Class Action Suit | Section 245 | Companies Act, 2013

Provisions related to Class Action Suit falls under Section 245 of the Companies Act, 2013. Article explains When and by Whom Class Action can be filed, Situation under the Companies Ac, 2013 where class action suit can be filed, Class Action against Audit Firm, How many Minimum requisite no. of Members/ Depositors required to file Class Action Suit under the Act, What Tribunal will do in Considering Application for Class Action Suit, What Tribunal can ensure IF Application for Class Action Suit is admitted and Fine if Class Action Suit order is not observed by the Company.

A. When and by Whom Class Action can be filed?

A Class action suit can be filed if-

a. Member, or

b. Depositors

of the opinion that the management/affairs of the company is being conducted in a manner prejudicial to-

a. Interest of the Company, or

b. its members or depositors.

B. Situation under the Companies Ac, 2013 where class action suit can be filed

a. to restrain the company from committing an act which is ultra vires the articles or memorandum of the company.

b. to restrain the company from committing breach of any provision of the company’s memorandum or articles.

c. to declare a resolution altering the memorandum or articles of the company as void if the resolution was passed by suppression of material facts or obtained by misstatement to the members or depositors.

d. to restrain the company and its directors from acting on such resolution.

e. to restrain the company from doing an act which is contrary to the provisions of this Act or any other law for the time being in force.

f. to restrain the company from taking action contrary to any resolution passed by the members.

g. to claim damages or compensation or demand any other suitable action from or against—

1. the company or its directors for any fraudulent, unlawful or wrongful act or omission or conduct or any likely act or omission or conduct on its or their part

2. the auditor including audit firm of the company for any improper or misleading statement of particulars made in his audit report or for any fraudulent, unlawful or wrongful act or conduct; or

3. any expert or advisor or consultant or any other person for any incorrect or misleading statement made to the company or for any fraudulent, unlawful or wrongful act or conduct or any likely act or conduct on his part;

h. to seek any other remedy as the Tribunal may deem fit.

C. Class Action against Audit Firm

Where the members or depositors seek-

a. any damages or

b. compensation, or

c. demands any other suitable

from or against an audit firm, 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.

D. How many Minimum requisite no. of Members/ Depositors required to file Class Action Suit under the Act?

On 8 May 2019, the Ministry of Corporate Affairs (MCA) has notified requisite percentage of the members/depositors who may apply for a class action suit. The percentages are as follows:

Type of company	Members	Depositors
Company with share capital Listed company	The requisite number of  members would be lower of (A) or (B) as follows: A. (a) At least five per cent of the total number of its members or (b) 100 members, whichever is lower or B. Member(s)holding not less than two per cent of its issued share capital	The requisite number of depositors would be lower of the following: A. (a) At least five per cent of the  total number of its depositors (b)100 depositors, whichever is less, or B. Depositor(s) to whom  a company owes five per cent of its total deposits.
Company with share capital Unlisted company	The number of members  would be lower of (A) or (B) as follows: A. (a) At least five per cent of the total number of its members (b) 100 members, whichever is lower or B. Member(s) holding not less than five per cent of  its    issued  share  capital.	Same as above

E. What Tribunal will do in Considering Application for Class Action Suit?

the Tribunal shall take into account, in particular—

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

II. any evidence before it as to the involvement of any person other than directors or officers of the company on any of the matters provided in clauses (a) to (f) subsection (1).

III. 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.

IV. 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) authorised by the company before it occurs; or

(ii) ratified by the company after it occurs

V. where the cause of action is an act or omission that has already occurred,

whether the act or omission could be, and in the circumstances would be likely to be, ratified by the company.

F. What Tribunal can ensure IF Application for Class Action Suit is admitted

(a) public notice shall be served on admission of the application to all the members or depositors of the class in such manner as may be prescribed.

(b) all similar applications prevalent in any jurisdiction should 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) two class action applications for the same cause of action shall not be allowed.

(d) the cost or expenses connected with the application for class action shall be defrayed by the company or any other person responsible for any oppressive act.

Any order passed by the Tribunal shall be binding 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.

G. Fine if Class Action Suit order is not observed by the Company

In Case of Company	In case of Officer in default
not be less than- a. five lakh rupees b. but which may extend to twenty-b. five lakh rupees	a. imprisonment for a term which may extend to three years and b.  with fine which shall not be less than twenty-five thousand rupees c. but which may extend to one lakh rupees.