CLASS ACTION SUIT

Good morning, everyone, the topic I am going to present today is the analysis of class action
suits as per the companies act 2013. A class action is an important legal mechanism allowing
a group of individuals with similar claims against a company to collectively bring a lawsuit
against that company. Another name for a class action lawsuit is representative action
lawsuit. It is a civil suit. Class actions were first introduced in the US in 1938, and they are
still mostly an American occurrence and are relatively new concepts in India. This paper
entirely deals with the analysis of section 245, its importance, a comparative study of class
action suits between India and the US, and a critical analysis of class action with positive
suggestions as a future roadmap and a conclusion.

Due to the Satyam scandal, India established this provision under Section 245 of the 2013
Companies Act.

Satyam scandal-

The 2009 Satyam scandal included one of India's top IT services businesses, Satyam
Computer Services Ltd. The company's founder and chairman, Ramalinga Raju, admitted to a
decade-long accounting scam, revealing that Satyam inflated profits and revenue by
manipulating finances and fabricating bank statements. Investors and stockholders who lost
money due to the fraud filed several class action lawsuits against Satyam.

Analysis of sec 245

245(1) basically deals with the kinds of reliefs that can be granted and allows members or
depositors to seek directions from the Tribunal if they believe a company's management or
conduct of affairs is damaging their interests. They may file an application to the tribunal on
behalf of the aggrieved parties for the following directions-

Restraining the company from acting ultra vires to articles or memorandum of the company,
committing a breach of any provisions of the articles,

Claiming damages or compensation from or against-

1. The company or its directors for a fraudulent, unlawful, or wrongful act or omission
or order
 2. The auditor including his audit firm for furnishing improper and misleading financial
statements for the commission of fraudulent, unlawful, or wrongful activity in relation
to the company
 The expert or advisor or consultant for giving incorrect or misleading statements
to the company for doing any fraudulent or unlawful or wrongful activity
 Seeking any other remedy as opinionated by the Tribunal

sec 245(2) states that if members or depositors seek damages or compensation from the audit
firm then the liability is not only of the firm, it also extends to every partner who took part in
such unlawful, wrongful, fraudulent activity.

Section 245 (3) discusses the minimum number of applicants that must submit an application.
National Company Law Tribunal (Second Amendment) Rules, 2019 clarify the minimum
number of members or depositors needed to file an application under Subsection (1) of
Section 245 to the Tribunal.

If a company has share capital-

 there should be at least 5% of the total number of members of the company or one
hundred members of the company, whichever is less
 members who hold a minimum of 5% in the issued share capital of a company if it
is unlisted; members or members holding a minimum of 2% in the issued share
capital if the company is listed.

In the case of the depositor the requisite no. is

 at least 5% of the total number of depositors of the company or one hundred

depositors of the company, whichever is less (or)
 the depositor or depositors to whom the company owes 5% of total deposits of the
company.

In the case of a company not having a share capital, not less than one-fifth of the total number
of its members.

As per sec 245(4) While considering an application under Sub-section (1) of Section 245, the
Tribunal must consider the following matters

1. members or depositors are acting in good faith for seeking an order.

 2. considers any evidence against the persons involved in the mismanagement other than
the director or officer.

And many more

245(5) states the Conditions to be followed for the admission of a suit by the Tribunal and
these are-

 Serving of public notice to all the members after NCLT admitted the suit
 All similar applications in any jurisdiction should be converted into a single
application,
 There should not be two class-action suits for the same cause of action. They are not
allowed and entertained in any manner
 The costs or expenses for the class action suits shall be met by either the company or
the persons who are responsible for the fraudulent/oppressive actions.

Sub-section (6) of Section 245 states that any order passed by the Tribunal about the class
action suit shall be binding on all the members, depositors, directors, officers, audit firms,
audit consultant, experts or any other persons who are associated with the company and its
mal-practices.

Sub-section (7) of Section 245 states that when a company fails to obey the order passed by
the tribunal, a penalty of amount from Rs.5 lakhs which can be extended to Rs.25 lakhs is
levied on the company. When an officer of a company who is in default fails to oblige the
order passed by the Tribunal, then he is punishable by imprisonment which may extend to 3
years along with imposing of fine, not less than Rs.25,000 but which may extend to
Rs.1,00,000.

