Class Action
Section 245 of the Companies Act, 2013 outlines the process through which a group of members or depositors, meeting certain criteria, can approach the Tribunal if they believe that the company’s management is acting in a way that harms the company’s interests or the interests of its members or depositors. Here’s a simplified explanation:
Section 245: Dealing with Company Affairs Concerns
Who Can Apply?
If a certain number of members or depositors, as specified in the law, feel that the company’s management is negatively impacting the company, they can file an application before the Tribunal. This application can request various orders to address the issue.
Possible Orders:
The Tribunal may consider orders such as:
- Restraining the company from acting beyond its authorized powers.
- Preventing the company from violating its own rules or laws.
- Declaring a resolution invalid if it was passed by hiding important facts.
- Stopping the company and its directors from acting on such a resolution.
- Prohibiting the company from acting against laws or resolutions passed by members.
- Seeking damages or compensation from the company, its directors, auditors, or any other involved party.
- Any other remedy that the Tribunal deems appropriate.
Who Can Apply and When?
- For companies with a share capital: At least 100 members or a specified percentage can apply.
- For companies without a share capital: At least one-fifth of the total members can apply.
- Deposit-related cases: At least 100 depositors or a specified percentage can apply.
Factors the Tribunal Considers:
When reviewing an application, the Tribunal considers:
- Whether the applicant is acting in good faith.
- Involvement of individuals other than company directors or officers.
- Whether the applicant could pursue the case independently.
- Views of members or depositors without personal interests.
- Potential authorization or ratification of the alleged actions by the company.
Public Notice:
If the application is accepted, a public notice is served to all members or depositors. Similar applications are consolidated, and a lead applicant may be chosen.
Consequences of Non-Compliance:
Orders from the Tribunal are binding on the company and its members, depositors, auditors, and others. Non-compliance may result in fines and imprisonment for company officers.
Frivolous Applications:
Frivolous or vexatious applications are rejected, and the applicant may be required to pay costs.
Exceptions:
These provisions do not apply to banking companies.
Application by Individuals or Groups:
Any person, group, or association representing affected individuals can file an application under this section.
Examples:
Scenario 1: Unauthorized Action If a company tries to take an action beyond its authorized powers, members can approach the Tribunal to restrain the company from doing so.
Scenario 2: Misleading Resolution If a resolution is passed by hiding crucial information, the Tribunal can declare it void, and the company may face legal consequences.
Scenario 3: Collective Action Suppose a hundred depositors believe the company’s actions are jeopardizing their interests. They can collectively file an application seeking appropriate orders from the Tribunal.
In conclusion, Section 245 provides a mechanism for concerned members or depositors to address issues with a company’s management through the Tribunal, ensuring fair and transparent corporate practices.
Section 245 of the Companies Act 2013
(1) Such number of member or members, depositor or depositors or any class of them, as the case may be, as are indicated in sub-section (2) may, if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors, file an application before the Tribunal on behalf of the members or depositors for seeking all or any of the following orders, namely:—
(a) to restrain the company from committing an act which is ultra vires the articles or memorandum of the company;
(b) to restrain the company from committing breach of any provision of the company’s memorandum or articles;
(c) to declare a resolution altering the memorandum or articles of the company as void if the resolution was passed by suppression of material facts or obtained by mis-statement to the members or depositors;
(d) to restrain the company and its Directors from acting on such resolution;
(e) to restrain the company from doing an act which is contrary to the provisions of this Act or any other law for the time being in force;
(f) to restrain the company from taking action contrary to any resolution passed by the members;
(g) to claim damages or compensation or demand any other suitable action from or against—
(i) the company or its Directors for any fraudulent, unlawful or wrongful act or omission or conduct or any likely act or omission or conduct on its or their part;
(ii) the auditor including audit firm of the company for any improper or misleading statement of particulars made in his audit report or for any fraudulent, unlawful or wrongful act or conduct; or
(iii) any expert or advisor or consultant or any other person for any incorrect or misleading statement made to the company or for any fraudulent, unlawful or wrongful act or conduct or any likely act or conduct on his part;
(h) to seek any other remedy as the Tribunal may deem fit.
(2) Where the members or depositors seek any damages or compensation or demand any other suitable action from or against an audit firm, the liability shall be of the firm as well as of each partner who was involved in making any improper or misleading statement of particulars in the audit report or who acted in a fraudulent, unlawful or wrongful manner.
(3) (i) The requisite number of members provided in sub-section (1) shall be as under:—
(a) in the case of a company having a share capital, not less than one hundred members of the company or not less than such percentage of the total number of its members as may be prescribed, whichever is less, or any member or members holding not less than such percentage of the issued share capital of the company as may be prescribed, subject to the condition that the applicant or applicants has or have paid all calls and other sums due on his or their shares;
(b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members.
(ii) The requisite number of depositors provided in sub-section (1) shall not be less than one hundred depositors or not less than such percentage of the total number of depositors as may be prescribed, whichever is less, or any depositor or depositors to whom the company owes such percentage of total deposits of the company as may be prescribed.
(4) In considering an application under sub-section (1), the Tribunal shall take into account, in particular—
(a) whether the member or depositor is acting in good faith in making the application for seeking an order;
(b) any evidence before it as to the involvement of any person other than Directors or officers of the company on any of the matters provided in clauses (a) to (f) of sub-section (1);
(c) whether the cause of action is one which the member or depositor could pursue in his own right rather than through an order under this section;
(d) any evidence before it as to the views of the members or depositors of the company who have no personal interest, direct or indirect, in the matter being proceeded under this section;
(e) where the cause of action is an act or omission that is yet to occur, whether the act or omission could be, and in the circumstances would be likely to be—
(i) authorised by the company before it occurs; or
(ii) ratified by the company after it occurs;
(f) where the cause of action is an act or omission that has already occurred, whether the act or omission could be, and in the circumstances would be likely to be, ratified by the company.
(5) If an application filed under sub-section (1) is admitted, then the Tribunal shall have regard to the following, namely: —
(a) public notice shall be served on admission of the application to all the members or depositors of the class in such manner as may be prescribed;
(b) all similar applications prevalent in any jurisdiction should be consolidated into a single application and the class members or depositors should be allowed to choose the lead applicant and in the event the members or depositors of the class are unable to come to a consensus, the Tribunal shall have the power to appoint a lead applicant, who shall be in charge of the proceedings from the applicant’s side;
(c) two class action applications for the same cause of action shall not be allowed;
(d) the cost or expenses connected with the application for class action shall be defrayed by the company or any other person responsible for any oppressive act.
(6) Any order passed by the Tribunal shall be binding on the company and all its members, depositors and auditor including audit firm or expert or consultant or advisor or any other person associated with the company.
(7) Any company which fails to comply with an order passed by the Tribunal under this section shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.
(8) Where any application filed before the Tribunal is found to be frivolous or vexatious, it shall, for reasons to be recorded in writing, reject the application and make an order that the applicant shall pay to the opposite party such cost, not exceeding one lakh rupees, as may be specified in the order.
(9) Nothing contained in this section shall apply to a banking company.
(10) Subject to the compliance of this section, an application may be filed or any other action may be taken under this section by any person, group of persons or any association of persons representing the persons affected by any act or omission, specified in sub-section (1).
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