Section 245 of the Companies Act, 2013 ("the Act") permits a prescribed class of members or depositors to bring a representative action before the NCLT seeking collective relief, including damages, where the company's affairs are conducted in a manner prejudicial to the company or its stakeholders. The provision was dormant for nearly a decade, but the NCLT's admission of the Jindal Poly Films class action and the NCLAT's refusal to interfere at the threshold have made it a live remedy.
The Threshold and the Class
Rule 84 of the NCLT Rules, 2016 prescribes the requisite number. For a company with share capital, the application may be filed by at least five per cent of the total number of members, or one hundred members, whichever is less, or by members holding five per cent of the issued share capital in an unlisted company or two per cent in a listed company. For depositors, the threshold is five per cent of the total number of depositors, or one hundred depositors, whichever is less, or depositors to whom the company owes five per cent of the total deposits.
The class action is an opt-in procedure. Once the application is admitted, the NCLT may issue a public notice inviting other members or depositors of the same class to join the proceedings. Those who do not join are not bound by the outcome.
The Reliefs
Section 245(1) permits the Tribunal to order relief in respect of a class of members or depositors. The relief may include damages, disgorgement of profits, and any other order that the Tribunal considers just and equitable. The relief is available against the company, its directors, auditors, and any other person responsible for the act or omission complained of.
The class action is not a substitute for the oppression remedy under Sections 241-242. The class action is concerned with wrongful conduct that affects a class; the oppression remedy is concerned with conduct that is oppressive to a member or prejudicial to the company. The two remedies are cumulative, not alternative.
The Challenges
The class action is expensive, and there is no statutory litigation funding mechanism. The members who drive the action bear the costs unless the Tribunal orders otherwise. The Jindal Poly Films case has demonstrated that the remedy is viable, but it has not resolved the funding question.
The class definition must be precise, the public notice must be properly served, and the relief must be capable of being distributed across the class. A class action that is poorly defined or that seeks relief that cannot be distributed is a class action that will not achieve its purpose.
Call to Action
Anuj Desai & Associates advises members, depositors, and companies on Section 245 class actions—from the threshold determination and the Rule 84 compliance to the class certification, public notice, and the collective relief. If you are considering a class action or defending one, we can help you assess the viability.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
🔗 linkedin.com/in/ca-anuj-desai-122547230
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