India introduces class actions
The Indian Parliament has just passed a new bill that will replace the 57-year-old Companies Act by introducing class action suits into Indian Law. The legislation was passed August 8th and is now awaiting Presidential assent before implementation procedures can be put into place.
Previously, class action suits were only allowed to be filed as a Public Interest Litigation, which are frequently dismissed by the courts. Under the new Companies Act, class action suits may be filed by shareholders’ associations if they believe that the affairs of the company are being conducted in a manner detrimental to the interest of the company and its shareholders. Shareholders can claim damages against a company, directors, auditors, experts and advisors for their wrongful conduct.
The new law also makes it mandatory for companies to change auditors every few years to prevent fraud, as well as provides a strict regulatory regime that imposes large fines on audit firms for fraudulent acts. A National Financial Reporting Authority will be set up to monitor and investigate compliance with accounting and auditing standards. Additional changes to the law include provisions to enforce gender equality by requiring reserved board seats for women, improve corporate governance, ensure independence of boards by requiring one-third be comprised of independent directors with limited terms, make spending on corporate social responsibility mandatory, and improve the quality of financial statements.
India’s corporate affairs minister, Sachin Pilot, in an interview with CNBC-TV18, said: “Though class action suits are prevalent around the world, it is a new concept in India. But we decided not to be so negative in our approach to say that this will be misused, or that will be misused. Class action suits have proven to lower the burden of the courts without going through the whole litigation process. I don’t know what the future holds but I am confident that this law will reap benefits for the economy.”
India’s new bill seems to broaden the scope for securities class actions. Not only will it make group actions against corporations possible, the additional provisions of the law place more scrutiny on organizations. It is likely this bill will lead to more litigation being brought against corporations in terms of misleading statements or lack of corporate governance, which lends itself to increased securities class actions.
Contact FRT for more information about India’s new bill or the global securities group action landscape as a whole.