Class action suit to form part of Companies Bill
The move is believed to help the end users, both in terms of cost and time
With lessons from the Satyam fraud case, the government is planning to include the concept of class action suit in new Companies Bill, likely to be introduced in the current session of Parliament, to help investors claim damages from fraudulent companies.
“We are planning to include class action suit in the new Companies Bill, 2008. This will help retail investors and small investors in fighting for their rights,” Corporate Affairs Minister Salman Khurshid told PTI.
He said small investors, who at present are not able, unlike in the US, to get compensation in cases of fraud due to the absence of any such law, will be able to fight for justice with class action suits. Class action suit is one brought by one party on behalf of a group of individuals to file for claims against erring companies in a court of law.
Recently, Midas Touch Investor Association, an NGO, had filed a petition with the National Consumer Disputes Redressal Commission seeking compensation on behalf of Satyam investors. It alleged that they were deceived by misleading statements of the IT firm and duped into buying its shares at a manipulated price.
Midas claimed damages of Rs 4,987 crore from Satyam, the Raju brothers, Price Waterhouse and independent directors. Khurshid said with the introduction of the concept of class action suits, the problem of addressing such complaints on behalf of small investors would be solved. Institute of Company Secretaries CEO & Secretary N K Jain said: “it will be advantageous for the end users in terms of cost and time.”
Earlier this year, Raju confessed to manipulating the books of accounts of Satyam for several years, following which US-based law firms, on behalf of Satyam’s ADR holders and securities and anti-trust firms, filed class action suits against the IT firm in America.
Slew of suits
There are 12 class action suits pending in US courts for which the company, rechristened Mahindra Satyam after Tech Mahindra took it over, has appointed Wachtell, Lipton, Rosen & Katz as lawyers.
The idea of class action suit originated in the United States and it is often filed when an organisation on behalf of shareholders launches a lawsuit, mainly because it would be too expensive for each individual shareholder to launch her/his own law suit and claim damages. In the US, class action has become a tool for social and economic reform and is also used to promote consumer protection. It is frequently used in antitrust cases and to combat consumer fraud, price fixing, and other commercial abuses in the US.
The new Companies Bill was introduced in the lower house but lapsed after the 14th Lok Sabha was dissolved.
