Companies Act Section 245

Companies Act, Section 245: Class Action

Section 245 of the Companies Act, 2013 allows members or depositors to file a class action with the NCLT if the company’s affairs harm their interests or the company’s overall interests, providing guidelines on eligibility, reliefs, and procedures.

1. Eligibility to File a Class Action

Sub-section (1) allows members or depositors to file a class action with the Tribunal if the company’s management harms their interests, seeking specific types of relief.

Types of Orders that Can Be Sought:

a) Restraint Orders: To restrain the company from ultra vires actions, breaching its memorandum or articles, acting on fraudulent resolutions, or violating the Act, applicable laws, or member resolutions.

b) Claim for Damages or Compensation: To seek damages or compensation for fraudulent, unlawful acts by the company, its directors, auditors, or any expert, advisor, or consultant for misleading statements.

c) Other Remedies: The Tribunal may provide any remedy it deems fit to resolve issues, protecting the interests of members, depositors, and stakeholders from wrongful conduct.

2. Specific Liability of Auditors and Professionals

Sub-section (2) specifies that if the class action seeks damages or compensation against an audit firm, the liability will be shared by the firm and each partner involved in any fraudulent, unlawful, or misleading conduct. This ensures that auditors or professionals cannot escape liability simply because the act was conducted by a specific individual within the firm.

3. Requisite Number of Members and Depositors

Sub-section (3) specifies the minimum number of members or depositors required to initiate a class action under sub-section (1). The details are as follows:

(a) For Companies with Share Capital: The application can be filed by at least 100 members or a prescribed percentage of total members, or by members holding a prescribed percentage of issued share capital. Applicants must ensure all calls and sums on their shares are paid.

(b) For Companies without Share Capital: For companies that do not have share capital (such as non-profit organizations), not less than one-fifth of the total number of members are required to file the application.
(c) For Depositors: The application can be filed by at least 100 depositors, a prescribed percentage of total depositors, or depositors holding a prescribed percentage of total deposits. This ensures broad involvement in seeking legal relief.

4. Considerations for the Tribunal

Sub-section (4) outlines the factors the Tribunal will consider when deciding whether to admit an application under this section:

a) Good Faith: The Tribunal will assess whether the applicants are acting in good faith in seeking the order.
b) Involvement of Others: The Tribunal will examine evidence regarding the involvement of any other person (apart from the company’s directors or officers) in the wrongful actions.
c) Personal Right vs. Class Action: The Tribunal will consider whether the cause of action is one that the member or depositor could pursue individually, or if it is better suited for a class action.
d) Views of Unaffected Members or Depositors: The Tribunal will assess evidence regarding the views of members or depositors who do not have a personal stake in the issue being raised.
e) Future Acts or Omissions: The Tribunal will evaluate whether any acts or omissions that are yet to occur could be authorized or ratified by the company.
f) Already Occurred Acts or Omissions: If the cause of action is based on an act or omission that has already occurred, the Tribunal will assess the likelihood of the company ratifying the action.
5. Procedure After Admission

If an application is admitted under sub-section (1), the Tribunal will follow certain procedural steps:

a) Public Notice: A public notice will be served to all members or depositors of the class, informing them of the application.
b) Consolidation of Applications: If there are multiple class action applications for the same cause, the Tribunal will consolidate them into a single application and allow the class members to choose a lead applicant. If they cannot agree, the Tribunal will appoint a lead applicant.
c) No Duplicate Applications: The Tribunal will not permit two class action applications for the same cause of action.
d) Costs of Application: The costs of filing the class action will be borne by the company or any other person responsible for the oppressive conduct.
6. Binding Nature of Orders

Any order passed by the Tribunal in a class action will be binding on the company, its members, depositors, auditors, and other associated parties. This ensures that the decision in a class action is final and enforceable for all involved.

7. Penalties for Non-Compliance

Failure to comply with a Tribunal order under this section results in a fine of ?5 lakh to ?25 lakh for the company, and for officers in default, imprisonment of up to three years and a fine of ?25,000 to ?1 lakh.

8. Frivolous or Vexatious Applications

If an application is deemed frivolous or vexatious, the Tribunal will reject it and order the applicant to pay costs to the opposing party. The costs will not exceed one lakh rupees.

9. Exemption for Banking Companies

This section does not apply to banking companies, recognizing the unique regulatory environment they operate within.

10. Action by Persons or Associations

Sub-section (10) allows any person, group of persons, or association of persons representing those affected by a wrongful act or omission to file an application or take action under this section, ensuring that the class action mechanism is accessible to various stakeholders.