The Companies Bill passed by Parliament last week has a provision
for class action.
Under this, shareholders and depositors of a company will now
be able to claim damages if they suffer due to the management’s wrong and
unlawful action, which is not in the interest of the stakeholders.
let us take a example to understand this !
What had happened in the Satyam Computers
Services Ltd. cases ?
- In 2009, after Ramalinga Raju, founder of
Satyam Computers Services Ltd, confessed that he mis-stated company
accounts for years and the cash reserves shown in the books actually did
not exist, the stock was in a freefall.
- Satyam shareholders in the US filed a lawsuit
against the company, claimed damages and got compensated.
- However, the Indian shareholders had no such
provision in the law and could not claim compensation even in a clear case
of fraud.
- But stakeholders in India will now have this
option and will be able to hold the company and its officers accountable.
What’s proposed in the new Companies Bill to
safegaurd the
interests of stakeholders ?
- According to the new Companies Bill, if
investors or depositors are of the view that the management or the company
is conducting affairs that go against the interest of shareholders and
depositors, they can collectively file an application before a
tribunal.
- As per the Bill, a National Company Law
Tribunal and Appellate Tribunal will be set up to deal with such cases.
- The law also provides an option for
shareholders and depositors to file an application and seek orders to
restrain a company from moves such as acting against the memorandum of the
company and to restrain it from acting against the resolutions passed by
shareholders.
- Shareholders will be able to seek damages and
compensation from the company and its directors for wrongdoing and
unlawful acts.
- Compensation can also be claimed from the
auditors and the audit firm in case of mis-statement of facts or unlawful
acts.
Conditions for appealing
Like in the Companies Act, 1956, there are conditions for
appealing here too. An appeal can be filed against a company only if the
appealing group constitutes at least 100 shareholders or holds a certain
percentage of the company’s paid-up capital. Also, not more than one application
will be admitted for the same cause.
What’s there for the defaulters ?
- If a company fails to obey the orders of the
tribunal, a penalty would be imposed and the defaulting officer may also
face imprisonment.
- Interestingly, the Bill also states that if the
complaint is found to be “frivolous or vexatious”, the applicant will be
liable to pay the other party.
- The idea is to ensure that only genuine
applications are filed.
- The provision of class action is being seen as
a major positive.
- This will help investors by making companies
and its officials more accountable.
