Class Action Suit

Table of Contents

Introduction

Class action suit is a suit in which a large number or group of people, having injuries of same or similar type caused by a same person, together can bring a suit to court, represented by one or more persons among them. This suit is also known as Representative action suit. A set of persons representing a larger group moves to court to seek remedy for their common injuries.

The rationality behind such suits are as follows:

To protect the interest of geographically dispersed members of a class.
Res judicata or preventing the multiple cases or suits on same matter against same person in different jurisdiction.

It makes adjudication easy or else as of the rule of necessary party all members of a class need to be made plaintiff, which would lead to complications of the suit.

India’s biggest financial scam Satyam Scandal case. This corporate scam brought many major changes in Companies Act, 1956. The institution of Class Action Suit was one of them.

Class Action Suits under different laws:

Under Companies Act, 2013

According to section 37, any person or group of persons or any association of persons who are affected by any statement which are misleading or alteration of any matter in prospectus.
And section 34, 35, deals with criminal and civil liabilities for misstatements in prospectus respectively and section 36 deals with punishments for fraudulently inducing persons to invest money.
According to section 245, a class action suit can be filed by members or depositors of the company or any class of them if they are of the opinion that the affairs of the company are being conducted in a manner prejudicial to the interest of the company or members or depositors.

Under Consumer Protection Act:

The suit under this act can be filed, over the disputes only relating to goods and services which are sold or provided or delivered or agreed to be sold or provided or delivered over the period of time.

3. Under CPC:

All the subject matter of civil nature, are accepted and others like mismanagement suits cannot be filed in civil courts. All the persons with same cause in the suit can file application for the class action suit.

Under Competition Act:

Under this act any person, consumer or their alliance can file a suit, if there is dispute in an agreement which cause considerable unpropitious effect on competition of particular class within India or misuse of dominance by enterprise.

Privileges of Class Actions Suits

1. Conjoining of similar applications and prohibition on futile litigation:

When the suit of similar brief, are filed in different jurisdiction by the member of the same class, against same person, class action suit allows to conjoin them and decide at once. Conjoining the similar suits would ensue orderliness of judiciary and it also helps the judiciary to save its valuable time by adjudicating similar suits at once. Hence the class of action suits are consolidated into one which are against the same person seeking for same or similar relief. Further the legislature also intends to prohibit the future class action on same brief.

2. Cost Effective

At present days the court fee is also expensive for filing suits under Civil Procedure Code, 1980. Thereafter the cost or expenses of court also increases as to settle similar litigations leading to multiplicity of cost for same cause of action. Therefore, the class action suits reduce the cost by combining similar suits which lessens the court expenses and allows people to share the costs of litigation by forming a group or teaming up as well as legal cost by hiring one counsel for a group rather individually.

Class action suits also provides a platform to minority shareholders to rectify their injuries or grievances regardless of their jurisdictional limitation.

Against whom the Class Action Suit can be flied

According to companies act it can be filed against following persons to seek relief

for any fraudulent, unlawful or wrongful act or omission the company or its directors can be sued.
the auditor or audit firm for any improper or misleading statement made in audit report or for any fraudulent, unlawful or wrongful act or conduct.
any person who makes any incorrect or misleading statement to the company or for any fraudulent, unlawful or wrongful act or conduct or any likely act or conduct on his part.

Reliefs under Class Action Suits

Following orders can be sought from Tribunal by Members or Depositors:

(A) To restrain the Company from:

committing an act which is ultra vires to Memorandum of Association (MOA) or Articles of Association (AOA)
committing breach of any provision of MOA or AOA
acting on resolution which is void (due to suppression of facts or misstatements)
doing an act which is against the provisions of this act or unconstitutional any other act
taking action against any resolution passed by the members of the class.

(B) To claim damages or compensation or demand any other suitable action from or against:

the company or its directors
the auditor or audit firm for any improper or misleading statement made in audit report or for any fraudulent, unlawful or wrongful act or conduct
any person who makes any incorrect or misleading statement to the company or for any fraudulent, unlawful or wrongful act or conduct or any likely act or conduct on his part;

(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 seek any other remedy as the Tribunal may deem fit.

Reflections by Tribunal

if the member or depositor is acting in good faith to make application for seeking relief or remedy
any evidence before it as there is involvement of any person other than directors of company or officers, on any of the matters provided in this section
if the cause of action is one which allows the member or depositor to follow his own rights rather than an order of this section
any members or depositors of the company can be an evidence before it who have no personal interest, neither directly nor indirectly, in the matter being proceeded in this section
where the cause of action is yet to occur in the form of act or omission it could be and circumstances would likely to be supervised by authority of the company before it occurs or confirmed by the company after it occurs
where the cause of action is already occurred, if in the form of act or omission it could be and in the circumstances would be likely to be confirmed by the company

Punishment for non-compliance of Tribunal’s orders

According to section 245(6) any order passed by the Tribunal shall be binding on the Company or Members or Depositors or Directors or Auditors or Experts or Consultant or Advisors or any other person.

And section 245(7) in case the company or any officer who is in default does a non-compliance of any order passed by the Tribunal under section 245, then the fine or punishment is as follows:

Company: Fine of 5,00,000 which may extend up to 25,00,000
Officer in Default: Imprisonment up to 3 years and fine of 25,000 which may also extend up to 1,00,000

Essential for filing Class Action Suits

(A) Members:

Company having Share Capital: more than or equal to 5% of total number of members or 100 members whichever is less. (Listed or Unlisted)
Unlisted Company: member or members holding not less than 5% of the issued share capital.
Listed Company: member or members holding not less than 2% of the issued share capital.
Company having not Share Capital: more than or equal to 1/5th of total number of members.

(B) Depositors:

At least 5% of the total number of depositors of the company or 100 depositors of the company.

Depositor or depositors to whom the company be in debt to 5% of total deposits of the company.

Conclusion

Class Action Suit became an appropriate platform for members and depositors to redress their injuries or grievances against the management of company including advisors, directors, auditors etc… for acts or omission that is unlawful in nature to the interest of the company. It can be tool of restitution for minority shareholders with common interest for advancement of transparent corporate governance.

Reference

Ramaya A, Guide To The Companies Act, 19^thd., 2021 (Lexis Nexis, Haryana)
Companies Act, 2013
Civil Procedure Code, 1980
Competition Act, 2002
Consumer Protection Act, 2019

Author: Pranav Badagi,
KSLU's LAW SCHOOL AND STUDENT