Penalty for Baseless Application

 Sub-section (8) of Section 245 states that when the Tribunal finds out that the
application filed by members or depositors is frivolous or vexatious, then it may reject
the application. The Tribunal must record reasons for rejection in writing and
therefore order the applicant to pay costs not exceeding Rs.1,00,000 as a penalty to
 the opposite party. The amount to be paid is specified in the order passed by the
Tribunal.
 Sub-section (9) of Section 245 states that none of this whole procedure is applicable
to a banking company. Any company other than a banking company is covered under
this Section.
 Sub-section (10) of Section 245 states that the persons filing an application or taking
any action under sub-section (1) of Section 245 should comply with the above-
mentioned requirements that are relevant.

Importance of class action suit

Class action suit is important as they are cost effective, accountable, and more efficient than
individual suits.

Comparative study of class action suits in India and the US

Plaintiff legal firms in the US work on a contingency basis and get a part of the settlement.
Indian Bar Council forbids contingency models.   The 2013 Company Act has more severe
class action lawsuit requirements than the US. India only allows class action lawsuits for
oppression or management failure. Permission from the NCLT adds another layer of scrutiny.
Class action lawsuits in the US may award plaintiffs punitive damages. In India, class action
lawsuits are restricted to actual damages. Indian class action settlements need NCLT
approval. US class action settlements are frequently negotiated between parties and must be
approved by the court. 

CRITICAL ANALYSIS- The Companies Act of 2013 limits class action cases to firm
oppression and mismanagement, fraud, and securities violations. This neglects consumer
protection and environmental issues, which also benefit from class action litigation.

When there are several claims, the plaintiffs must produce evidence for the whole group,
which might be difficult. The process may require both money and time. Many investors
don't know about class action lawsuits in India since it is a new concept, hence, India has few
class action litigation. Knowledge and education may increase its use and efficiency.

Suggestion- India must permit contingent fees to raise awareness and interest among
professionals. Overrepresented investors in class-action suits may get minimal compensation
for the losses. Members must be compensated.  The complaint would only include people
with valid claims, reducing court workload and abuse. Mediation and arbitration might
substitute class action lawsuits as an alternative. This would help parties resolve conflicts
faster and cheaper, avoiding costly legal battles.

Conclusion

Class action lawsuits have enhanced the judicial system in India and allowed people to sue
major companies for wrongs. Section 245 class action may help minority shareholders and
strong corporate governance in India. Although the US has a well-established system of class
action suits, India is still in the process of creating its legal structure to handle collective
issues. To use the provision wisely and effectively, shareholders and legal professionals must
understand and resolve its issues. With this, I conclude my presentation.

Why banks are not included in class action suit as per the companies act
Banks have a major role to play in an economy and a shareholder is not allowed to file a class
action against a bank. Customers can file an action if they go through the consumer law but
not the shareholders of the banking company under the company law. 
why to choose comparison between India and US on class action suit and not with other
country
India and the US are both large countries with significant economies, and class action suits
could have a significant impact on their legal systems and markets. Hence, comparing the two
countries could provide valuable insights into how class action suits operate in two large and
diverse legal systems.
India and the US have different legal frameworks, and comparing them on class action suits
could provide insights into the strengths and weaknesses of their respective legal systems.
This could help identify areas for improvement and reform.
Both countries may have more accessible data on class action suits compared to other
countries, making it easier to analyze and compare.
If the burden of proof is shifted from the plaintiff to the defendant in a class action suit,
there could be several potential positive effects, including:

1. Increased Access to Justice: Shifting the burden of proof could make it easier for
plaintiffs to pursue class action suits, as they would not have to prove each individual
case. This could increase access to justice for those who might not otherwise be able
to afford to pursue legal action.
2. Encourages Corporate Accountability: When the burden of proof is shifted to the
defendant, corporations may be more likely to take responsibility for their actions and
implement changes to prevent future harm. This could lead to increased corporate
accountability and responsible behavior.
3. Reducing Legal Costs: Since plaintiffs would not have to bear the burden of proof, it
could reduce the cost and time involved in pursuing class action suits. This could
make it easier for plaintiffs to bring lawsuits against large corporations and seek
compensation for damages caused.
 4. More Efficient Legal System: Shifting the burden of proof to the defendant could lead
to a more efficient legal system, as it would avoid the need for plaintiffs to prove
individual cases. This could reduce the burden on the court system and lead to faster
resolution of cases.
how to educate and aware the investors for the class actions suits in India
 Conduct investor awareness program
 Use social media
 Partner with law firm and legal experts involved and specialised in class action
lawsuits
 Publish educational materials
 Collaborate with financial institutions
Why you think arbitration and mediation can be a substitute of class action suit
 Cost effective
 Faster resolution
 Confidentiality
 Customisable as it involves more flexibility in resolving disputes
 Greater control over the outcome of the dispute