Class Action

Under section 245 of the Companies Act 2013 (the Act), such (requisite) number of Member(s), Depositor(s) or any class of them (as the case may be and as prescribed), if of the opinion that the management or conduct of the affairs of the Company (excluding Banking Companies) are being conducted in a manner prejudicial to the interests of the subject Company or its Members or Depositors, may file a ‘Class Action’ application (Form NCLT-9) before the National Company Law Tribunal (NCLT) on behalf of the Members or Depositors for seeking all or any of the orders available under the said provision (see below).

> Read about ‘Prevention of Oppression and Mismanagement’

Restraining and Declaratory Orders that can be passed by the NCLT pursuant to a Class Action application —

  • Restrain the Company from committing an act which is ultra vires the Articles or Memorandum of the Company
  • Restrain the Company from committing breach of any provision of the Company’s Memorandum or Articles
  • 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 mis-statement to the Members or Depositors
  • Restrain the Company and its Directors from acting on such Resolution
  • Restrain the Company from doing an act which is contrary to the provisions of the Act or any other law for the time being in force
  • Restrain the Company from taking action contrary to any Resolution passed by the Members


Orders allowing claim for Damages or Compensation or demand for any other suitable action from or against —

  • 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
  • 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
  • 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

*Where the members or depositors seek any damages or compensation or demand any other suitable action 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.

  • Any other remedy as the NCLT may deem fit


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Members

Company having a Share Capital, 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 any Member(s) 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)

In the case of a Company not having a Share Capital, not less than 1/5th of the total number of its Members.


Depositors

The requisite number of Depositors shall not be less than 100 Depositors or not less than such percentage of the total number of Depositors as may be prescribed, whichever is less, or any Depositor(s) to whom the Company owes such percentage of total deposits of the Company as may be prescribed.

Subject to the compliance of section 245 of the Act, a Class Action application may be filed or any other action may be taken under the said section by any person, group of persons or any association of persons representing the persons affected by an act or omission entitling them to take Class Action.


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For the purpose of considering a Class Action application, the NCLT is required to take into account the following* —

  • 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 provided above (‘Class Action Orders by NCLT’)
  • Whether the cause of action is one which the Member or Depositor could pursue in his/her/its own right rather than through an order under Class Action
  • 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 Class Action
  • 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—
    (a) Authorised by the Company before it occurs; or
    (b)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.


*Without prejudice to the generality of the grounds as stated above, the NCLT while considering the admissibility of a Class Action application under section 245 of the Act, may in addition also take into account factors stated under Rule 85 (Conducting a Class Action suit) of the the National Company Law Tribunal Rules 2016 (the Rules)


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Where a Class Action application has been admitted by the NCLT, it shall have regard to the following —

  • Public notice would be served on admission of the application to all the Members or Depositors of the class in such manner as may be prescribed
  • All similar applications prevalent in any jurisdiction would be consolidated into a single application and the class Members or Depositors would 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 NCLT would have the power to appoint a lead applicant, who shall be in charge of the proceedings from the applicant’s side
  • 2 Class Action applications for the same cause of action will not be allowed
  • Cost or expenses connected with the application for Class Action will be defrayed by the Company or any other person responsible for any oppressive act
  • Any order passed by the NCLT will 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


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Failure to Comply with NCLT Order(s)

Any Company which fails to comply with a Class Action order passed by the NCLT under section 245, would be punishable with fine which shall not be less than Rs.5 lacs but which may extend to Rs.25 lacs, and every officer of the Company who is in default would 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 lakh.


Frivolous Application and Cost Order

Where a Class Action application filed before the NCLT is found to be frivolous or vexatious, the NCLT shall for reasons to be recorded in writing, reject the application and make an order that the applicant shall pay to the opposite party such cost, not exceeding Rs.1 lakh, as may be specified in the relevant order.


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