Class Action Suits

INTRODUCTION

The class action suits were introduced by the Companies Act, 2013. The class of action suits found its statutory reorganization only through Companies Act, 2013.[1] The first class action suit came under the securities market when the Satyam scam broke out in 2009. When the Satyam scam took place the Indians investors did not have any legal recourse against the company where as USA which was counterparts filed a class action Suit against the company claiming the damages and the auditing firm.[2] The credit goes to the Satyam scam through which India introduced the class action suit in the new Company’s Act which has been stated under Section 245[3], which has not yet been notified by Ministry of Corporate Affairs.[4]

Class action suit is a lawsuit under which large number of people with the common interest can sue or be sued as a group. It enables one or more plaintiffs to file litigation on the behalf of the larger group for class which has the common rights and grievances.[5]

PROVISIONS RELATED TO THE CLASS ACTION SUIT UNDER COMPANIES ACT 2013

Section 245 of the Companies Act, 2013 contains the provision which is related to the class action suits. Class action suit can be filed by the members all members or any class of them as mentioned under section 245 (1)[6] of the Companies Act, 2013 which is stated below-

“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 at least 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”.[7]

Depositor or depositors of any class of them which will be stated 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 at least 10% of the total value of outstanding deposits of the company.”[8]

FILING OF CLASS ACTION SUIT

As I stated above that any member or depositors of any class of them can file a class action suit. There must be opinion by these members or depositors that there is mismanagement of the affairs of the company which are being conducted in a manner prejudicial to the interest of the company or its members

Following are the orders under which class action suit can be filed

From restraining a company to commit an act which is ultra vires the articles or the Memorandum of the company.

From restraining the company to come it breach of any provision of the company’s memorandum or articles.

Declaring the resolution for altering the memorandum and articles of the company.

Restraining the company and its directors from acting on such resolution.

Claiming the damages or compensation against the company or the directors of the company related to any fraud, unlawful a wrongful act conducted on their part.

Seeking any other remedy as the tribunal may deem fit.

Class action suit can be filed against a company, Company’s directors, company auditor including audit firm and export or the advisor or the consultant or any other company. If there is a class action suit filed against an audit from then the liability of the firm will be on each of the partners who were involved under fraudulent and unlawful activities which misled statement of particulars in the audit report.[9]

PENALTY FOR NON-COMPLIANCE OF ORDER PASSED BY TRIBUNAL

If any company fails to comply with an order which is passed by Tribunal under Section 245[10] of Companies Act, 2013 then the company shall be punishable with the fine which shall not be less than 5 lacs but can even extend up to Rs. 25 lacs and every person who is in default shall be liable for imprisonment up to the term period of 3 years and shall also pay fine of rupees 25000 which we extend up to rupees 100000.[11]

MORE ABOUT CLASS ACTION SUITS

The provisions of the class action suits do not apply to any banking company. The order which is passed by Tribunal shall be binding on the company and all its member’s auditors and directors.[12]


References

[1] Kritika Krishnamurthy, Class Actions under Companies Act, 2013Class Actions under Companies Act, 2013, http://www.lakshmisri.com/News-and-Publications/Publications/articles/Corporate/Class-actions-under-the-Companies-Act-2013 (last visited Jun 15, 2017).

[2] CS S. Dhanapal, Class Action Suits Under Companies Act, 2013 (2013), http://taxguru.in/company-law/class-action-suits-companies-act-2013.html (last visited Jun 15, 2017).

[3] 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,(………..)

[4] Satyam scam: All you need to know about India’s biggest accounting fraud, Satyam scam: All you need to know about India’s biggest accounting fraud (2015), http://www.hindustantimes.com/business/satyam-scam-all-you-need-to-know-about-india-s-biggest-accounting-fraud/story-YTfHTZy9K6NvsW8PxIEEYL.html (last visited Jun 15, 2017).

[5] Supra note 1.

[6] Supra note 3.

[7] Companies Act, 2013, http://www.advocatekhoj.com/library/bareacts/companies2013/245.php?Title=Companies%20Act,%202013&STitle=Class%20action.

[8] Id.

[9] Class Action Suits under Companies Act, 2013, , http://www.caclubindia.com/articles/class-action-suits-under-companies-act-2013-19218.asp (last visited Jun 15, 2017).

[10] Supra note 2.

[11] Class Action Suits Under Companies Act, 2013, https://blog.ipleaders.in/class-action-suits-under-companies-act-2013/ (2014).

[12] Class action suits in Indian company law, explained, (2016), http://www.livemint.com/Companies/OhvhdZ4oAPmUCy5Ji9bWjM/Class-action-suits-in-company-law-explained.html (last visited Jun 15, 2017).

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