A class action suit or class action lawsuit is a legal action filed against a defendant company by a group of individuals who are shareholders of that company. For filing such a lawsuit, the individuals should have suffered some injuries as a result of the defendant company’s actions.
As per Section 245 of the Companies Act of India, investors can file a class action suit in case they feel that the management or conduct of the affairs of a company are prejudicial to their interests.
Class action suits can be filed by shareholders and depositors.
Purpose of class action suit: The class action suit will help the minority shareholders of a company to question a decision of the company that adversely affects the minority shareholders.
Class action lawsuits are suitable when the damages claimed by each individual is too small to claim; but collectively the company created a significant loss to the individuals.
Similarly, if statutory auditors have been negligent, ratifying falsified statements, the investors can certainly proceed against them with a class action.
Class action suit in India
In India, under Section 245 of the Companies Act, investors can file a class action suit in case they feel that the management or conduct of the affairs of a company are prejudicial to their interests.
The group of people filing the case need not be present in the court and can be represented by one petitioner. Class action suit can be field at NCLT.
Threshold minimum number for filing: There is a threshold minimum limit for the number of suffered persons for filing such a class action suit. Similarly, there is the threshold for percentage shareholding that makes eligible for filing the class action suit.
An application for class action can be filed by a member or members representing five per cent of the total members of a company or by 100 members of a company, whichever is less.
The same threshold will be applicable to depositors of deposit-taking companies.
Volume of shareholding: In case of an unlisted company, a member or members holding at least five per cent of the issued share capital can file for class action.
For listed companies, this threshold would be two per cent.
For companies having no share capital, at least one-fifth of the total members should file the lawsuit.