NCLT - CLASS ACTION SUIT

NCLT - CLASS ACTION SUIT A.M SRIDHARAN PRACTICING COMPANY SECRETARY 09940012655; sri2fine @gmail.com

NCLT • Sec.430 – bars jurisdiction of civil courts • No civil court shall have any jurisdiction • any suit or proceeding in respect of which the tribunal or appellate tribunal is empowered • Under this Act or any other law for the time being in force • No injunction shall be granted by any court or other authority

NCLT • Sec.268 – No appeal shall lie in any court or authority and no civil court shall have any jurisdiction • In respect of any matter in which the tribunal or appellate tribunal is empowered this chapter • No injunction shall be granted by any court or other authority

NCLT- Criminal Jurisdiction not barred 1956 Act • First class magistrate or presidency magistrate • Sessions court (revision or appeal) • High Court

2013 Act • Special court - judge should be immediately before appointment shall be holding office of a sessions judge or as an additional sessions judge – Sec.435 (3) • High court (revision or appeal) Sec.437

NCLT • Impact of Sec.430 • Sec.96 (AGM), 97 (application to tribunal for AGM) and 98 ( application to tribunal for EGM) • Sec.169 - Removal of directors • K. Radhakrishnan vs Thirumani Asphalts and Felts P. Ltd (1997) 13 SCL 169 Mad.

NCLT • IMPACT OF SEC.430 • Evidences have to be taken by NCLT • Rajinder Kumar Malhotra vs Harbhans Lal Malhotra & Sons Ltd (1996) 87 Comp.Cases 146 (CLB)

Whether High Court Jurisdiction is completely ousted in civil matters • Sec.2(29) court means(i) High court having jurisdiction in relation to the place at which the registered office of the company concerned is situate, except to the extent to which jurisdiction has been conferred on any district court or district courts subordinate to that High Court under Sub-clause (ii) (ii) district court (iii) court of sessions having jurisdiction to try any offence under this or previous companies law (iv) the special court established under sec.435 (v) any metropolitan magistrate or a judicial magistrate of the first class having jurisdiction to try any offence under this Act or any previous company law

Whether High Court Jurisdiction is completely ousted in civil matters • Sec. 130 re-opening of accounts • Application is made by the CG, Income tax authorities, SEBI, any other statutory regulatory body or authority or any person concerned • An order is made by a court of competent jurisidiction or Tribunal

Whether High Court Jurisdiction is completely ousted in civil matters • Sec.210 (2) where an order is passed by a court or tribunal in any proceeding before it that the affairs of the company ought to be investigated, the central government shall order investigation into the affairs of that company

Whether High Court Jurisdiction is completely ousted • Sec.463 (1) • Relief from prosecution

Procedure before NCLT and NCLAT • • • •

Sec.424 Shall not be bound by code of civil procedure Shall be guided by principles of natural justice Other provisions of this act or rules made thereunder • Shall have power regulate their own procedure

Application of Limitation Act • Sec.433 provisions of Limitation Act apply to proceedings before tribunal or appellate tribunal • Impact • If period is given in the Act, then application/appeal has to be filed within time contemplated • if not filed within the time contemplated application for condonation of delay under sec.5 has to be filed

Application of Limitation Act • If no period is given in the Act, then Art.137 of Limitation would apply. • Art.137 prescribes a maximum of period of three years • If not filed within 3 years then application for condonation of delay has to be filed • Bank of Rajasthan Ltd vs Rajasthan Breweries Ltd (2007) 140 Com.cas 622 CLB

Appeal to NCLAT • Sec.421 • Consent orders cannot be appealed • Appeal has to be filed within a period of 45 days • On sufficient cause being shown can be filed within a further period not exceeding 45 days

Appeal to Supreme court • Sec.423 • Appeal within a period of sixty days • On sufficient cause within a further period not exceeding sixty days. • Tenecco Mauritius Ltd vs Bangalore Union Services Ltd & others

Contempt Powers • Sec.425 • Tribunal and appellate tribunal both have contempt powers

