Mint Explainer: Why does Sebi want to join India’s first class action suit?
The markets regulator has asked the National Company Law Tribunal for permission to join a case in which minority shareholders are suing Jindal Poly Films and members of its promoter family for allegedly siphoning assets worth more than ₹2,500 crore. But why?
India’s markets regulator has approached the National Company Law Tribunal (NCLT), seeking permission to join India’s first corporate class action suit, in which minority shareholders are suing Jindal Poly Films and members of its promoter family for allegedly siphoning assets worth more than ₹2,500 crore. Mint has seen a copy of Sebi’s plea.
Sebi's involvement brings a fresh twist to the landmark case, filed in March 2024. But Why is the regulator keen to join in, and how will this affect the proceedings? Let’s find out.
What is the class action suit about?
Minority shareholders of Jindal Poly Films accuse promoters Shyam Sunder Jindal and Subhadra Jindal of diverting assets and selling them for less than they were worth, leading to losses exceeding ₹2,500 crore. Section 245 of the Companies Act allows shareholders with as little as a 2% stake to collectively seek remedies for fraud, mismanagement, or prejudicial acts. Section 241, meanwhile, typically applies to those who hold at least 10%.
The petition, filed by shareholders Ankit Jain (3.06% stake), Rina Jain (0.94%), and Ruchi Jain (0.99%), claims that Jindal Poly invested nearly ₹703 crore in group power entities Jindal Powertech and Jindal India Thermal Power via 0% preference shares. Following debt waivers worth over ₹7,000 crore, which improved valuations, these investments were allegedly sold at steeply undervalued prices to promoter-linked entities, causing losses of ₹2,518 crore to public shareholders.
What is a corporate class action suit?
A corporate class action suit allows a group of shareholders with a common grievance to collectively take legal action against a company, its promoters, directors, auditors or advisors for misconduct. Introduced after the Satyam scandal of 2009, Section 245 remained largely dormant owing to procedural barriers until the Jindal Poly case revived it as a potential tool for minority shareholder activism.
Why is Sebi looking to join in?
Sebi told the NCLT that it conducted an investigation into transactions undertaken by Jindal Poly between FY14 and FY24 following complaints from minority shareholders. It found that the company wrote off investments worth ₹690.27 crore in Jindal India Powertech, and later sold them at extremely low valuations to promoter-linked entities SSJ Trust and Jindal Finance, resulting in an estimated ₹760.12 crore loss to shareholders.
Sebi said the transactions were staggered, inadequately disclosed, and structured to conceal the financial impact, thus violating the Sebi Act, Prohibition of Fraudulent and Unfair Trade Practices regulations, and Listing Obligations and Disclosure Requirements rules. The regulator filed an intervention application to place its findings on record to assist the tribunal and protect investors.
What has Sebi alleged?
Sebi noted that despite publicly stating that power investments were being reduced, Jindal Poly continued to fund the entities through 0% redeemable preference shares (RPS) of ₹690.27 crore, later written off over FY17 to FY19. Portions were written back in FY22 and ultimately sold for ₹105.56 crore at ₹1.492 per share, compared to a valuation of ₹10.02 per share just seven months earlier. Sebi also highlighted an additional ₹24.25 crore loss via another promoter-linked entity, Champak.
What does this mean for the case?
According to corporate lawyers, Sebi’s intervention significantly strengthens the minority shareholders’ case by adding regulatory heft and independent investigative evidence. With the regulator joining the proceedings, the dispute gains institutional credibility and may improve the chances of relief and faster adjudication before the NCLT, they said.
Kinjal Champaneria, partner at Solomon & Co, said, “Sebi has acted on and investigated Jindal Poly based on a complaint filed by the minority shareholders. Sebi’s intervention will strengthen the shareholders’ claims, and the adverse findings of the investigation could be beneficial to them. By formally joining the proceedings, the regulator lends substantial weight to the petitioners’ allegations of financial manoeuvring."
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