The Indian civil law does not provide for class action case against the entity in case of recovery of damages or other relief as strictly available in UK and USA.
The Order I Rule 8 as set in the Civil Procedure Code, 1908, which appear to have some semblance of codification of the class action suit or representative suit reads as follows:
- One person may sue or defend on behalf of all in same interest. –
(1) Where there are numerous persons having the same interest in one suit, —
(a) one or more of such persons may, with the permission of the court, sue or be sued, or may defend such suit, on behalf of, or for the benefit of, all persons so interested;
(b) the court may direct that one or more of such persons may sue or be sued, or may defend such suit, on behalf of, or for the benefit of, all persons so interested.
(2) The court shall, in every case where a permission or direction is given under sub-rule (1), at the plaintiff’s expense, give notice of the institution of the suit to all persons so interested, either by personal service, or, where, by reason of the number of persons or any other cause, such service is not reasonably practicable, by public advertisement, as the court in each case may direct.
(3) Any person on whose behalf, or for whose benefit, a suit is instituted, or defended, under sub-rule (1), may apply to the court to be made a party to such suit.
(4) No part of the claim in any such suit shall be abandoned under sub-rule (1), and no such suit shall be withdrawn under sub-rule (3) of rule 1 of Order XXIII, and no agreement, compromise or satisfaction shall be recorded in any such suit under rule 3 of that Order, unless the court has given, at the plaintiff’s expenses notice to all persons so interested in the manner specified in sub-rule (2).
(5) Where any person suing or defending in any such suit does not proceed with due diligence in the suit or defence, the court may substitute in his place any other person having the same interest in the suit.
(6) A decree passed in a suit under this rule shall be binding on all persons on whose behalf, or for whose benefit, the suit is instituted, or defended, as the case may be.
Explanation: For the purpose of determining whether the persons who sue or are sued, or defend, have the same interest in one suit, it is not necessary to establish that such persons have the same cause of action as the persons on whose behalf, or for whose benefit, they sue or are sued, or defend the suit, as the case may be.
In contra, the Rule 23 as set in the Federal Rule of Civil Procedure of USA with regard to class actions reads as follows:
Rule 23. Class Actions
(a) PREREQUISITES. One or more members of a class may sue or be sued as representative parties on behalf of all members only if:
(1) the class is so numerous that joinder of all members is impracticable;
(2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and
(4) the representative parties will fairly and adequately protect the interests of the class.
(b) TYPES OF CLASS ACTIONS. A class action may be maintained if Rule 23(a) is satisfied and if:
(1) prosecuting separate actions by or against individual class members would create a risk of:
(A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or
(B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests;
(2) the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole; or
(3) the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The matters pertinent to these findings include:
(A) the class members’ interests in individually controlling the prosecution or defense of separate actions;
(B) the extent and nature of any litigation concerning the controversy already begun by or against class members;
(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and
(D) the likely difficulties in managing a class action.
The Order I, Rule 8 of the CPC, 1908 appears to be rudimentary in apposition to Rule 23 of the Federal Rule of Civil Procedure of USA. Further, the section 9 as set in the Civil Procedure Code, 1908 reads as follows:
- Courts to try all civil suits unless barred.-The Courts shall (subject to the provisions herein contained) have jurisdiction to try all Suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred.
Explanation 1.—As suit in which the right to property or to an office is contested is a suit of a civil nature, notwithstanding that such right may depend entirely on the decision of questions as to religious rites or ceremonies.
Explanation Il—For the purposes of this section, it is immaterial whether or not any fees are attached to the office referred to in Explanation I or whether or not such office is attached to a particular place.
Thus, any Indian Act, Rule and Regulations etc. which expressly or impliedly bars action under the CPC, 1908 cannot be taken as representative suit or class action suit vide Order I, Rule 8 of the CPC, 1908.
In case of Kesha Appliances P. Ltd. And Ors. vs Royal Holdings Services Ltd. And Ors the Hon’ble Bombay High Court (2006 (1) BomCR 545) held following:
- I am of the opinion that on plain and simple reading of section 15Y and 20Aof the Act all the cases arising out of the breach and Take Over Regulation must fall within the exclusive domain of SEBI and cannot be complained in the court of Law by virtue of express bar contained under section v of the SEBI Act. I am also of the further opinion that there is no doubt that there is a common law right in a share holder to apply for rectification of the share register even though it is not his own share in respect of which he is seeking rectification but still the said right if it flows from the provisions of Take Over Regulations then undoubtedly it would fall within the exclusive Jurisdiction of SEBI and not within the Jurisdiction of this court in view of the express bar contained under the aforesaid statue. I am of the further opinion that the enactment of the amendment of Take Over Regulation of Amending provisions of SEBI (Substantial Acquisition of Shares and Take Over) Second Amendment (Regulation 2002) w.e.f. 9.9.2002 by providing for the remedy under sub clause (c) and (d) of the Regulation 44 the board has been empowered to give effective relief of Rectification of Share Register by declaring cancellation of the Allotment and / or by directing the company not to give an effect to the transfer if they are found to be in contrary to the Take Over Regulation.
