ABSTRACT
Shareholders dispersed among the small investors who are typically short-changed by corporate scams, mismanagement, and related-party siphoning has a classic collective action problem: each individual loss is too trivial to sustain a suit, but the total damage can amount to thousands of crores. The class action remedy addresses this collective action dilemma: it enables shareholders to file suit en bloc. This article briefly compares the evolution of shareholder class actions in the United States, the United Kingdom, and India against corporate misconduct and corporate abuses in the United States, via the sophisticated Rule 23 of the Federal Rules of Civil Procedure, updated by the Private Securities Litigation Reform Act 1995 which created a rich class action plaintiffs’-bar, and led to the first Indian shareholder settlement of $125 million in In re Satyam Computer Services Securities Litigation; in the United Kingdom, through a bare representative action (CPR 19.8)challenged by the Supreme Court in Lloyd v Google (2021) and supplemented by statutory securities-based claims under ss.90 and 90A of the Financial Services and Markets Act 2000, tested in the RBS Rights Issue Litigation and the Tesco Litigation; and in India, through S. 245 of the Companies Act 2013, drafted given the Satyam fraud that initially left its Indian investors uncompensated, but practically came to the fore only after a long dormancy of nearly 8years, following its 2016 notification, culminating in two petitions challenging the delisting of ICICI Securities, and most prominently, in Ankit Jain v Jindal Poly Films Ltd, against its entry rendering a jurisprudence on the provision. This article concludes that until India remedies the unresolved class/derivative distinction treats the absence of a litigation-funding forum, the potential of these class/derivative proceedings remains limited.
Keywords: shareholder class actions; corporate impropriety; Section 245; Companies Act 2013; Rule 23; Private Securities Litigation Reform Act; representative actions; Financial Services and Markets Act 2000; National Company Law Tribunal; litigation funding.
1. INTRODUCTION
Corporate wrong-doings fraudulent accounts, diverting value to related parties, managers hiding misdoings rarely tip off one investor sufficiently to justify a solo lawsuit. A small farmer who loses a few thousand rupees to an overly-rosy balance sheet won’t find any cost-effective reason to sue; a company that diverts crores via undervalued transactions to a promoter-controlled company has little reason to be deterred. Class actions were created to address this problem: they allow investors who individually cannot justify litigation to pool their evidence, their pursuit of justice, and their litigation costs into a single, scalable process with the scope to reach the resources of the wrongdoer. Very different solutions to this problem were sought throughout the common law world. The United States’ institution has been the most durable and proven; it has operated under Rule 23 of the Federal Rules of Civil Procedure from 1938, and been adapted by the Private Securities Litigation Reform Act of 1995 into one with a well-entrenched, specialized pool of plaintiffs’ lawyers. England has moved forward more deliberately; since the turn of the millennium, it has relied on a narrowly-drawn representative-action rule under the Civil Procedure Rules, and for securities, claims under the Financial Services and Markets Act 2000 that have so far kept settled, rather than reach trial. India’s Section 245 of the Companies Act, 2013 was born out of the response to the 2009 Satyam scam, where neither Satyam’s shareholders nor those of the Indian promoter-controlled companies could recover damages in India at the time and the regulations it laid out only came into force in 2016. The comparison matters for three reasons. First, India’s Section 245 is a deliberate transplant flawed but conscious transplant of a common-law remedial mechanism into a tribunal-based one, and the decade of stagnation followed by the sudden 2024 & 2026 resuscitation presents a rare natural experiment on the viability of such a transplant. Second, India’s repeated corporate fraud eruptions most Particularly Satyam 2018 Punjab National Bank, IL&FS, and DHFL among them bring to bear the question open practical stakes rather than only doctrinal ones. Third, two 2024 and 2026 rulings by positions in ICICI Securities and Jindal Poly Films Limited respectively now furnish India’s now-entire body of Section 245 case law, allowing an assessment that was without it previously. In this article, I chart the history of shareholder class action remedies in the United States, the United Kingdom, and India; compare their structural choices; assess the content of their 20242026 resuscitation; and suggest structural reforms to complete the transplant.