lloyd law college, Greater Noida.
The class Suit Action was introduced in India through the amendment made in 2013 in the Company Act, 1956. It was after Satyam Scam, the government introduced class action suit. It has passed around four years but the Class Action Suit is still unknown among a large number of people.On June 2016, the government has made some provisions, some crucial among them was the provision of Section 245, which relates to class action suits in cases of mismanagement of a company by its directors.
What is Class Action suit under Companies Act, 2013
Under company Act, 2013, Class Action Suit is the Suit which can be filled by the company members, shareholders or depositors of a Company if they feel that the company affairs are prejudicial Section 245 of the Company Act, 2013 gives the provision of the Class action Suit.
Who has the Authority to file Class-action Suit?
1.In case of Company having share Capital:
(i)any 100 member/members of the company or members equal to or exceeding 10%of the members of the company.
(ii)any member or members of the company holding jointly 10% of the share issued by the company.
2.In case of the company not holding capital share:-
Members equal to or exceeding 1/5th of the total number of members in the company can file a suit.
3.In case of depositors:-
(i)Any 100 or 10% of the total depositors of the company.
(ii)Any depositor or depositors individually or jointly holding 10% of the total deposit in the company.
4.The government of the country:-
The government of the country can also file a class suit if it feels that affairs or working of the company is prejudicial to public interest.
Against whom Class Action Suit be Filed?
.Against the Company or a firm
.Against the head or director of a firm or a company
.Against the audit or audit firm
.Experned, advisor, consultant or any other concerned person of the company.
Any company which don’t the order follow order given by the NCT, under Section 245 the company shall be punishable to a fine of Rs 5 lakhs but which may increase to Rs 25 lakhs and if in case the officer of the company is found guilty, he /she shall also be liable to a fine of Rs 25,0000/- which may extend to Rs 1,00,000/-.
The tribunal has also given same powers, jurisdiction, and authority if its jurisdiction is contempt under Section 425 of the Companies Act as given to the high court and supreme courts under Contempt of Court Act, 1917.
Minimum 100 shareholders (in case of a shareholders company)or 10% of the holding interest, depositors can file a suit to NCLT under company Act 2013. If the Company is found guilty, NCLT can retain the company from doing certain activities, of it may also ask the company to pay compensation for the damages done.
Why is class Action suit rare in India?
There are many reasons behind why Class Action suit is not much in use in India, Some of them are:-
In India, the practice of paying contingent fees to lawyers is not followed yet. The contingent fees is the fee paid to lawyers when the case judgment come in their favour. Indian lawyers are barred to charge such fees from their clients under Indian laws and regulations. Since unlike Us there is no contingent fee paid to lawyers in India, so lawyers show less interest while taking up such cases.
(ii)Section 20(A) provisions Company Act:-
Section 20(A) bars Indian Civil courts from giving jurisdiction on any matter which is under the regulatory preview of Securities and exchange board of India (SEBI).
(iii)Lack of push mechanism:-
The US lawyers have become a push mechanism in class action suit, since they get a share of the compensation paid by the guilty party to the court and the aggrieved party get help without paying anything upfront, but this is not the condition in India neither lawyers get the share from the court and moreover Indian lawyers charge a huge amount of money in class action suit.
Procedure for filing class action suit
Cause of action:-
*The cause of action should be such that the member or depositor or shareholder could pursue in his own right rather than an order under this Act.
*The action of the company should be prejudice or unjustifiable towards its members, depositors or shareholders.
*The cause of action should be an act or omission which is yet to occur, where the cause of action would be or would likely be authorized by the company before it occurs and it is bear out by the company after it occurs.
The application should be filled to NCT with the required number of members as discussed above.It is not necessary that the aggrieved person or persons can only file the application, the application can be filled by any person on behalf of person or person representing those who are suffered from any act or omission of the company.
A copy of the application should also be provided or placed on the website of the company, if any,registrar of the company,Regional director,website of ministry of corporate affairs, as the public notice in the newspaper, on the website of the tribunal, if any, on the website of the concerned stock exchange, and all such persons as the tribunal may direct. Notice to the Government
A notice to the central Government is given with respect to every application which comes to the tribunal, the Government can give recommendations and the tribunal is bound to follow up those recommendations before passing a final order.
Admission of Application:-
The tribunal can accept or reject the application according to their own will.
If the application is accepted, the tribunal would:-
*generate a public notice to all the members of the class by publishing the same within 7 days of acceptance of application in a vernacular newspaper in the vernacular language of that particular state in which the registered office of that company is situated and circulating the same in the English and the English newspaper circulating in the State.
All the similar application in a prevalent case are compiled into a single application and the members or depositors of the company are given the choice to choose the lead applicant and in case the members or depositors of the company are unable to attend the consensus of their matter, the tribunal has the right to choose lead applicant among them.
If an application filed before the tribunal is somehow proved to be frivolous or vexatious, it could be rejected, but the record in writing must be maintained about the reject of the application, an order to the applicant should be made to pay the opposite party such cost, not exceeding 1 lakh, as may be specified in order.
Penalty for non-compliance of the order passed by NCT:-
If a company doesn’t follow up the order passed by NCT, the company have to pay the fine of 5,00,000 INR which can be extended to 25,00,0000 INR, or imprisonment of 3 years with fine which shall not be less than 25,000/- and can be extended to 1,00,000/-.
According to Section 245 of companies Act, 2013 class action suit can be filled to:-
*to stop the company from committing an act which ultra vires the memorandum of the company.
*to stop the company from breaching any act, rule or provision written in the memorandum.
*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 some misleading act or statement.
*to restain the company, its directors and other top management people acting on this resolution.
*to restain the company and its directors from doing an act which is unlawful according to provisions of this Act.
*to restrain the company from taking any action which is contrary to any resolution passed by its members
*to claim damages, compensation against the directors, company auditor, advisor or expert of the company if they doing guilty doing such an act which is not according to its provisions.
Before the introduction of class action suit, it was difficult for people to get judicial recourse from big scams such as Satyam scam in India, but after the introduction of class action suit, it becomes easy for people to fight against such abuse as a whole. Moreover, the time of judiciary is also saved through class action suit as instead same members of the company file different suit against the same person, it is easy that a single suit as a whole is filed against the company.