepts of oppression and mismanagement and that of class suits is that the latter also allows depositors to take an action against the company whereas no such provision is there in the former.
It is also noteworthy that in the case of suit for oppression and mismanagement, where action can be taken only against the company and its statutory appointees, the Bill allows that a class suit can be filed even against an expert, advisor, consultant or any other person for any incorrect or misleading statement to the company and also against an auditor for any improper or misleading particulars.
Besides theses, class action suit can be filed against the management or directors of company for restricting them to do one or more particular action. However, petition u/s 397 & 398 is filed against management for various instances of past mismanagement and praying not to indulge in future mismanagement of functions ofthe company.
Here is the impact of this particular provision relating to class action suits on the stakeholders:
As far as stakeholders are concerned, the provision definitely seems to be an advantageous one to this segment. While earlier the only recourse available to the shareholders of a company was that of filing of a petition for oppression and mismanagement, now class action suit gives the stakeholder an additional right and several more grounds to fight for their rights on any abuse of powers by the company, its management or for that matter even the auditors and consultants.
The deposit holders, who earlier had no other alternative than to file civil suit, are now enabled to take action against any wrongful acts of the company or other specified persons, which means that they may find themselves in more secured territory now.
Including auditors and consultants of a company within the ambit of class action suit, besides the company and management, additional empowerment has provided to the stakeholders to take a call against such persons, including the company for the specified list of wrongful acts which may be conducted by them. Another impact of this will be that experts, advisors and auditors of a company will now act more carefully and diligently before advising anything to the company and its management.
Needless to say, this provision is likely to encourage faster action and speedy disposal of matters calling immediate attention. It is a good provision for combining all similar applications filed anywhere against the specified person for stated misconduct.
The provision to enable stakeholders to claim damages from the company or its directors and other specified person with reference to the expenses of class suit is also a positive and encouraging move for the stakeholders. Higher penalties and mandatory imprisonment, if proved wrong, would act as a deterrent to any fraudulent, unlawful or wrongful act or for any improper or misleading statement through.
The lack of enablement of class action suits in India was largely felt in the recent past when the country was jolted by some corporate scams, mincing the trust, confidence and sentiments of the stakeholders. At that time, need for provisions, which could protect the interests of and fight for the rights of innocent stakeholders by empowering them, was felt. The enactment of the Companies Bill will thus open vistas of recourse options for the stakeholders of a company.
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