Class Actions

Introduction of Class Actions

Class actions, as outlined in the Companies Act, 2013, allow a group of shareholders to sue on behalf of the company in cases of fraud or wrongdoings by those in control.

• Class actions were recommended in the Companies Bill, 2012, following suggestions from the J J Irani committee.
• The committee highlighted the need for legal action when wrongdoers in control commit fraud against minority shareholders, preventing the company from acting on its own.

Derivative Actions

• Derivative actions involve shareholders suing on behalf of the company, addressing wrongs done to the company rather than to individual shareholders.

Class/Representative Action

• Class or representative actions allow one shareholder to act on behalf of others with the same legal standing in cases of wrongdoing.
• This concept is not limited to corporate law but is a procedural aspect of civil law, as seen in the Civil Procedure Code, 1908.

Civil Procedure Code, 1908

• Order 1 Rule 8 of the Civil Procedure Code enables individuals with common interests to sue or defend on behalf of all interested parties with court approval.
• The court can publicize a representative suit through service or public advertisement, depending on the number of involved parties.

Public Interest Litigation

• The procedure for representative suits has been widely used in India, particularly in public interest litigation cases.

Companies Act, 2013

• Section 245 of the Companies Act, 2013, incorporates the provision for class actions.
• The concepts of class actions and derivative actions are closely related, and there was initial confusion about which was being introduced in the Companies Law Bill.