CLASS ACTION LAWSUITS

About: 

• What is it? Class action is a provision aimed at providing a redressal mechanism for small and minority investors. 
  
  
• When can it be filed? 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. 
  
  
• Thresholds: 
  • An application for class action can be filed by a member or members representing 5% per cent of the total members of a company.
    
    
  • It can also be done by 100 members of a company, whichever is less. The same criteria will also be applicable for depositors of deposit-taking companies.
    
    
  • In case of an unlisted company, a member or members holding at least 5% of the issued share capital can file for class action. For listed companies, this threshold would be 2%.
    
    
  
  
  
• Underlying rules for new threshold: This was done by amending the National Company Law Tribunal Rules 2016 under the Companies Act, 2013.
  
  
• Significance: With the notification of the thresholds, investors can now file class action lawsuits. This is a huge step in terms of redressal mechanism for small and minority shareholders.
  
  
• Way ahead: The ministry is also readying a scheme to provide financial assistance to minority investors filing class action lawsuits under the companies law.