Class Action

In one line

A prescribed number of members or depositors who think the company's affairs are being conducted prejudicially may apply to the Tribunal on behalf of all of them for orders restraining ultra vires or unlawful acts, declaring a resolution obtained by suppression or misstatement void, and claiming damages from the company, its directors, its auditors including the audit firm, or any expert, adviser or consultant.

In exam wording: section 245 is the class action, and it is the one provision of the Act under which a depositor may sue and an auditor or expert may be made liable to the class.

Why the law has this at all

Section 241 has three limits that a modern remedy has to overcome.

It is for members only. A depositor who has lent the company money has no standing under it, though he may lose everything.

It is against the company's own management. It cannot reach the auditor who certified accounts he should not have certified, or the valuer or consultant whose report induced the loss.

And it does not award damages. Section 242 regulates, removes, buys out and sets aside; it is not designed to compensate.

Section 245 answers all three. It admits depositors as applicants; it names the auditor including the audit firm and any expert, adviser or consultant as respondents; and it lets the class claim damages or compensation.

And it adds the machinery a group remedy needs: public notice to the class, consolidation of parallel applications, a lead applicant, a bar on two applications for the same cause, and costs borne by the company or the person responsible, so that the cost of suing does not fall on the small holders who bring it.

Some words this chapter uses

A class here means the members or the depositors, or any class of them. A depositor is a person who has made a deposit with the company under Chapter V. A lead applicant is the person in charge of the proceedings from the applicants' side. An expert is defined in section 2(38) and includes an engineer, a valuer, a chartered accountant, a company secretary, a cost accountant and any other person having the power or authority to issue a certificate under any law. Frivolous or vexatious describes an application without substance or brought to harass.

Who may apply, and on what opinion: section 245(1)

Such number of member or members, depositor or depositors, or any class of them, as is 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 all or any of the following orders.