EARLIER THIS YEAR, in Ankit Jain v. Jindal Poly Films Ltd. (2026), the National Company Law Tribunal (‘NCLT’), the Principal Bench admitted and upheld the maintainability of a class action filed by 4.99 percent shareholders of Jindal Poly Films Limited (‘JPFL’). This is seemingly one of the first class actions under Section 245 of the Companies Act, 2013 (‘the Act’) to be admitted by a bench of the National Company Law Tribunal) and is therefore a major development in company law jurisprudence and shareholder activism in India.
In a petition under Section 245 of the Act, shareholders holding 4.99 percent of the issued share capital of JPFL alleged that the company’s affairs were being conducted in a manner prejudicial to the interests of the company and its minority shareholders. The petition was founded on JPFL’s investments of approximately ₹703.79 crore in Optionally Convertible Preference Shares (‘OCPS’) and Redeemable Preference Shares (‘RPS’) of Jindal Powertech between FY 2013-14 and FY 2016-17.
The parties’ contentions in Ankit Jain
The petitioners argued that the class action was maintainable because they satisfied the threshold under Section 245 and Rule 84 by holding 4.99 percent of JPFL’s share capital, exceeding the 2 percent requirement for listed companies. They contended that Section 245 extends beyond preventive relief and permits challenges to completed transactions through remedies such as compensation, damages, and other suitable relief. Accordingly, their challenge to the allegedly undervalued sale of the OCPS and RPS, and their claim for compensation and reversal of those transactions, fell squarely within the scope of Section 245. They also rejected the respondents’ reliance on foreign derivative action jurisprudence, arguing that Section 245 is a self-contained Indian statutory remedy designed to protect both the company and its shareholders.
The respondents contended that the petition was, in substance, a derivative action or an oppression and mismanagement claim under Sections 241–242, rather than a class action under Section 245. Since the reliefs sought were primarily for losses allegedly suffered by JPFL and any recovery would accrue to the company, they argued that the petition was a derivative claim disguised as a class action. They further submitted that Section 245 is directed at ongoing prejudicial conduct, whereas the petition challenged completed transactions, making Sections 241–242 the appropriate remedy. On that basis, they sought dismissal of the petition as non-maintainable.
Section 245 of the Act provides a class action remedy to members and depositors who believe that the affairs of a company are being conducted in a manner prejudicial to the interests of the company.
Class Actions under the Companies Act, 2013
While the Code of Civil Procedure, 1908 does recognise class action suits, it is not strictly applicable to proceedings under the Act before the NCLT. The need for class actions and derivative actions under the company law framework was first recognised by the JJ Irani Committee Report in 2005 to protect India’s growing investor base.
However, class actions came into law only by way of the Act. Section 245, dealing with class actions, was notified on June 1, 2016. However, the percentage thresholds to agitate a class action under Section 245(3) were not notified until the National Company Law Tribunal (Second Amendment) Rules, 2019 which were notified on May 8, 2019 which amended Rule 84 of the National Company Law Tribunal Rules, 2016 (‘NCLT Rules’) that set the threshold for shareholders at 2 percent of the issued share capital for listed companies and 5 percent for unlisted companies.
Section 245 of the Act provides a class action remedy to members and depositors who believe that the affairs of a company are being conducted in a manner prejudicial to the interests of the company, its members, or its depositors.
To prevent multiple proceedings, Section 245(5) permits only one class action for the same cause of action. Upon admission, notice must be issued to all members or depositors of the class, who may select a lead applicant; failing this, the NCLT may appoint one. The costs of the proceedings may ultimately be borne by the company or the person responsible for the impugned conduct.
In deciding whether to entertain an application, the NCLT considers factors such as the applicants’ good faith, the involvement of third parties, the availability of alternative remedies, and the views of disinterested members or depositors. Section 245(1) empowers the NCLT to grant a broad range of reliefs, including restraining ultra vires acts, declaring resolutions void, awarding damages or compensation, and directing suitable action against the company, its directors, auditors, experts, consultants, advisors, or other persons.
