A Class Action is one in which a class or group of persons who have a common grievance band together to seek remedy. It is a low-cost procedural instrument that allows a small number of people to suit the benefit of a larger group. The notion of class action has existed in other nations’ legal systems for decades. Yet, before the adoption of the Companies Act, of 2013, this instrument was not available to stakeholders in India. This is a new clause added to the Companies Act, of 2013. The Companies Act of 2013 allows for class-action lawsuits, which allow a large number of persons who share a common interest in a topic to sue or be sued as a group. These requirements are included in Sections 245 and 246 of the Act. Investors may launch class-action claims under these provisions if they believe that the company’s operations are being managed in a manner that is detrimental to the interests of the company, its shareholders, or depositors. In this article, we’ll discuss Class Action Lawsuit in detail.
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Short Glimpse
In a class action, a large group of people with the same or similar injuries caused by the same person jointly file a lawsuit in court, represented by one or more people. This form of action is also called a representative action. One group of individuals representing a larger group approaches the court with a request for redress of their grievances.
The reason for such actions is to, firstly, protect the interests of class members who are geographically dispersed and, secondly, reduce litigation duplication by combining different proceedings brought in different parts of or jurisdictions with the same cause of action.
Furthermore, it also enables decision-making; otherwise, under the necessary party rule, all class members must be made plaintiffs, which would otherwise preclude a decision. Let us take a closer look into Class Action Suit in greater detail.
What is a Class Action Lawsuit?
Simply defined, a “class action” is when a group of individuals files a lawsuit against a party or multiple parties accused of the same thing. Many people don’t realize that class action lawsuits make legal claims that would otherwise be difficult or impossible to prove.
For example, if a company knowingly produced a $50 product that was defective, every consumer who purchased that product would be affected. If the company refused to make things right, the person would probably have trouble filing a lawsuit individually. This is because the cost and time requirements of filing a case would far outweigh its $50 benefit. Still, companies shouldn’t be allowed to get away with making a defective product just because it doesn’t affect the individual negatively enough. This is where class-action lawsuits come into play. Even if they are not powerful alone, people can consolidate their claims into a single case, increasing its value and the practicality of bringing it to court.
In short, class actions allow for justice for a group of people when it would otherwise be difficult or impossible for them to obtain it individually. In a class action, most often one party acts negligently or dishonestly in a way that affects multiple people, but it may also name multiple defendants.
Class Action Lawsuit under various Laws
The following are the Laws in which there are various provisions regarding the Class Action Lawsuit is present:
Class actions under the Companies Act 2013: An action or any other action may be brought by any person, group of persons, or association of persons aggrieved by any misleading statement or the inclusion or omission of any matter in a prospectus under the following provisions of law: (Section 37)
- Section 34: Criminal liability for inaccuracies in the prospectus
- Section 35: Civil liability for inaccuracies in the prospectus
- Section 36: Punishment for fraudulently inducing persons to invest money
A collective action may be brought by the members or depositors of the company or any of their groups if they believe that the affairs of the company are being conducted in a manner that is prejudicial to the interests of the company or the members or depositors. (Section 245)
Collective actions under the Code of Civil Procedure: There are no subject matter restrictions except for actions that cannot be brought at all in civil courts, such as malpractice actions. All persons who have the same interest in the action can file a class action application.
Collective actions under the Competition Act: A class can challenge an agreement that causes an appreciable adverse effect on competition in India or an abuse of a dominant position by a business. A lawsuit can be filed by any person, consumer, or their association. E.g. Pricing
Class actions under the Consumer Protection Act: Action under this Act is limited to disputes relating to goods and services sold, provided, or supplied, or agreed to be sold, provided, or supplied. Consumers of goods or services may file a claim under this Act.
Advantages of Class Action Lawsuit
The following are the advantages of Class Action Lawsuit:
- When the facts are similar in actions brought in different estates by members of the same class against the same or similar defendants, it makes sense to combine them all and try them under one roof. Consolidation of similar suits would also lead to judicial efficiency as it would save the judiciary valuable time in dealing with similar disputes many times. Therefore, class actions against similar defendants or respondents seeking similar relief may be consolidated into one. Furthermore, the legislature also intends to prohibit future class actions for the same subject matter.
- The cost of filing a claim for settlement under the current mechanism is sometimes very expensive and time-consuming, especially when filing claims under the Code of Civil Procedure (1908).
Furthermore, the local jurisdiction of the civil court also leads to duplication of litigation, resulting in multiple costs for the same case. It therefore makes much more sense for people to share the costs of litigation by teaming up with others in a similar position. If only one set of solicitors is instructed as a group and each member’s factual cases are identical, the legal costs will be much lower than they would be if they were set up individually.
- Class-action lawsuits would allow individuals to hold some of the most powerful companies and organizations in the world accountable for their actions. These lawsuits will cover a wide range of issues, including mismanagement of money invested in the company, fraud related to the Securities Act, improper functioning of accounts, restraining the company from acting ultra vires or in violation of the company’s articles of association, etc.
- Class actions will provide an avenue for small shareholders to redress their grievances, regardless of their jurisdictional limitations.
Eligible entities according to the Companies Act, 2013
A class action may be brought against the following persons to seek damages or compensation or to seek any other appropriate action from or against:
- The company or its directors for any fraudulent, illegal, or wrongful act or omission.
- Auditor or audit firm for any incorrect or misleading statement made in the auditor’s report or for any fraudulent, illegal, or wrongful act or conduct.
- Any professional, adviser, consultant, or any other person for any false or misleading statement made to the company or for any fraudulent, unlawful, or illegal act or conduct or any likely act or conduct on his part.
Reliefs under Class Action Suits
Members and depositors may seek the following orders from the Tribunal:
Prohibit the company from:
- Committing an act that is ultra vires the Memorandum (MOA) or the Articles of Association (AOA).
- If you breach any provision of the MOA or AOA
- Action based on a resolution that is invalid (due to the concealment of facts or inaccuracies)
- Conduct that is contrary to the provisions of this or any other law
- Acting contrary to any resolution passed by the members.
Claim damages or compensation or seek any other appropriate action from or against:
- The company or its executives
- Auditor or audit firm for any false or misleading statement made in the auditor’s report or for any fraudulent, illegal, or unlawful act or conduct.
- Of any professional or adviser or consultant or any other person for any false or misleading statement made to the company or for any fraudulent, illegal, or unlawful act or conduct or any alleged act or conduct by him;
To declare a resolution amending the memorandum:
articles of association of the company are invalid if the resolution was passed by suppressing material facts or was obtained by misrepresenting the facts to the members or depositors.
Pursue any other remedy that the Tribunal deems appropriate.
Required members for applying Class Action Suits
The following are the members required for applying Class Action Suit:
Members:
- Company with share capital: at least 5% of the total number of members or 100 members, whichever is lower. (specified or not specified)
- Unlisted company: a member or members holding at least five percent (5%) of the issued share capital.
- Listed company: a member or members holding at least two percent (2%) of the issued share capital
- Company without share capital: at least 1/5 of the total number of members
Depositors:
- At least five percent (5%) of the total number of depositors of the company, or one hundred (100) depositors of the company
- The depositor or depositors to whom the company owes five percent of the company’s total deposits
Conclusion
Class actions are lawsuits brought against individuals or companies by plaintiffs on behalf of a larger group of people. Class actions seek to redress harms caused to individuals in a class action, usually through monetary gain. Most class actions involve hundreds of people, and the settlement is split among the entire class, though not necessarily equally.
