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Class-Action Suits in India: A New Era for Investor Protection?

India sees class-action suits gain momentum, offering minority investors new legal avenues against corporate mismanagement.

By Mackenzie Crow

5/15, 16:13 EDT
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Key Takeaway

  • India sees the implementation of class-action suits, allowing 100 investors or those owning 2% of a firm to seek legal remedy.
  • Landmark cases against Jindal Poly Films and ICICI Securities could set precedents for corporate governance in India.
  • Legal challenges highlight the complexity of applying class-action suits, debating current versus past issues and the scope of relief.

Class-Action Suits in India

Eight years after borrowing the concept of class-action suits from the American legal system, India is beginning to see the implementation of this legal tool aimed at protecting minority investors. The introduction of class-action provisions in the Companies Act in 2016 was a significant step towards offering a collective remedy to investors against corporate mismanagement and oppression. The threshold for filing such suits was clarified in 2019, allowing at least 100 investors or shareholders owning 2% or more of a publicly traded firm to constitute a class. This development has opened a new avenue for minority shareholders to seek compensation and hold controlling shareholders, directors, auditors, and consultants accountable for actions taken in bad faith.

Landmark Cases Under Scrutiny

The Indian company law tribunal is currently hearing two separate class-action challenges that could set important precedents for corporate governance in India. The first case involves New Delhi-based Jindal Poly Films Ltd., where shareholders have alleged significant financial losses due to related-party transactions by the controlling shareholders. The plaintiffs are seeking either the cancellation of these transactions or compensation to make the company whole. The second case concerns minority shareholders of ICICI Securities Ltd., challenging the terms of a merger with ICICI Bank Ltd., which they argue is unfavorable to them. These cases highlight the disputes over what can be litigated under the class-action code and the extent to which Indian law, inspired by American jurisprudence, will be applied to protect investor interests.

Legal Arguments and Challenges

The ongoing cases have brought to light various legal arguments and challenges. In the Jindal Poly Films case, the defense argues that class-action law is intended for current issues rather than past acts, and that plaintiffs should not seek relief for the company but rather damages for their class of investors. Conversely, the plaintiffs' lawyers argue for a broader application of the law, including setting aside illegal transactions and seeking damages from any responsible party. These arguments underscore the complexity and novelty of class-action suits in the Indian context, where the legal framework is still evolving.