In a landmark second for minority shareholder activism and company governance in India, the corporate court docket on Thursday admitted the nation’s first company class motion swimsuit underneath Indian firm legislation—practically two years after it was filed by minority shareholders of Jindal Poly Movies Ltd.
The shareholders’ plea accuses the corporate promoters of siphoning and promoting belongings at undervalued costs value over ₹2,500 crore via alleged related-party transactions.
The Delhi bench of the Nationwide Firm Regulation Tribunal (NCLT) rejected Jindal Poly’s problem to the maintainability of the case and issued formal discover to Jindal Poly Movies, permitting the matter to proceed on deserves.
The order marks the primary time an Indian firm tribunal has formally admitted and issued discover in a company class motion swimsuit underneath Part 245 of the Corporations Act 2013.
Part 245 of the Corporations Act, 2013 was launched in 2013 following the Satyam rip-off of 2009 to strengthen minority shareholder safety. Primarily based on suggestions of the J.J. Irani Committee, it permits shareholders with a minimum of 2% shareholding to file company class motion fits towards fraud, mismanagement, or unfair practices.
The petition was filed in March 2024 by minority shareholders Ankit Jain (proudly owning 3.06% stake), Rina Jain (0.94%), and Ruchi Jain Hanasoge (0.99%). They allege that the promoters of Jindal Poly Movies diverted firm belongings and bought investments at unfairly low costs, inflicting 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 didn’t subject discover on the preliminary stage.
In its order, the tribunal famous that the delay in issuing discover occurred as a result of it was inspecting these preliminary objections. It additionally recorded that paucity of time, infrastructure constraints and administrative points contributed to the delay.
Jindal Poly Movies, in its defence, argued that the case was not a correct class motion and ought to be dismissed. The corporate claimed the petition was basically meant to profit the corporate quite than shareholders and had been filed to bypass larger shareholding thresholds required underneath different provisions of firm legislation.
The tribunal rejected these arguments, noting that the petitioners met the minimal 2% shareholding threshold prescribed underneath Part 245, a side not disputed by the corporate. The NCLT clarified that, at this stage, it was solely required to find out whether or not a prima facie case existed to justify issuance of discover, to not determine whether or not the allegations had been true.
“The petition prima facie accommodates the opinion of the requisite variety of shareholders who’ve alleged that the administration and conduct of the affairs of the corporate have been and are being carried out in a way prejudicial not solely to the pursuits of the corporate but additionally to its members,” the NCLT stated in its order. “This two-pronged requirement is, at this stage, enough to justify issuance of discover. The plea of belated information raised by the petitioners is a matter to be adjudicated.”
The tribunal additional noticed that India’s class motion framework underneath Part 245 has a broader scope than related legal guidelines within the US, permitting shareholders to hunt reduction even when it finally advantages the corporate. It burdened that it was not expressing any view on the deserves of the allegations.
With the petition now formally admitted, the case will transfer to the deserves stage, the place each side will current detailed pleadings and proof. The end result is predicted to turn into a landmark precedent in figuring out whether or not class motion fits can turn into a sensible instrument for investor safety in India.
Alleged transactions
In line with the petition reviewed earlier by Mint, Jindal Poly Movies invested round ₹703.79 crore between 2013 and 2017 in group energy corporations—Jindal Powertech and Jindal India Thermal Energy—via 0% choice shares, at a time when each corporations had been allegedly financially burdened.
In FY21, these energy corporations secured debt waivers of over ₹7,000 crore from banks, considerably enhancing their valuations. The shareholders allege that Jindal Poly Movies itself helped fund these settlements by extending contemporary loans of over ₹400 crore.
Quickly after, Jindal Poly Movies bought its complete stake in Jindal Powertech at what shareholders describe as deeply undervalued costs. Shares value ₹440.2 crore had been bought to SSJ Belief, a promoter-linked personal belief, for ₹66.03 crore, whereas one other set of shares value ₹263.59 crore had been bought to Jindal Poly Funding for ₹39.53 crore.
The petition estimates the overall loss from these transactions at ₹2,518.45 crore, with the features flowing to promoter-linked entities.
The order handed by the NCLT is extraordinarily important for minority shareholder rights and activism in India, Vaibhav Kakkar and Abhishek Swaroop of Saraf & Companions, who represented minority shareholder Ankit Jain within the matter, informed Mint. “The ruling allows minority shareholders holding as little as 2% stake in publicly-listed corporations to invoke the statutory class motion treatment towards promoter misconduct, mismanagement and overreach, outdoors the standard oppression and mismanagement framework.”
Commenting on the event, Jindal Poly Movies stated that this listening to was just for order on non-maintainability of a category motion swimsuit filed by a minority shareholder, and as of now, “it doesn’t have any implications or bearing on the deserves of the case”.
“Jindal Poly reiterates that every one enterprise selections had been executed underneath business knowledge with mandatory approvals as required underneath relevant legal guidelines. This choice doesn’t entail any findings on the allegations made within the petition and the corporate is assured of succeeding on deserves of the case,” the spokesperson stated, including that the agency will take into account submitting an applicable enchantment after getting a replica of the order.
