Class Action Suits and Rights of a Shareholder
Class Action Suits
What is a Class Action Suit?
A Class Action Suit is a legal action filed by one or more members of a group (class) on behalf of all the members who share a common interest, especially when individual claims might be too small to litigate separately.
It allows a group of shareholders or investors to collectively seek remedy for a common grievance against the company or its management.
It is an efficient way to handle multiple similar claims without burdening courts with numerous individual cases.
Class Action Suits in India
Introduced under Section 245 of the Companies Act, 2013.
The provision empowers the National Company Law Tribunal (NCLT) to allow a member or group of members to file a class action suit on behalf of all members or depositors.
Conditions to file:
Group of members or depositors with at least 100 members or 5% of the total members (whichever is less).
The class action can be filed against the company or its directors or officers for any wrongful act or omission causing harm to the members.
The NCLT can pass orders for relief or damages as deemed fit.
Rights of a Shareholder
Shareholders are the owners of the company and possess various rights to protect their interests and participate in governance. These rights can be broadly categorized as:
1. Financial Rights
Right to Dividend: Shareholders are entitled to receive dividends declared by the company.
Right to Surplus Assets: On winding up, shareholders get a share in residual assets after liabilities are paid.
Right to Transfer Shares: Freedom to sell or transfer their shares, subject to company’s articles.
2. Voting Rights
Right to vote on important matters such as election/removal of directors, approval of mergers, changes in capital structure, etc.
Voting can be in person or by proxy at general meetings.
3. Information Rights
Right to receive timely information about company affairs, including notices of meetings, annual reports, and financial statements.
Right to inspect company records (subject to law and company’s articles).
4. Participation Rights
Right to attend and participate in Annual General Meetings (AGMs) and Extraordinary General Meetings (EGMs).
Right to ask questions and propose resolutions.
5. Protection Rights
Right to file class action suits or individual legal remedies in case of oppression, mismanagement, or breach of fiduciary duties.
Right to seek removal of directors or auditors.
Right to vote on resolutions relating to mergers, acquisitions, and other major corporate decisions.
6. Preemptive Rights
Right to be offered new shares before they are offered to outsiders (subject to company’s Articles and laws).
Summary Table
| Aspect | Class Action Suits | Rights of Shareholders |
|---|---|---|
| Definition | Collective legal action by group of members | Legal entitlements and powers of shareholders |
| Legal Basis (India) | Section 245, Companies Act 2013 | Various sections of Companies Act, 2013 |
| Purpose | Address collective grievances against company | Protect ownership interests and participate in governance |
| Who can file? | At least 100 members or 5% of members | Individual shareholders |
| Remedies | Compensation, injunction, damages, other relief | Dividends, voting, information, legal action |
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