Clause 216 of the bill introducing Class Action Suits, has the potential to provide huge power in the hands of a member and a creditor. This power in the hands of a single member or a single creditor to represent a class seeking orders to restrain the company and its directors from acting on a resolution can be utilized for ulterior motives and can open a Pandora’s Box.
Class Action Suit is prevalent in the United States and it operates on the basis of contingency fees. Indian laws do not allow contingency fees. In the absence of contingency fees it would be difficult to get a small shareholder or creditor who would spend so much time and money to fight a case against a big company. However, on the other hand someone with and adverse or ulterior motive and money power may find a small shareholder or a small creditor to act in the front to accomplish the vested interest of the said someone.
This provision, therefore, instead of helping small shareholders and creditors may end up being a weapon for corporate rivals.
Just to refer, part 11 of the UK Companies Act, 2006, vide Sections 260 to 269 provide for derivative actions. Derivative actions are actions against the directors of the company by a member or a shareholder, on behalf of the company. Derivative actions can be taken, when the directors are doing anything which is ultravires or which is beyond their authority. However, there are some important precautions, such as
( A ) The Appellant has to take judicial clearance
( B ) Company has to be a defendant and
( C ) The claim, if any, can be awarded to the company and not to the member or shareholder ( Appellant )
Clause 216 of the Companies Bill, 2009 combines Class Action and Derivative Action. Further, unlike many other clauses, this clause has no reference to any future prescription, that is, rules. May we then understand that the procedure to make these actions ( class & derivative actions ) would be just as much as it is mentioned in the Clause 216 ?
Class Action Suit is prevalent in the United States and it operates on the basis of contingency fees. Indian laws do not allow contingency fees. In the absence of contingency fees it would be difficult to get a small shareholder or creditor who would spend so much time and money to fight a case against a big company. However, on the other hand someone with and adverse or ulterior motive and money power may find a small shareholder or a small creditor to act in the front to accomplish the vested interest of the said someone.
This provision, therefore, instead of helping small shareholders and creditors may end up being a weapon for corporate rivals.
Just to refer, part 11 of the UK Companies Act, 2006, vide Sections 260 to 269 provide for derivative actions. Derivative actions are actions against the directors of the company by a member or a shareholder, on behalf of the company. Derivative actions can be taken, when the directors are doing anything which is ultravires or which is beyond their authority. However, there are some important precautions, such as
( A ) The Appellant has to take judicial clearance
( B ) Company has to be a defendant and
( C ) The claim, if any, can be awarded to the company and not to the member or shareholder ( Appellant )
Clause 216 of the Companies Bill, 2009 combines Class Action and Derivative Action. Further, unlike many other clauses, this clause has no reference to any future prescription, that is, rules. May we then understand that the procedure to make these actions ( class & derivative actions ) would be just as much as it is mentioned in the Clause 216 ?
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