By Manasa Tantravahi
Notification of Thresholds
With respect to depositors, the threshold has been prescribed as (a) 5% of the total number of depositors/ 100 depositors, whichever is less, or (b) depositors entitled to 5% of the total deposits of the company (hereinafter collectively referred to as “Thresholds”).
Overlaps between Sections 241 (Oppression and/ or mismanagement) and 245 (Class Action)
Section 241 of the Act lays down similar criteria for bringing action for oppression and/ or mismanagement, which includes where the affairs of the company have been or are being conducted in a manner prejudicial to public interest, or in a manner prejudicial or oppressive to him or any other member or members, or in a manner prejudicial to the interests of the company, a complaint may be filed by the aggrieved member(s).
On a preliminary reading of both the sections viz., 241 and 245, there appears an overlap as to when actions under these two independent provisions may be initiated. Further qualifications under both the provisions are highlighted as under:
|S. No.||Particulars||Section 241||Section 245|
|1.||Who may file a suit?||Member(s) of a company||Member(s)/ depositor(s)/ any class of members or depositors|
|2.||On behalf of whom.||Filing member, or any other member(s), class of members, Company||Class of members/ depositors.|
|3.||Against whom.||Company (NCLT may issue orders against the Board of Directors/ managers).||Company, Board of Directors, Auditors and Advisors (including experts and consultants).|
|4.||Thresholds||Company having a share capital: Atleast 100 members or atleast 1/10th the total members of the company, whichever is less or member(s) holding atleast 1/10th of the Issued Share Capital of the company.
Company without share capital: Atleast 1/5th of the total members.
|As per the Thresholds.|
The major distinguishing factor between both the provisions viz., action for oppression/ mismanagement and a class action suit is the beneficiaries of the suits. While in case of a suit for oppression/ mismanagement, requisite aggrieved members proceed against the directors for the protection of their rights/ interests, in a class action suit, requisite member(s)/ depositor(s) identifying a class of such member(s)/ depositor(s) aggrieved by the actions of directors, may file a petition on behalf of such a class.
As per section 245 of the Act, read with Rule 86 of the Rules, as soon as the petition for class action is admitted, NCLT shall issue a public notice in Form No. NCLT – 13, which includes the following:
Therefore, the NCLT identifies the class at the time of admitting a class action petition and the member(s)/ depositor(s) who are a part of the class are automatically a part of the suit, provided they chose to not opt-out in the manner prescribed under the Rules.
On a side note, Section 245 also allows a member(s)/ depositor(s) to proceed against auditors, the audit firm, experts, advisors or consultants, for any fraudulent conduct on their part. This sidesteps the rule of ‘privity of contract’ allowing members/ depositors to proceed against third parties for their acts done for the company.
Interpretation of Section 245
Though section 245 of the Act got notified in 2016, till date, no class action suit has been initiated under the Act, for obvious reasons. The Hon’ble National Company Law Appellate Tribunal (“NCLAT”) within the Order dated 21st September, 2017 in Cyrus Investments Private Limited & Anr., v. TATA Sons Limited & Ors., [2017 SCC OnLine NCLAT 261], acknowledged that the court shall first assess as to whether the thresholds are fulfilled under both sections (241 and 245) and only then proceed to assess whether any conduct is prejudicial to the interests of a class of members/ depositors, as applicable. Further, “Issued Share Capital” automatically means “Issued and subscribed Share Capital” and includes both equity and preference share capital, in context of the sections.
The NCLAT, vide an order in Shanta Prasad Chakravarty & Ors., v. M/s. Bochapathar Tea Estate Private Limited & Ors., [2017 SCC OnLine NCLAT 335], observed that while a petition under section 241, 242 and 244 of the Act may be preferred only against the company, board of directors, shareholders or its members, under section 245, one may proceed against the statutory auditors and/ or advisors as well.
Since the concept of ‘class action’ has evolved from the laws of the United States, it may be assistive to examine the procedure prescribed under their laws viz., the Federal Rules of Civil Procedure (“FRCP”), under Rule 23, which covers class action and outlines a process including: (a) complaint filed by a plaintiff on behalf of a putative (or proposed) class, (b) such class be certified by the court, (c) appointing of class representatives and class counsel, to represent the class, (d) issue of public notice to all members of the class, with an option to opt-out, and (e) final judgment from either a trial or settlement which will bind all class members who have not opted out of the class action.
Some of the recent interpretations given to Rule 23 of FRCP include the following: (a) filing a class action suit, does not extend the statutory limitation time for filing of the suit (California Public Employees Retirement Systems v. ANZ Securities, Inc, [137 S Ct 2042 (2017)]; (b) an appeal may be preferred against a wrongful class certification; and (c) evidence for such class action suits must be taken on individual basis and not common evidence for all members of the class [Tyson Foods, Inc v. Bouaphakeo, 136 S. Ct. 1036, 1045 (2016)].
Therefore, there exists developed jurisprudence in the United States with regard to class action suits. However, the abovementioned case-laws are as far as applicable to class action in India.
Class Action under other laws, if any.
In the absence of specific laws providing for class action, there is always a remedy under Order 1, Rule 8 of the Civil Procedure Code, 1908, which allows for the filing of ‘representative suits’. This is a generic remedy, in case the aggrieved are many, having common interest.