Minority shareholders score win as NCLT admits India's first corporate class action suit

In a landmark moment for minority shareholder activism and corporate governance in India, the company court on Thursday admitted the country’s first corporate class action suit under Indian company law—nearly two years after it was filed by minority shareholders of Jindal Poly Films Ltd.

The shareholders’ plea accuses the company promoters of siphoning and selling assets at undervalued prices worth over ₹2,500 crore through alleged related-party transactions.

The Delhi bench of the National Company Law Tribunal (NCLT) rejected Jindal Poly’s challenge to the maintainability of the case and issued formal notice to Jindal Poly Films, allowing the matter to proceed on merits.

The order marks the first time an Indian company tribunal has formally admitted and issued notice in a corporate class action suit under Section 245 of the Companies Act 2013.

Section 245 of the Companies Act, 2013 was introduced in 2013 following the Satyam scam of 2009 to strengthen minority shareholder protection. Based on recommendations of the J.J. Irani Committee, it allows shareholders with at least 2% shareholding to file corporate class action suits against fraud, mismanagement, or unfair practices.

The petition was filed in March 2024 by minority shareholders Ankit Jain (owning 3.06% stake), Rina Jain (0.94%), and Ruchi Jain Hanasoge (0.99%). They allege that the promoters of Jindal Poly Films diverted company assets and sold investments at unfairly low prices, causing losses exceeding ₹2,500 crore to public shareholders.

After the petition was filed, the NCLT first examined the maintainability of the case, following objections raised by Jindal Poly, and did not issue notice at the initial stage.

In its order, the tribunal noted that the delay in issuing notice occurred because it was examining these preliminary objections. It also recorded that paucity of time, infrastructure constraints and administrative issues contributed to the delay.

Jindal Poly Films, in its defence, argued that the case was not a proper class action and should be dismissed. The company claimed the petition was essentially meant to benefit the company rather than shareholders and had been filed to bypass higher shareholding thresholds required under other provisions of company law.

The tribunal rejected these arguments, noting that the petitioners met the minimum 2% shareholding threshold prescribed under Section 245, an aspect not disputed by the company. The NCLT clarified that, at this stage, it was only required to determine whether a prima facie case existed to justify issuance of notice, not to decide whether the allegations were true.

“The petition prima facie contains the opinion of the requisite number of shareholders who have alleged that the management and conduct of the affairs of the company have been and are being carried out in a manner prejudicial not only to the interests of the company but also to its members," the NCLT said in its order. "This two-pronged requirement is, at this stage, sufficient to justify issuance of notice. The plea of belated knowledge raised by the petitioners is a matter to be adjudicated.”

The tribunal further observed that India’s class action framework under Section 245 has a broader scope than similar laws in the US, allowing shareholders to seek relief even if it ultimately benefits the company. It stressed that it was not expressing any view on the merits of the allegations.

With the petition now formally admitted, the case will move to the merits stage, where both sides will present detailed pleadings and evidence. The outcome is expected to become a landmark precedent in determining whether class action suits can become a practical tool for investor protection in India.

Alleged transactions

According to the petition reviewed earlier by Mint, Jindal Poly Films invested around ₹703.79 crore between 2013 and 2017 in group power companies—Jindal Powertech and Jindal India Thermal Power—through 0% preference shares, at a time when both companies were allegedly financially stressed.

In FY21, these power companies secured debt waivers of over ₹7,000 crore from banks, significantly improving their valuations. The shareholders allege that Jindal Poly Films itself helped fund these settlements by extending fresh loans of over ₹400 crore.

Soon after, Jindal Poly Films sold its entire stake in Jindal Powertech at what shareholders describe as deeply undervalued prices. Shares worth ₹440.2 crore were sold to SSJ Trust, a promoter-linked private trust, for ₹66.03 crore, while another set of shares worth ₹263.59 crore were sold to Jindal Poly Investment for ₹39.53 crore.

The petition estimates the total loss from these transactions at ₹2,518.45 crore, with the gains flowing to promoter-linked entities.

The order passed by the NCLT is extremely significant for minority shareholder rights and activism in India, Vaibhav Kakkar and Abhishek Swaroop of Saraf & Partners, who represented minority shareholder Ankit Jain in the matter, told Mint. “The ruling enables minority shareholders holding as little as 2% stake in publicly-listed companies to invoke the statutory class action remedy against promoter misconduct, mismanagement and overreach, outside the traditional oppression and mismanagement framework.”

Commenting on the development, Jindal Poly Films said that this hearing was only for order on non-maintainability of a class action suit filed by a minority shareholder, and as of now, “it does not have any implications or bearing on the merits of the case”.

“Jindal Poly reiterates that all business decisions were executed under commercial wisdom with necessary approvals as required under applicable laws. This decision does not entail any findings on the allegations made in the petition and the company is confident of succeeding on merits of the case,” the spokesperson said, adding that the firm will consider filing an appropriate appeal after getting a copy of the order.