Class Action Suits under Company Act, 2013

Class Action is a right to mem­bers or deposit hold­ers or rep­re­sen­ta­tive of such mem­bers or deposit hold­ers to file an appli­ca­tion before Tri­bunal for restrain­ing the Com­pa­ny from some spec­i­fied acts. Sec­tion 245 of the Com­pa­nies Act, 2013 (Act) con­tains pro­vi­sions regard­ing Class Action Suits. The most impor­tant part of the class action is that mem­bers as pre­scribed can claim dam­ages or com­pen­sa­tion against Com­pa­ny, Direc­tors, Audi­tors, Experts, and Advi­sors for wrong­ful con­duct of them.

Eli­gi­ble mem­ber or mem­bers, depositor/s 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 inter­ests of the Com­pa­ny or its mem­bers or depos­i­tors, file an appli­ca­tion before Tri­bunal on behalf of the mem­bers or depos­i­tors for seek­ing all or any of the fol­low­ing orders, namely:-

1. To restrain the Com­pa­ny from com­mit­ting an act that is ultra virus the Arti­cle or Mem­o­ran­dum of the Company.
2. To restrain the Com­pa­ny from com­mit­ting breach of any pro­vi­sion of the company’s Arti­cle or Memorandum

• To declare a res­o­lu­tion alter­ing the Mem­o­ran­dum or Arti­cle of the Com­pa­ny as void if res­o­lu­tion was passed by sup­pres­sion of mate­r­i­al facts or obtained by mis-state­ment to the mem­bers or depositors.

1. To restrain the Com­pa­ny and its direc­tors from act­ing on such resolution.
2. To restrain the Com­pa­ny from doing an act that is con­trary to the pro­vi­sion of the act or any oth­er law for the time being in force.
3. To restrain the Com­pa­ny from tak­ing an action con­trary to any res­o­lu­tion passed by the members.

• 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 improp­er or mis­lead­ing state­ment of par­tic­u­lars made in his audit report or for fraud­u­lent, unlaw­ful or wrong­ful act or con­duct; or
4. To seek any oth­er rem­e­dy a the Tri­bunal may deem fit.

Eli­gi­bil­i­ty to file Class Action Suit:

The req­ui­site num­ber of members/depositors who can file as per Sec­tion 245 (1) read with Sec­tion 245 (3), for the class action suit shall be as under:-

1. In case of a com­pa­ny hav­ing share capital,
2. Not less than 100 mem­bers of the com­pa­ny or not less than such per­cent­age of the total num­ber of its mem­bers as may be pre­scribed, whichev­er is less, or
3. Any mem­ber or mem­bers hold­ing not less than such per­cent­age of the issued share cap­i­tal of the Com­pa­ny as may be pre­scribed, sub­ject to the con­di­tion that the appli­cant or appli­cants has or have paid all calls and oth­er sums due on his or their shares;
4. In case of com­pa­ny not hav­ing a share cap­i­tal, not less than 1/5 of the total num­ber of its members.

• The req­ui­site num­ber of depos­i­tors shall be-

1. Not less than 100 depos­i­tors, or
2. Not less than such per­cent­age of the total num­ber of depos­i­tors as may be pre­scribed, whichev­er is less, or
3. Any depos­i­tor or depos­i­tors to whom the Com­pa­ny owes such per­cent­age of total depos­i­tors of the com­pa­ny as may be prescribed.

What action can be tak­en for Class Action Suit:

On receipt of a class action suit appli­ca­tion, the Tri­bunal will look into the fol­low­ing before admit­ting it:

• whether the mem­ber or depos­i­tor is act­ing in good faith in mak­ing the appli­ca­tion for seek­ing an order;
• any evi­dence before it as to the involve­ment of any per­son oth­er than direc­tors or offi­cers of the com­pa­ny on any of the mat­ters on which an order can be passed;
• 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;
• 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;
• 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 like­ly to be—

• autho­rised by the com­pa­ny before it occurs; or

• rat­i­fied by the com­pa­ny after it occurs;

• 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.

If the appli­ca­tion is admit­ted, the Tri­bunal will

• Issue a pub­lic notice to all the mem­bers of the class by pub­lish­ing the same with­in 7 days of admis­sion of the appli­ca­tion once in a ver­nac­u­lar news­pa­per in the prin­ci­pal ver­nac­u­lar lan­guage of the state in which the reg­is­tered office of the com­pa­ny is sit­u­at­ed and cir­cu­lat­ing in that state and at least once in Eng­lish in an Eng­lish news­pa­per cir­cu­lat­ing in that State.
• Require the com­pa­ny to place the pub­lic notice on the web­site of such com­pa­ny, if any, in addi­tion to pub­li­ca­tion of such pub­lic notice in news­pa­per and such notice shall also be placed on the web­site of the Tri­bunal, if any, on the web­site of Min­istry of Cor­po­rate Affairs, on the web­site, if any, of the con­cerned Reg­is­trar of Com­pa­nies and in respect of a list­ed com­pa­ny on the web­site of the con­cerned stock exchange(s) where the com­pa­ny has any of its secu­ri­ties list­ed, until the appli­ca­tion is dis­posed of by the Tribunal.
• Con­sol­i­date all sim­i­lar appli­ca­tions preva­lent in any juris­dic­tion into a sin­gle appli­ca­tion and the class mem­bers or depos­i­tors shall 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
• Not allow two class action appli­ca­tions for the same cause of action.

Penal­ty for non-com­pli­ance of order passed by Tribunal

Any com­pa­ny which fails to com­ply with an order passed by the Tri­bunal under sec­tion 245 shall be pun­ish­able with fine which shall not be less than Rs. 5 Lakhs but which may extend to Rs. 25 Lakhs and every offi­cer of the com­pa­ny who is in default shall be pun­ish­able with impris­on­ment for a term which may extend to 3 years and with fine which shall not be less than Rs. 25,000/- but which may extend to Rs. 1,00,000/-. Under Sec­tion 425 of the Com­pa­nies Act, 2013 the Tri­bunal has also been con­ferred the same juris­dic­tion, pow­ers and author­i­ty in respect of con­tempt of its orders as con­ferred on High Court under the Con­tempt of Courts Act, 1971.