Mint Explore: Why are there more and more class actions in India?

Earlier this year, minority shareholders of Jindal Poly Films filed a class action lawsuit – the first in India – against the company’s promoters, alleging fraudulent conduct. And Ola Electric is now facing the possibility of a class action after the Central Consumer Protection Authority (CCPA) issued a show-cause notice, alleging violations of consumer rights and misleading advertising.

Mint explains what a class action is and why it is becoming increasingly popular in India.

What is a class action?

A class action is a legal mechanism that allows a group of people with a common complaint to bring a single case against a party instead of filing separate lawsuits. It can be used for things like reversing illegal activities, stopping harmful decisions, or seeking damages.

In India, corporate governance class actions were formally introduced in 2013 through Section 245 of the Companies Act. These cases are tried by the National Company Law Tribunal (NCLT).

Why is Ola Electric facing the possibility of a class action?

Last week, the Central Consumer Protection Authority (CCPA) issued a notice to Ola Electric after nearly 10,000 consumer complaints were filed with the National Consumer Helpline between September 2023 and August 2024. These complaints relate to a range of issues including delayed deliveries, defective vehicles, misleading advertising and inadequate customer service.

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The CCPA has accused Ola of violating the Consumer Protection Act, 2019. If the company fails to adequately address these concerns, it could face further consequences, including a class action. Ola Electric was given 15 days to respond to the CCPA notice.

What is the Jindal Poly case?

In March 2024, minority shareholders of Jindal Poly Films filed a class action lawsuit against the company, alleging “oppression and mismanagement”. The case revolves around the sale of Optionally Convertible Preference Shares (OCPS) and Redeemable Preference Shares (RPS) to a promoter. , SSJ Trust, at undervalued prices, which is said to be a ₹2,268 crore loss to the company. The shareholders have asked the NCLT to reverse the transaction and order the company to compensate them. The case is currently pending.

Where else can class action lawsuits be filed?

Class action provisions were first introduced in India under the Code of Civil Procedure, 1908. The Consumer Protection Act, 2019 also allows consumers to file collective complaints, and the Competition Act, 2002 and the Insolvency and Bankruptcy Code of 2016 offer additional options for collective complaints. justice.

Why are such lawsuits increasing in India?

The increase in the number of class actions in India can largely be attributed to the growing awareness among consumers and shareholders due to technological advancements and greater access to information. As individuals become more aware of their rights, they increasingly use such tools to hold companies accountable for their actions.

Sanjay Jain, senior advocate at the Supreme Court and former Additional Solicitor General, explained: “With the rise of the internet and social media, Indians have become more aware of global trends and their rights as consumers. This heightened awareness has also prompted the government to actively protect citizens’ rights, especially with regard to corporate mismanagement and consumer protection.”

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Despite the success of class actions in countries like the US, they have remained largely unused in India until recently. “Though the Consumer Protection Act allowed such cases, they remained underutilized for decades,” Jain said. “It wasn’t until 2015 that the Indian government filed its first class action, marking a turning point in corporate responsibility.”

Furthermore, the collection and use of vast amounts of personal data by companies increases the scope for collective action in the digital age. Akshat Pande, managing partner at Alpha Partners, said: “Companies that collect and use vast amounts of personal data create risks of privacy breaches or misuse that could affect multiple individuals at the same time.”

Can the Ola Electric and Jindal Poly Films cases set a precedent?

Yes, they could. Akshat Pande said: “For example, the outcome of the Ola Electric case could impact the way courts handle class actions in the technology sector, especially those relating to marketing claims and consumer protection.”

Jain said: “This trend indicates that government agencies and consumers themselves are becoming more proactive in holding companies accountable. Consumers in particular are no longer willing to accept management decisions that endanger their financial interests.”

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Experts say that while class action is still nascent in India, it is a powerful tool to protect the rights of shareholders, consumers and savers. As the number of class actions continues to rise, they are expected to play an increasingly important role in ensuring corporate accountability and strengthening India’s antitrust laws.