Investors can now seek class action against companies, with the government notifying the thresholds for filing such lawsuits.
In a significant move, the corporate affairs ministry has notified the thresholds for filing class action -- a provision aimed at providing a redressal mechanism for small and minority investors.
Under Section 245 of the Companies Act, investors can file a class action suit in case they feel that the management or conduct of the affairs of a company are prejudicial to their interests.
An application for class action can be filed by a member or members representing five per cent of the total members of a company. It can also be done by 100 members of a company, whichever is less, according to the ministry.
The same criteria will also be applicable for depositors of deposit-taking companies.
In case of an unlisted company, a member or members holding at least five per cent of the issued share capital can file for class action. For listed companies, this threshold would be two per cent.
The ministry has made amendments to the National Company Law Tribunal Rules 2016 under the Companies Act, 2013 on Wednesday.
With the notification of the thresholds, investors can now file class action lawsuits, an official said.
This is a huge step in terms of redressal mechanism for small and minority shareholders, he added.
Among others, if statutory auditors have been callous and negligent, endorsing falsified statements, the investors can certainly proceed against them with a class action.
The ministry is also readying a scheme to provide financial assistance to minority investors filing class action lawsuits under the companies law.