Class Action Suit

Class Action Suit: The Many Speaking Through the Few

Where a wrong is done to a large number of persons in similar positions — shareholders misled by a prospectus, depositors defrauded by the company, members harmed by a fraudulent related-party transaction — requiring each individual to bring a separate suit would be impractical, inefficient, and unjust. The class action suit addresses this problem: it allows one or more members or depositors, with leave of the Tribunal, to bring a single suit on behalf of themselves and all others similarly situated (the 'class'). The judgment in the suit binds not only the named parties but all members of the class, providing a collective remedy for collective harm.

The Indian Statutory Framework: Section 245

Section 245 of the Companies Act, 2013 introduces the class action suit into Indian company law. The section permits members or depositors of a company to apply to the NCLT for an order on the grounds that the company's affairs are being conducted in a manner prejudicial to the interests of the company or its members or depositors, or that the management or directors have acted in a fraudulent, unlawful, or wrongful manner. Standing is governed by Section 246: the application must be filed by at least 100 members or depositors (or such higher number as prescribed), or by members or depositors holding at least 10 per cent of the issued share capital or 5 per cent of the total outstanding deposits (as the case may be) — a threshold designed to ensure that the remedy is invoked by a substantial, genuinely representative group rather than a few disgruntled individuals.

Remedies, Defendant Scope, and the Binding Effect

The scope of the class action is broad in three respects. First, as to remedies: the NCLT may, on finding the grounds established, order the company or its management to refrain from the conduct complained of; direct the company to undertake specified actions; award damages or compensation to be paid by the company, its directors, auditors, experts, or advisers; and make any other order necessary to give relief. Notably, the remedy can extend to damages against the company's own directors, auditors, and advisers — a feature that distinguishes the Indian class action from the oppression remedy and that holds gatekeepers personally accountable for harms to the class. Second, as to defendants: the application may be made against the company, its directors, auditors, and expert advisers, recognising that wrongs to members often originate in the acts of these actors rather than the company itself. Third, as to the binding effect: an order made in a class action binds the company, all members of the class (whether or not they were parties to the application), and the directors, auditors, and experts against whom the order is made. This binding effect is the essential feature that makes the class action a collective remedy — it disposes of the claims of the entire class in one proceeding, avoiding the proliferation of individual suits and inconsistent results. The Indian class action framework, though modelled on familiar international precedents, has developed its own procedural and substantive content through the NCLT's emerging jurisprudence, and it represents a significant expansion of the remedies available to aggrieved members and depositors of Indian companies.

“A wrong done to many is no less a wrong for being shared — but the law must provide a means by which the many may speak through the few, lest the cost and complexity of individual suits defeat the very remedy the law intends. The class action is that means: one suit, one judgment, binding all. It is the collective voice of the wronged, made audible in the courtroom.”