Class Action under Companies Act, 2013

1. Application to NCLT Section 246(1)

If any numbers of members or depositors or any of them is of opinion that the affairs of the company being conducted in a manner prejudicial to the interest of the company, or its members, or its depositors, they file an application to the NCLT on behalf of members, or depositors.

2. Order seeking under section 246(1)

The application us 246(1) filed before the NCLT to seeking the following orders-

a. for stopping the company from committing any act which is ultra virus the AOA & MOA of the company.

b. for stopping the company for breaching any of the provision of the Memorandum.

c. To declared any resolutions void, which passed for alteration of MOA on the basis of suppression of any facts or obtained by mismanagement to the  members or depositors;

d. To stopping the company and its director from acting on such resolution;

e. To stopping the company from doing an act which is in contravention of the provision of the Act  or any law for the time being in force.

f. To stopping the company from taking the action against to the resolutions of the Members.

g. To claim compensation  or damages or demand any other suitable  action from or against-

i. The company or its directors for any fraudulent,  wrongful act, or omission or conduct or any likely act or omission or conduct on its or their past;

ii. Any improper and misleading statement by the auditor in his audit report or for any unlawful, fraudulent, or wrongful act of the auditor.

iii.  in case any person, expert or advisor for any wrongful, misleading or improper or incorrect statement made to the company or for any fraudulent, unlawful, or wrongful act, or conduct, or any likely act;

3. Liability in case of misstatement in audit report Section 246(2)

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.

4. Requisite No. of members or depositors in case of making application before NCLT Section 246(3)

A. In case of a Company having share capital-

In case of Members

Minimum 100 members of the company or such % of total no of depositors as may be prescribed, (whichever is less)

Or any member(s) holding not less than such % of issued share capital as may be prescribed;

b. In case of Company not having any share capital-

Not less than 1/5th of the total no. of its members

In case of depositors

Not less than 100 depositors or not less than such % total no. of depositors as may be prescribed, whichever is less, or any depositor(s) to whom the company owes such % of total deposits of the Company.

5. Consideration by the NCLT Section 246(4)

Following consideration to be made by the NCLT-

a. whether the member or depositor is acting in good faith in making the application for seeking an order;

b. An evidence showing the involvement of any person other than directors or officers of the company on any of  the matter on any matters provided in clause provided in 246(1).

c. 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

d. 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

e. 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 be likely to be—

i. rectified by the company;

ii. Authorised by the company

6. Public Notice Section 246(5)

Application filled under section (1)  before NCLT is admitted, then NCLT shall have regards to following namely;

a. Public notice shall be served on admission of the application;

b. Multiple applications prevalent in any jurisdiction shall 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. Double class suit for the same cause of action shall not be allowed;

d. all the cost or expenses related with the application for class action shall be defrayed by the Company or any other person responsible for any oppressive act.

7. Binding of order of NCLT Section 246(6)

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.

8. Fine in case order not complied Section 246(7)

In case of Company-

a. Min. 5,00,000 Rupees

b. Max. 25,00,000 Rupees

In case of Officer in default

a. Imprisonment not less than 3 years, or

b. fine

1. Min. 25,000 Rupees

2. Max. 1,00,000 Rupees;

9. In case application is found frivolous or vexatious Section 246(8)

In such case NCLT make an order that the applicant shall pay to the opposite party such cost, not exceeding one lakh rupees, as may be specified in the order.

10. Non-Applicability Section 246(9)

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April 2021