Importantly, Section 245 permits claims against third parties for misleading statements or fraudulent, unlawful, or wrongful conduct, and also contains a residuary power enabling the NCLT to grant “any other remedy” it deems fit. Orders passed under Section 245 are binding on the company, its members, depositors, and associated professionals, and non-compliance attracts civil and criminal penalties.
Rule 85 of the NCLT Rules supplements Section 245(4) by prescribing additional factors for the NCLT to consider while deciding whether a class action should proceed. The NCLT must assess whether a class action is preferable to individual proceedings by considering: (i) whether the class is so numerous that individual joinder is impracticable (‘numerosity’); (ii) whether common questions of law or fact arise (‘commonality); (iii) whether the claims or defences of the representative parties are typical of the class (‘typicality’); and (iv) whether the representatives can fairly and adequately protect the interests of the class (‘adequacy’). The NCLT may also consider whether separate proceedings would create a risk of inconsistent adjudications, effectively determine the rights of absent class members, or impair the ability of other members or depositors to protect their interests. This is a codification of the basic principles of class actions found in Rule 23 of the US Federal Rules of Civil Procedure.
The NCLT noted that Section 245 is a self-contained remedy whose scope must be determined by the language adopted by Parliament rather than by reference to foreign doctrinal classifications.
Representative versus Derivative Action
The main contention between the parties in Ankit Jain was whether the class action mechanism under Section 245 is limited to representative action or whether it is broad enough to include what would traditionally be called a derivative action given the petitioner also prayed for reliefs for the company.
A representative action is one where a smaller set of persons are allowed to sue on behalf of an entire class of persons who have allegedly suffered the same injury. This is a conventional class action. For example, in the context of company law, shareholders who have suffered a common injury at the hands of the management may pursue relief on behalf of all similarly situated shareholders.
Indian company law historically drew heavily from English company law. The foundational precedent is Foss v. Harbottle (1843), which established: (a) the proper plaintiff rule, that is, only the company can sue for a wrong done to it; and (b) the non-interference rule: courts will not interfere with decisions ratifiable by a majority.
A derivative action developed as an exception to the rule in Foss v. Harbottle. In such cases, the injury is suffered primarily by the company rather than by individual shareholders. However, because a company is an artificial person that acts through its directors, difficulties arise where the directors themselves are responsible for the wrongdoing. In such circumstances, it is unlikely that the company will initiate proceedings against the wrongdoers. Derivative actions were therefore developed to enable shareholders to sue on behalf of the company where the company itself is unable or unwilling to act. This was formally codified in the United Kingdom by the Companies Act, 2006. As such, when minority shareholders sue in a derivative action, any relief granted is accrued to the company and not to the suing shareholders, although the company is made to defray the costs of litigation in successful derivative actions.
The United States also developed the Tooley Test in Tooley v. Donaldson, Lufkin & Jenrette Inc. (2004), which determines whether a shareholder’s claim is direct or derivative.
The question therefore is whether Indian law recognises a similar distinction between representative/direct and derivative actions. At first blush, one would assume Section 245 being titled “class action” is confined to representative actions, while Sections 241 and 242 dealing with oppression and mismanagement allow for derivative claims.
However, both Section 241 and Section 245 employ the language referring to the prejudice being meted out to the “interests of the company”. Both mechanisms therefore allow filing of a petition where harm is not only being alleged to the petitioners, but to the company as well. The distinction seems to be procedural rather than conceptual. Section 245 permits a representative action on behalf of a broader class of shareholders or depositors who may not themselves approach the NCLT, whereas oppression and mismanagement proceedings are brought by members asserting their own rights. In both cases, relief may ultimately be granted for the benefit of the company.
The language of the statute makes it clear that the law derivative actions are not separately recognised. It is hard to say whether the omission was deliberate or inadvertent. Nevertheless, the language chosen by Parliament suggests that Indian law has not adopted the rigid distinction between representative and derivative actions found in English and American jurisprudence.