In contra, the ex CJI A. M. Ahmadi in his declaration as witness citing the provision of Order I Rule 8 of the CPC, 1908 in case of M/s Satyam Computer Services, Ltd. before United States District Court Southern District of New York has declared following while representing M/s J. Sagar Associates in support of the motion of PWC:
- Therefore, the procedural Law in India would accommodate the plaintiffs having a common interest to sue in a single suit under Indian Law after obtaining the permission of the court. This requirement of permission is for the court to be satisfied that the carriage of proceedings is in right hands that can be trusted to protect the interest of the class they seek to represent. A judgment entered in such a representative action binds the members of the class as res judicata. The same appellate/review procedure that applies to an individual lawsuit applies to a judgement issued in a representative action.
The Memorandum of Law submitted before United States District Court Southern District of New York by the Defendant, Pricewaterhouse Coopers Private Limited and Ors in Support of their Motion to Dismiss the Consolidated Class Action as forum non conveniens extensively quotes from ex CJI, Ahmadi declaration. The said Memorandum of Law quotes following:
While the Second Circuit has held that the absence of a U.S.-style class action mechanism does not render an alternative forum inadequate, see Aguinda v. Texaco, Inc., 303 F.3d 470, 478 (2d Cir. 2002), India in fact has a class action procedure. A person who was injured by relying upon a defendant’s fraudulent statements may initiate a class action lawsuit on behalf of all those similarly situated with the permission of the Indian court. See Ahmadi Decl. ¶¶ 20-24 (citing Civil Procedure Code, 1908, Order I, Rule 8 (attached to the Declaration of Fraser L. Hunter, Jr. (“Hunter Decl.”) as Exhibit 1)); Declaration of Arvind P. Datar in Support of Mot. to Dismiss by Def. Satyam Computer Services Ltd. (“Datar Decl.”) ¶¶ 25-27, 29. The court will grant permission to proceed as a “class” provided that (1) the parties are “numerous,” (2) have the “same interest” in the litigation, (3) notice of the class action is given to persons sharing the same interest in the litigation as prescribed by Indian law. See Ahmadi Decl. ¶¶ 20- 21; Datar Decl. ¶¶ 26-27. As in the U.S., the outcome of the class action is binding on all class members. See Ahmadi Decl. ¶ 22; Datar Decl. ¶ 29.
Mr Sandeep Parekh visiting professor of law at the IIM Ahmedabad has declared the following in case of class action against M/s Satyam Computer Services, Ltd. Before United States District Court Southern District of New York:
III. SUMMARY OF CONCLUSIONS
- To summarise the conclusions explained in detail below:
- Private parties have no right to sue to recover damages resulting from the Satyam fraud under Indian statutory or common law because the Indian civil courts have no power to hear disputes where, as in this case, SEBI is empowered to act (discussed at Section IV, paras. 12 to 23 infira);
- Satyam investors will not be able to use the representative action procedure to recover damages because Indian law bars their substantive claims in civil court and the representative action is only a procedural mechanism that cannot create any substantive rights (discussed at Section V, paras. 24 to 29 infra);
It is in this background the specific provision in form of Section 245 under the Companies Act, 2016 has been enacted to enable class action by shareholders in case of defraud by the company.
The Section 12 of the Consumer Protection Act, 1986 reads as follows:
- Manner in which complaint shall be made. —
(1) A complaint in relation to any goods sold or delivered or agreed to be sold or delivered or any service provided or agreed to be provided may be filed with a District Forum by—
(a) the consumer to whom such goods are sold or delivered or agreed to be sold or delivered or such service provided or agreed to be provided;
(b) any recognised consumer association whether the consumer to whom the goods sold or delivered or agreed to be sold or delivered or service provided or agreed to be provided is a member of such association or not;
(c) one or more consumers, where there are numerous consumers having the same interest, with the permission of the District Forum, on behalf of, or for the benefit of, all consumers so interested; or
(d) the Central or the State Government, as the case may be, either in its individual capacity or as a representative of interests of the consumers in general.
The section 12 (c) of the said consumer act provides for class action with the permission of the District Forum. However, the section 12 (d) of the act enables the Central or the State government to act as parens patriae or as representative of the consumers in general. The Central government has filed as representative of consumer in general, in case of Union of India vs Nestle India Limited before the National Consumer Disputed Redressal Commission (CC No.-870 0f 2015) alleging that the “Maggi noodles” manufactured and sold by Nestle India Ltd are defective goods, as they contain excess quantity of lead and also contain MSG which is a health hazard and is not permissible.
The CPC, 1908 need to be amended in line with the USA Federal Rule 23 of Civil Procedure to provide for strict and transparent class action against defaulting entity.
Advocate, Bombay High Court