NCLAT refuses to stay India’s first corporate class action against Jindal Poly Films

NEW DELHI: In a setback for Jindal Poly Films Ltd, the National Company Law Appellate Tribunal (NCLAT) on Thursday declined to stay proceedings in India’s first corporate class action lawsuit filed by minority shareholders, alleging fraudulent conduct and siphoning of more than ₹2,500 crore by the company’s promoters and management.

The appellate tribunal dismissed the company’s appeal challenging a 5 February order of the National Company Law Tribunal (NCLT), Delhi bench, which had admitted the class action petition under the Companies Act and issued notice in the matter.

“NCLT in the impugned order has satisfied itself regarding fulfilment of all requisite pre-conditions under Section 245 read with relevant Rules. Thus, we are not inclined to interfere in the impugned order and hence the appeal is dismissed,” the NCLAT judgement noted.

In its plea, Jindal Poly sought an urgent stay on the NCLT order, arguing that without interim relief it would be required to send formal communications to nearly 40,000 shareholders, stock exchanges and the market regulator. The company contended that such disclosures could cause irreparable reputational and market harm.

“5% shareholders cannot run the company…If it is not stayed—first it requires notices to all shareholders and stock exchanges. Listed co 40,000 shareholders, wide in rem ramifications, panic, 31% loss since the proceedings started. Irreparable reputation and market harm, a class action by 5% will lead to what they are apprehending, more loss to co,” senior advocate Abhishek Manu Singhvi, appearing for Jindal Poly Films argued during hearing.

Jindal Poly had also argued that the class action petition was not maintainable and that the provision could not be used as a substitute for other legal remedies requiring higher shareholding thresholds. The company said the issues raised relate to governance concerns that should have been pursued through alternative legal routes, adding that the shareholders had earlier filed a separate case against a group company before another tribunal bench.

The NCLAT, however, declined to grant interim relief.

With Jindal Poly's stay plea rejected, the NCLT can now proceed to hear the matter on merits and determine whether the minority shareholders’ allegations are sustainable.

Earlier this month, the NCLT’s Delhi bench admitted the petition, marking the first time an Indian company tribunal has formally issued notice in a corporate class action under Section 245 of the Companies Act, 2013, nearly a decade after the provision came into force.

Minority shareholder allegations

The case was initiated in March 2024 by minority shareholders Ankit Jain, Rina Jain and Ruchi Jain Hanasoge, who together hold a 4.99% stake in the company. They allege that more than ₹2,500 crore was siphoned off through undervalued asset sales and related-party transactions involving promoter-linked entities.

According to the plea, Jindal Poly invested about ₹703.79 crore between 2013 and 2017 in group power companies—Jindal Powertech and Jindal India Thermal Power—through 0% preference shares. In FY21, these companies secured debt waivers totalling over ₹7,000 crore, improving their valuations.

The shareholders allege that Jindal Poly later sold its stake at deeply undervalued prices to promoter-linked entities, resulting in losses exceeding ₹2,500 crore to public investors.

“The loss caused to the company by the sale of OCPS (Optionally Convertible Preference Shares) and RPS (Redeemable Preference Shares) is estimated at ₹2,518.45 crore ( ₹2,268.03 crore plus ₹250.42 crore), with the corresponding benefit accruing to the promoter entities,” the petition said. Mint had earlier seen a copy of the petition.

Section 245 of the Companies Act allows a group of shareholders to file a single case before the NCLT if they believe a company is acting unfairly or causing loss to investors. In a listed company, shareholders holding at least a 2% stake can jointly seek action for fraud, mismanagement or wrongful conduct.

The provision was introduced in 2013 following the Satyam scandal, based on recommendations of the J.J. Irani Committee, to strengthen minority shareholder protection.

Why NCLAT upheld the admission

The NCLAT refused to interfere with the NCLT’s order, observing that the legal requirements for admitting the class action were properly met.

The petitioners hold a 4.99% stake, above the 2% minimum required for listed companies. The tribunal found there was sufficient initial material to form a prima facie view that the company’s affairs may have harmed minority shareholders. It also accepted that the shareholders acted in good faith, having sought clarifications and an independent review before filing the petition.

Importantly, the tribunal clarified that past transactions can also be examined and that shareholders may seek relief for the benefit of the company.

“This is the first time a corporate class action has survived the initial stay challenge and moved forward post-admission. Historically, most Section 245 petitions have either been dismissed at admission or quietly settled; this order signals that class actions are no longer merely theoretical. For minority shareholders (and activist funds), the decision materially strengthens leverage: once notice is issued,” said Sindhuja Kashyap, partner, King Stubb & Kasiva.

“The ruling is only the first step towards a long march. While it gives autonomy to shareholders, the judgment also shoulders responsibilities on shareholders, who otherwise must remain vigilant and take part in the affairs of the company,” remarked Pranav Charan, associate partner at Indialaw LLP.

Company response

Responding to the development, the company said the appellate tribunal’s order does not affect the merits of the case.

“Jindal Poly reiterates that all business decisions were taken under commercial wisdom with necessary approvals as required under applicable laws. This decision does not impose any findings on the allegations made in the petition. The company is reviewing the order and shall decide on the next steps accordingly,” a spokesperson for Jindal Poly Films Ltd said in a statement.

As the NCLT moves to hear the case on merits, the proceedings are being closely watched by minority investors as well as corporate boardrooms. If the tribunal ultimately rules in favour of the shareholders, it could mark a significant moment for shareholder activism in India. While class action remedies are common in jurisdictions such as the US, they have rarely been tested in India until the Jindal Poly matter brought the provision into active use.