Introduction :
The CLASS ACTION SUIT is a lawsuit where a group of people representing a common interest may approach the National Company Law Tribunal for redressal. It is a procedural instrument that enables one or more plaintiffs to file and prosecute litigation on behalf of a larger group or class having common rights and grievances.
CLASS ACTION SUIT is one of the most important provision which was added in the new Companies Act, 2013 .The grave necessity for class action suit was felt in the massive corporate shakedown case of Satyam Computer Services. In the Year 2009 the chairman Byrraju Ramalinga Raju confessed that the company by adopting sharp practice committed the fraud and embezzlement of humongous amounts ,falsified the company accounts , & grossly inflated revenue of company.
The US investors were successful in the suit for damages in US as there were concrete provisions for filing class action suits in USA.This form of collective lawsuit is highly popular in United States Of America. But in India there was no feasible recourse to law for instituting class action lawsuit.
The Exigency of situation
compelled the law makers to initiate class action suits in the form of Section
245 Of Companies Act 2013.
Who has the Right to apply under section 245?
Sub - section (1) of section 245 states that such number of members, depositor or any class of them, as the case may be, may, file an application before the Tribunal .
According to Draft Rules 2016 issued by Ministry of Corporate Affairs, -The requisite number of members provided in sub-section (1) of Section 245, shall be as under:—
A). In case, application by Members:
(a) In the case of a company having a share capital -
(i) not less than one hundred members of the company, or
(ii) ten per cent of the total number of its members, whichever is less.
Such Application may also be filed by any member or members of such company, singly or jointly holding not less than ten per cent of the issued share capital of the company, subject to the condition that the applicant or applicants have paid all calls and other sums due on his or their shares.
(i) not less than one-fifth of the total number of its members.
B). In case, application by Depositors:
(i) Not less than one hundred depositors of the company, or
(ii) ten per cent of the total number of depositors, whichever is less.
Such Application may also be filed by any depositor or depositors, singly or jointly holding not less than ten per cent of the total value of the outstanding deposits of the company.
APPLICATION MAY BE FILED BEFORE THE TRIBUNAL FOR SEEKING FOLLOWING ORDERS- SECTION 245(1)-
Sub - section (1) of section 245 states that such number of members, depositor or any class of them, as the case may be, may, file an application before the Tribunal for seeking all or any of the following orders, namely:—
(a) to restrain the company from committing an act which is ultra vires the articles or memorandum of the company;
(b) to restrain the company from committing breach of any provision of the company’s memorandum or articles;
(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 mis-statement to the members or depositors;
(d) to restrain the company and its directors from acting on such resolution; (e) to restrain the company from doing an act which is contrary to the provisions of this Act or any other
law for
the time being in force;
(f) to restrain the company from taking action contrary to any resolution passed by the members;
(g) to claim damages or compensation or demand any other suitable action from or against—
(i) 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;
(ii) 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; or
(iii) 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;
(h) to seek any other remedy as the Tribunal may deem fit.
Such application may be filed by the members, depositor or any class of them, as the case may be, if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors.
SECTION 245(10)-Subject to the compliance of this section, an application may be filed or any other action may be taken under this section by any person, group of persons or any association of persons representing the persons affected by any act or omission, specified in sub-section (1).
SECTION 245 (2).-ACCOUNTABILITY OF AUDIT FIRM AND ITS PARTNERS.
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.
SECTION 245(4)- CONSIDERATION OF APPLICATION BY TRIBUNAL :
In considering an application for class action, the Tribunal shall take into account, in particular—
(a) whether the member or depositor is acting in good faith in making the application for seeking an order;
(b) 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 in clauses (a)to (f) of subsection (1);
(c) whether the cause of action is one which the member or depositor could pursue in his own right rather than through an order under this section;
(d) 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 this section;
(e) 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—
(i) authorised by the
company before it occurs; or
(ii) ratified by the
company after it occurs;
(f) 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.
SECTION 245(5) IN CASE OF ADMISSION OF APPLICATION BY TRIBUNAL :
Section 245(5) provides that if an application filed for class action is admitted, then the Tribunal shall have regard to the following, namely:—
(a) public notice shall be served on admission of the application to all the members or depositors of the class in such manner as may be prescribed;
(b) all similar applications prevalent in any jurisdiction should be consolidated into a single application and the class members or depositors should 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 Tribunal shall have the power to appoint a lead applicant, who shall be in charge of the proceedings from the applicant’s side;
(c) two class action applications for the same cause of action shall not be allowed;
(d) the cost or expenses connected with the application for class action shall be defrayed by the company or any other person responsible for any oppressive act.
SECTION 245(6) - EFFECT OF ORDER:
Any order passed by the Tribunal shall 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.
SECTION 245(7) - PUNISHMENT FOR NON COMPLIANCE :
Any company which fails to comply with an order passed by the Tribunal under this section shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years and with fine which shall not be less than twenty-five thousand rupees but which may extend to
one
lakh rupees.
SECTION 245 (8) - FILING OF FRIVOLOUS OR VEXATIOUS APPLICATIONS:
Where any application filed before the Tribunal is found to be frivolous or vexatious,it 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 one lakh rupees, as may be specified in the order.
SECTION 245(9)-EXEMPTION TO BANKING COMPANIES -
This Section is not applicable to Banking Company. Nothing contained in under section 245 of the companies Act, 2013 shall apply to a banking company.