Transitional provisions • Sec.434 • 434(1)(b) On notification, all pending matters shall stand transferred to tribunal • 434(1) ( c) all proceedings under the Companies Act, 1956 including proceedings relating to arbitration, compromise and arrangments and reconstruction and winding up of companies, pending immediately before such date before any district court or High Court shall stand transferred to tribunal • 434(1)(d) any appeal before AAIFR and reference before BIFR shall stand abated provided the company may make a reference to the tribunal within 180 days from the date commencement of this Act

Time limit for disposal • Sec.422 • Sec.422(1) Every endeavour shall be made to dispose every application or petition presented to NCLT and every appeal to NCLAT within 3 months • Sec.422(2) record the reason and the president or chairperson by taking into account the reason so recorded extend the period by such period not exceeding ninety days as he may consider necessary.

Mediation and conciliation • Sec.442 • 442(1) CG shall maintain a panel of experts to be called as the Mediation and conciliation panel for mediation between the parties during the pendency of any proceedings • Any of the parties may at any time during the proceedings may apply and the CG, tribunal or appellate tribunal shall appoint one or more experts • May suo-motu refer the matter • Within 3 months forward its recommendation • Any party aggrieved may file objection

Class action suit • The class action lawsuit filed against IT firm iGATE and its former CEO, Phaneesh Murthy, was voluntarily dismissed by the shareholder plaintiff in a United States District Court. • iGATE was slapped with the suit, by people who had purchased securities of the company between March 14, 2012 and May 21, 2013, for allegedly failing to disclose Mr. Murthy’s relationship with a subordinate employee. • Source The Hindu online dated Aug 23, 2013 • Earlier Phaneesh Murthy was sacked on 20/05/2013 • Shares were quoting at US $ 15.22

TCS faces class action suit •

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Two employees Gopi Vedachalam and Kangana Beri file complaint that Tata Sons and its subsidiary TCS of breaching employment contracts and violation of California Labour Code which resulted in unpaid wages

Alleged a) Tata unjustly enriched itself by requiring all of its non-US Citizen employees to endorse and sign over their federal and state tax refund checks to Tata and by taking unauthorised deductions from its employee’s paychecks.

TCS faces class action suit b) TCS promised to pay a gross US salary and a separate Indian salary. c) Company’s unauthorised deductions from its employees wages prevented employees from receiving both their promised US Salary and Indian Salary In 2006 and 2007 TCS and others file a motion to dismiss the case US District Court grants class action status Source:Business standard Jan 26, 2013

Infosys faces class action suit •

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Jack Palmer, an employee filed a case that Infosys misused B1 business visa to send lower level and unskilled foreigners to the US to work in full time positions Court classified as a class action

Source: The Business Standard Jan 26, 2013

Bhopal Gas Tragedy • Tragedy occured on Dec.2-3, 1984 in Bhopal • In Mar.1985, the Govt. of India enacted the Bhopal Gas Leak Disaster Act enabling the GOI to act as the legal representative of the victims in claims arising of or related to the Bhopal Disaster • In Jan 1987 US Court of Appeals confirm the transfer of litigation to India and rules that UCIL is a separate legal entity, owned, managed and operated exclusively by Indian Citizens in India. • In October 1993, US Supreme Court refuses to hear the appeal • In 2006 second circuit court of Appeals (one of the thirteen United States Courts of Appeals) in New york city upheld the dismissal of remaining claims in the case of Bano Vs. Union Carbide Corporation. This has blocked the plaintiff motion for class certification and claims for property damages and remediation

Class action •

Also known as representative action

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Is a civil action

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A class action is brought by one or more people for themselves and other people, for the benefit, of all persons so interested

Class action – whether a new concept and remedy • Sec.91 of Code of Civil Procedure • Order I, Rule 8 of CPC • Sec.12(1) ( c) of Consumer Protection Act, 1986 • Public interest litigation in High Courts and Supreme Court • Class Petition for human rights violations

Class action suits • Permission of the Court or at the direction of the court one or more persons may sue or defend (order I, Rule 8 ( 1 ) of CPC) • When all the persons jointly interested are made parties, order I, Rule 8 does not apply and there is no need to apply for leave – Jaina Muhammad Vs. Official Assignee, Madras AIR 1946 Mad 25

