Class Actions under The Companies Act, 2013

The concept of class action suit under Section 245 of the 2013 Act has been introduced in the aftermath of the Satyam corporate scandal. Mr. Amit Mishra, Head of Dispute Resolution Practice Pathak & Associates, highlighted the fact that in India, numerous small investors of the Satyam group were unable to seek effective relief against the management as opposed to their counterparts in the US who brought class actions suits under Rule 23 of the US Federal Rules of Civil Procedure and got recompensed immediately.

However, Mr. Mishra highlighted that merely providing the right to bring a class action suit is not enough. There are several US practices we must critically evaluate and consider borrowing in order to make our class action mechanism efficient and effective. They include the following:

• Lead Plaintiff: In a class action lawsuit, a lead plaintiff is the named party who files the case and represents the group. It is usually upon the lead plaintiff to determine the settlement. This saves the trouble and cost of mobilizing large number of people.
• Opting-Out: In the US, you can opt out of a class action suit and individually sue if you are not satisfied with the settlement decided by your lead plaintiff. In India, however, there is no option to opt out.
• Members: In the US, even a consumer can initiate a class action suit. However, in India this right is only restricted to shareholders and depositors.
• Tax: In the US, damages recovered by the plaintiffs in a class action suit are tax free. However in India, 30% tax would apply nonetheless, which may act as a deterrent for people wanting to file a class action suit.
• Court fees: In the US, there are specialized law firms engaged in the work of class action suits, that work on a contingency fee basis, which lessens the burdens on court fees on members of a class. In India, contingency fee is not allowed.
• Miscellaneous: When compared to US laws, other concerns such as the appropriate forum for filing class action suits, and the period within which they can be filed are not addressed by the 2013 Act.

Mr. Mishra concluded by saying that we still have to put in a lot of thought into our class action regime for it to be as efficient as the US mechanism. However, the recognition of Class Actions under the 2013 Act is a crucial first step towards achieving the goal of an efficient system.

Note: This post is part of the report on a conference titled 'Reflections on The Companies Act, 2013' organised by the Michigan-Jindal Centre for Global Corporate and Financial Law and Policy on the 24th of October, 2013