Class Action Suit under Companies Act, 2013

Section 245 of the Companies Act, 2013 covers the provisions of class action suit. Basically, the provisions of class action suit safeguards the interest of the members/ depositors against the prejudicial/ unlawful/ wrongful conduct of the company/ directors/ any other related person.

Page Contents

Introduction of class action suit under company law-
Reliefs available under class action suit–
Requisite number of members/ depositors for filing an appeal under class action suit–
Conditions to be satisfied post admission of class action suit by the Tribunal-

Introduction of class action suit under company law-

Class action suit was notified under company law on 1^st June 2016. Class action suit basically empowers members/ depositors to file an appeal before the tribunal in any of the following case-

Management of the company are being conducted in a manner that is prejudicial to the interest of the company/ members/ depositors; or
The conduct of the affairs of the company is prejudicial to the interest of the company/ members/ depositors.

Reliefs available under class action suit–

Any member/ members or depositor/ depositors, on behalf of such members/ depositors, may file a class action suit before the NCLT (i.e., National Company Law Tribunal) for any or all the following-

1. To restrain the company from-

a. Committing an act being ultra vires to the articles/ memorandum of the company;

b. Committing breach of any of the provisions of the articles/ memorandum of the company;

c. Carrying out an act contrary to the provisions of the companies act or any other law;

d. Taking an action contrary to any of the resolution passed by the members;

2. To claim damages/ compensation/ demand any other suitable action from/ against-

a. The company/ its directors for any fraudulent, wrongful or unlawful act/ omission/ conduct.

b. The auditor (including audit firm) of the company for any improper/ misleading statement of particulars made in the audit report or for any fraudulent, wrongful or unlawful act/ omission/ conduct.

c. The expert/ advisor/ consultant/ any other person for any incorrect/ misleading statement made to the company or fraudulent, wrongful or unlawful act/ omission/ conduct.

3. To declare the resolution altering the article/ memorandum of the company as void only in case such resolution was passed either-

a. By the suppression of material facts; or

b. Obtained by misstatement to the members or depositors.

Requisite number of members/ depositors for filing an appeal under class action suit–

Following table figures out the requisite number of members mandatorily required for filing an appeal under class action suit–

Particulars

The requisite number of members

The company having a share capital

1. Lower of the following-

5% of the total number of members of the company; or
100 members of the company.

2. In the case of an unlisted company, member/ members holding not less than 5% of the issued share capital of the company.

3. In the case of a listed company, member/ members holding not less than 2% of the issued share capital of the company.

The company not having a share capital

At least 1/5^th of the total number of members.

Following table figures out the requisite number of depositors mandatorily required for filing an appeal under class action suit–

Particulars

The requisite number of depositors

Depositor/ depositors willing to file an appeal

1. Lower of the following-

5% of the total number of depositors of the company; or
100 depositors of the company.

2. Depositor/ depositors to whom the company owes 5% of the total deposits of the company.

Conditions to be satisfied post admission of class action suit by the Tribunal-

Once the class action suit is admitted by the Tribunal, the Tribunal will carry out the following-

Serve a public notice to all the members/ depositors of the class.
Consolidate all the similar applications prevailing in any jurisdiction into a single application. Accordingly, allow the class members/ depositors to select the lead applicant. However, if such selection is not possible, Tribunal will itself appoint the lead applicant. Notably, such lead applicant will be in charge of further proceedings.

Other points-

The class action suit can be filed by the members/ depositors in Form NCLT-9.
Two class action suits against the same point are not allowed.
The expenses relating to the class action suit will be paid by the company/ any other person who is responsible for the oppressive act.
List of applicable penalties-

Particulars

Amount of penalty payable

The company fails to comply with the order passed by the Tribunal.

Penalty payable by the company-

Minimum amount – INR 5 Lakhs.
Maximum amount – INR 25 Lakhs.
Penalty payable by every defaulted officer of the company-

1. Imprisonment – maximum up to the term of three years; and

2. Fine – minimum amount of INR 25,000 and maximum amount of INR 1 Lakhs.

Application filed by the members/ depositors is either frivolous (playful) or vexatious (troublesome/ irritating).

Tribunal may reject such an application. Additionally, the tribunal may order such applicant to pay costs/ penalty not more than INR 1 Lakhs to the opposite party.