Advantages • Reduction in no. of lawsuits • Reduces litigation costs • Aggregation increase the efficiency of legal process • Avoids repetition of same witnesses, documents and trial time and again

Advantages • Overcomes the disincentive - a small recovery that an individual may get by pursuing his single action • Avoids different court rulings allowing the defendents to follow the rulings easily. • Ensures all the interested persons receive relief and the early bird alone do not get the relief

Disadvantages • Ruling by the court operates as res judicata for the members of the class • High costs – huge amount is spent on attorney fees; sometimes cost benefit ratio is negligible • If the claims are arbitrable, whether can be brought before the Tribunal

Class action/derivative action • In a representative/class action, the plaintiffs are the beneficiaries • In a derivative claim, the company is the principal beneficiary, though the plaintiffs may incidentally get benefitted • The action under these sections (397/398) is a derivative action for the benefit of all the shareholders, the company and in public interest (para 31) - PIK securities Private Limited and others vs.United western Bank Limited and others

Class action under the Companies Act, 2013 • Sec. 37 • Sec. 245

Misleading statements in prospectus • A suit may be filed or any other action may be taken u/s.34 or 35 or 36 any person, group of persons or any association of persons may file a suit or any other action or any association of persons for misleading statement or inclusion or omission of any matter in the prospectus

Class action • Sec.245(1) – such number of member or members, depositor or depositors or any class of them – 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 seek all or any of the orders • Sec.245 (1) (a) to (f) various restraint orders • Sec.245(1)(g) claim damages or compensation of demand any other suitable action from or against – the company or its directors the auditor or audit firm expert or advisor or consultant or any other person • Sec.245(1)(h) to seek any other remedy

Class action • Sec.245 (3) (i) (a) not less than one hundred members of the company or not less than such percentage of total number of its members as may be prescribed or any member or members holding such percentage of the issued share capital of the company as may be prescribed • Sec.245(3)(b) not having a share capital not less than one-fifth of total number of members • Sec.245(3)(ii) Not less than one hundred depositors or not less than such percentage of the total number of depositors as may be prescribed whichever is less

Class action Suit – procedure in US • Rule 23 of federal rules of procedure • After service of complaint and filing of the complaint with the court and defendents may file a motion challenging the lawsuit. In Indian context equal to maintainability or admissibility • After Ruling on motion, period of preliminary discovery would take place. Lawyers may demand documents, depositions

Class action Suit – procedure in US • During the discovery phase, the defendents may file motion to challenge the legal sufficiency or underlying factual basis for the action. This is known as motions for summary judgement • After preliminary discovery is completed, the plaintiffs will file motion to certify a class action.

Class action Suit – procedure in US • If the complaint is money the court will order notice to the class • Trial or settlement

Procedure contemplated by the Companies Act, 2013 • Sec. 245(4) (c) whether the member or creditor could pursue in his own right • Sec.245(4)(d) – any evidence as to the views of the members or depositors who have no personal interest, direct or indirect, in the matter being proceeded under this section

Procedure contemplated by the Companies Act, 2013 • Cl 245 (5) • gives an inference that the application shall have to be admitted by the tribunal before it proceeds on it. • Notice of admission by public notice shall be served on the members or depositors of the class • All similar applications pending in any jurisdiction should be consolidated into single application • Lead applicant • The costs or expenses incurred shall be defrayed by the company or person responsible for oppressive act.

Class action Suit - fees • The fees paid to advocates in US in Class action is known as contingency fees • It is by way of percentages of award or settlement which encourages parties to resort to class action suits • In India fees cannot be paid as a percentage of award or settlement

Class action Suit • Costs shall be awarded not exceeding Rs.1 lakh in case of frivolous or vexatious application • Whether costs can awarded after admitting the application

Class action Suit • Evidences - exchange of documents permitted under US laws. • Under Oppression and mismanagement, the Petitioner cannot ask for documents from the Company - Mohta Bros P Ltd. Vs. Calcutta Landing and Shipping Co (1970) 40 Comp. Cas. 119 Cal

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