NCLT’s holding
Noting that the law makes no distinction between representative and derivative suits, the NCLT held that the petition was maintainable because the petitioners satisfied the statutory threshold under Section 245 and Rule 84 of the NCLT Rules by holding 4.99 percent of JPFL’s share capital and had established a prima facie case that the affairs of the company were being conducted in a manner prejudicial to the interests of the company and its members. It rejected the respondents’ contention that the petition was, in substance, a derivative action or an oppression and mismanagement proceeding under Sections 241–242, and held that Section 245 is a distinct and broader remedy under Indian law that enables shareholders to seek relief not only for themselves but also for the benefit of the company. The NCLT further held that Section 245 is not confined to ongoing or prospective misconduct; its provisions permitting damages, compensation and other suitable relief are broad enough to encompass challenges to past and concluded transactions.
The NCLT also held that the distinction drawn in American jurisprudence between class actions and derivative actions cannot be mechanically transplanted into the Indian statutory framework. In its view, Section 245 is a self-contained remedy whose scope must be determined by the language adopted by Parliament rather than by reference to foreign doctrinal classifications.
The decision is open to criticism on a different ground. While the NCLT correctly found that the numerical threshold under Section 245 and Rule 84 had been satisfied, it did not look into Rule 85 at all. Rule 85 requires the NCLT, at the stage of considering admissibility, to examine factors analogous to the traditional American class action requirements of numerosity, commonality, typicality and adequacy. Instead, the NCLT appears to have confined its analysis largely to whether a prima facie case had been made out. While caution against mechanically importing American concepts into Indian law is justified, the NCLT nevertheless had a duty to examine the requirements expressly prescribed by Rule 85 which acts as a safeguard against unnecessary class action applications.
On the face of it, the NCLT’s order in allowing the class action to be proceeded with is a welcome move as it opens up more avenues for shareholder driven litigation against companies in India.
Conclusion
Indian companies are yet to professionalise. In practice, most are fronts for promoter and promoter family driven enterprises. In such a scenario, corporate governance has always taken a backseat. Mismanagement of companies is therefore the norm, rather than the exception in Indian companies. Promoting a culture of corporate governance in India has been tough despite multiple government commissioned committee reports on corporate governance with the most recent one being the Kotak Committee Report in 2017 and the CII Corporate Governance Practices Review in 2019. There is only so much enforcement the corporate regulators such as Registrar of Companies and Ministry of Corporate Affairs can do, who are short staffed and under funded for an economy the size of India’s. Therefore, shareholders and those affected must have more avenues to enforce their rights against mismanagement and maladministration of companies.
On the face of it, the NCLT’s order in allowing the class action to be proceeded with is a welcome move as it opens up more avenues for shareholder driven litigation against companies in India. Such actions can be the harbingers of setting up deterrence for flawed corporate governance in India. We must see how the litigation progresses and whether the shareholders actually receive relief.
The limiting factor for any effective enforcement is the judicial and infrastructure capacity and the NCLT benches. As it is, all NCLT benches are buckling under the pressure from more time sensitive insolvency cases. Company cases are pushed to the backburner. Ostensibly, it has taken over a decade for this first Section 245 case of note to be admitted and proceeded with.
For deterrence and good corporate governance to take root, company cases must also be resolved swiftly. Otherwise, like most other litigation in India, company case litigation will remain a game of timing the courts and perpetualising interim relief.
Until next time.
The author would like to thank Arpita Upadhyay for her research input in putting together this piece.
Anirudh Gotety is a commercial disputes and international arbitration lawyer based in New Delhi. He is a columnist at The Leaflet. He can be reached at anirudh@gotety.com.
Catch ‘Relief Pending’, a monthly column on the state of adjudication in commercial and private law with advocate Anirudh Gotety, on the last weekend of each month. The May edition Relief Pending arrives a few days later than usual this time.
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