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Why India urgently needs to have class-action suits

Mini

A class-action suit or a representative action is a form of lawsuit in which a large group of people collectively bring a claim with similar interests to court and/or in which a group of defendants. Such group is collectively known as a “class”.

Why India urgently needs to have class-action suits
A class-action suit or a representative action is a form of lawsuit in which a large group of people collectively bring a claim with similar interests to court and/or in which a group of defendants. Such group is collectively known as a “class”.
The need of class action was highlighted in the Bhopal Gas Tragedy case. In the aforementioned case, 37,000 people died in 1984 due to a gas leak in the factory owned by Union Carbide, a US-based company. As there was no legal recourse available pertaining to class action suit in India, three class action suits were instituted against Union Carbide in the US wherein all claims were dismissed. Then the central government had to file a case on behalf of the persons injured and the victims were awarded only one-seventh of the claim asked for. Furthermore, the perpetrators were not given stricter punishment in relation to the incident.
During the Satyam case, there was no provision in the Indian legal system for a class-action suit recourse. Various aggrieved investors approached the National Consumer Dispute Redressal Commission (NCDRC) and then the Supreme Court of India to pursue securities class action suits but their claims were rejected citing the reason that there are no relevant laws in place in India to deal with such class action suits. However, the investors of the company in the Unites States who moved the court seeking redressal were awarded a sum of 125 million dollars as compensation. Satyam scam was also an eye-opener in realising how the legal system in India lacks in protecting the interests of investors. This lead to the introduction of Section 245 by the Ministry of Corporate Affairs (MCA) on 1st June 2016 with respect to collective actions in India.
In 2015, a class action suit was initiated by the Government of India under section 12(1)(d) of the Consumer Protection Act, 1986 in National Consumer Disputes Redressal Commission against Nestle India Ltd. The complaint was filed as a collective action on behalf of consumers when the Food Safety and Standards Authority of India found higher levels of lead in its instant noodles sold under the brand name ‘Maggi’. The claim seeks damages of Rs 640 crore for alleged unfair trade practices, false labelling and misleading advertisements. The case is still pending in the court but it opened doors for more collective actions.
The concept of class action suit first originated in the USA but recently, there have been major developments in several European jurisdictions wherein provisions have been enacted permitting class-action suits. Furthermore, class actions are permitted to be pursued only by consumer associations. Class actions have allowed individuals to hold some of the world’s most powerful firms and organizations accountable for their actions globally.
One such example is, Visa/Mastercard (Payment Card Interchange Fee & Merchant Discount Antitrust class action suit, was initiated by retailers in 2005 with the objection of excessive processing rates levied on credit cards including MasterCard and Visa. As on December 2019 , the United States District Court approved a final settlement of 5.54 billion dollars. In a similar case, Merricks vs. Mastercard lawsuit , Innsworth Capital (third party funder) provided funding for the class action suit. It was funded on behalf of the consumers alleged to be victims of ‘illegal card fees’. Mastercard was liable for around 14 billion Euros for damages and infringement of EU law by charging ‘interchange’ fees on the use of debit and credit cards between 1992 and 2008.
In recent years, Indian judiciary has realized the urgent need for class action in the country. India has newly introduced Consumer Protection Act 2019 (“CPA”) effective from on 24th July, 2020 giving power to the Central Consumer Protection Authority (“CCPA”) to initiate class action suits on behalf of the consumers under Section 10 (1) of CPA. CCPA regulates matters which are related to unfair trade practices, ensure consumer rights and false or misleading advertisements.
It is a duty of the CCPA to protect, promote and enforce such rights of consumers as a class and prevent any violation under Section 18(1) of the CPA. This is lead to an increase in the institution of class action suit as not only will the consumers as a class would be able to approach the appropriate forum for redressal and enforcement of rights, the CCPA may also suo moto be able to investigate and file class action lawsuits.
The major advantages of Class Action Lawsuits are lower litigation costs as the individuals can share their legal expense. Such lower litigation cost can allow plaintiffs to seek relief who would not be able to financially prudent to do the same in a traditional suit. Such suits reduced the time frame as it is decided by one judge in one court which will lead to greater judicial efficiency. Such judicial efficiency will lead to uniformity for stakeholders involved as only the decision is by one judge, one settlement and on the other side the defendant is not left wondering on how to follow up with the law. A class action lawsuit erases this risk and allows injured parties to recover damages at the same time and in proportion to their injuries.
Recently, class action suits in India have gained attention from the courts as well as the government. CCPA has recently initiated “class action proceedings” against 9 firms who failed to refund the payments during the coronavirus pandemic.
Another major reason for staring the class action is that the companies have not displayed the “country of origin” on the products. Such companies has violated consumer rights and have led to unfair trade practices which has been taken in consideration by CCPA while initiating such action. The accused include travel companies, social media firm and an e-commerce firm. These firms have been directed to follow the instructions to comply with the CCPA orders. If the firms fail to comply with such instructions, CCPA may file class action suit in the National Consumer Disputes Redressal Commission (NCDRC).
As you can see, we have several statutory provisions in place to allow people to file class-action suits in India, but the concern of hefty legal costs is still in the people’s mind, making class-action suits financially unviable. The solution to this financial challenge is “Third Party Funding” (“TPF”) which has become a common practice in India. Now, India has its first home grown third party litigation funding company with the goal of alleviating the financial burden of class action lawsuits. Using non-recourse funding, the company assists the plaintiffs in covering all legal costs such as advocate as well as court fees and other related expenses. The new market setter is ready to take on class action law suits.
There are many cases with reasonable claims that could be addressed in a class action suit. The rising number of class action suits will ensure access to justice for weaker sections of society. The courts and government have started taking a more accommodating approach to the financial concerns surrounding TPF and class action suits. Furthermore, these class actions are important to maintain corporate governance and increase investors’ confidence. By encouraging class action suits, India will improve its ease of doing business rankings, especially in disaster prevention and risk of life. As India strives to attain economic growth in the future, class action lawsuits should be prioritised to demonstrate that India can meet and safeguard global corporate governance norms.
The author, Kundan Shahi, is Founder at LegalPay, a tech-based litigation funding platform. The views expressed are personal
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