Class Action Suit Under Companies Act 2013 (Section 245)
Updated: Sep 30, 2022
Situations in which Class Action Suit can be Filed
If they believe that the management or conduct of the company's affairs is being conducted in a manner prejudicial to the company's or its members' or depositors' interests, they may submit an appeal before the Tribunal on behalf of its members or bondholders for all or any of the following orders:
(a) to prevent the firm from acting in violation of the articles or memoranda of incorporation;
(b) to prevent the firm from violating any term of its memorandum or articles of incorporation;
(c) to declare a resolution amending the company's memorandum or articles invalid if the resolution was obtained by concealing significant information or misrepresenting the members or depositors;
(d) to prevent the corporation and its directors from carrying out the resolution;
(e) to prevent the firm from acting in a manner that is contrary to the requirements of this Act or any other legislation in effect at the time;
(f) to prevent the corporation from acting in violation of any resolution adopted by the members;
(g) to sue for damages or compensation, or to take any other appropriate action against-- any fraudulent, illegal, or wrongful act, omission, or conduct on the part of the corporation or its directors, or any probable act, omission, or conduct on their part;
(i) the company's auditor, including its audit firm, for any inaccurate or deceptive statement of facts in his audit report, or for any fraudulent, illegal, or unjust act or conduct; or
(ii) any expert, adviser, consultant, or other person for any false or misleading statement relating to the company, or for any fraudulent, criminal, or unjust act or conduct, or any act or conduct likely to be committed by him;
(iii) any expert, adviser, consultant, or other person for any false or misleading statement made to the company, or for any fraudulent, criminal, or unjust act or conduct, or any act or conduct likely to be committed by him;
(h) pursue any other remedy that the Tribunal deems appropriate. When members or depositors seek damages or compensation from or against an audit company, the firm, as well as each partner who was engaged in creating any erroneous or deceptive statement of specifics in the audit report or who behaved in a fraudulent, illegal, or wrongful way, will be held liable.
In the event that members or depositors seek damages or compensation from or against an audit firm, the firm, as well as each companion who was involved in making any inappropriate or false claim of intricacies in the audit report or who acted fraudulently, unlawfully, or wrongfully, will be liable.
Minimum persons required for filing the application
The minimum number of members required under subsection (1) shall be in accordance:
(a) any member or members holding not less than such percentage of the company's issued share capital as may be prescribed, or any member or members carrying not less than such percentage of the company's issued share capital as may be prescribed, relating to the circumstance that the applicant or applicants has or have reimbursed all calls and other sums due on his or their shareholdings;
(b) substantially under one-fifth of the overall number of members in the case of a corporation without a share capital.
Any depositor or depositors to whom the company owes such percentage of total deposits as may be prescribed, or any lender or depositors to whom the company owes such percentage of total deposits as may be prescribed, shall not be less than one hundred depositors or such percentage of total deposits as may be prescribed, whichever is less.
Considerations by the Tribunal
When evaluating an application
The Tribunal must consider the following factors under subsection (1):
(a) if the member or lender is making a application for an order in good faith;
(b) any evidence it may have regarding the participation of anybody other than the company's directors or officers in any of the matters set forth in paragraphs (a) to (f) of this section.
(c) if the members or depositor might pursue the claim in his or her own right rather than by an order issued under this section;
(d) any evidence presented to it on the opinions of the company's members or depositors who have no direct or indirect personal interest in the topic under consideration;
(e) if the cause of action is a future act or omission, if the act or omission could be, and under the conditions would be likely to be—
I approved by the firm prior to its occurrence; or
(i) once it occurs, the firm ratifies it;
(f) if the cause of action is based on a prior act or omission, whether the act or omission might be approved by the company and, under the circumstances, would be likely to be.
Admission of a Suit by Tribunal
If such an application submitted under subsection (1) is granted, the Tribunal must take into account the following:
(a) On acceptance of the application, a general notice shall be given on all participants or savers of the class in the manner provided;
(b) all similar applications in every jurisdiction should be combined into a single application, and members of the class or depositors should be permitted to choose the lead applicant; if the class members or depositors are unable to agree, the Tribunal shall have had the power to appoint a lead applicant, who will be in charge of the proceedings from the complainant's side;
(c) no two class actions applications for about the similar cause of action shall be allowed;
(d) the firm or any other person accountable for any oppressive behaviour should bear the cost or costs associated with the class action application.
The company and all of its members, depositors, and auditors, including audit firms, experts, consultants, and advisors, as well as any other person involved with the company, are bound by any ruling issued by the Tribunal.
Any company that fails to comply with an order issued by the Tribunal under this section is subject to a fine of not less than five lakh rupees but not more than twenty-five lakh rupees, and any officer of the company whose in default is subject to imprisonment for a term not less than three years and a fine of not less than twenty-five thousand rupees but not more than one lakh rupees.
If some application filed well before Tribunal is found to be frivolous or vexatious, the Tribunal shall reject the application and make an order that the applicant pay to the opposing party such costs, not exceeding one lakh rupees, as may be specified in the order, for reasons to be recorded in writing.
A banking company is exempt from the provisions of this section.
Any person, group of individuals, or organization of advisory group the persons impacted by any act or an omission listed in sub-section may make an application or take any other action under this section, subject to conformity with this section (1).