INDIA Trends and Developments Contributed by: Raghav Seth, Shruti Garg, Pranav Tomar and Shailja Rawal, AZB & Partners
Companies Act and the oppression and mismanage- ment remedy under Section 241 of the Companies Act. Although Sections 241 and 245 of the Companies Act may both be invoked in contexts involving alleged managerial or promoter misconduct, they operate dif- ferently in both scope and architecture. Section 241 of the Companies Act provides a rem- edy against oppression and mismanagement that is typically pursued exclusively by members in their individual capacity, subject to the eligibility threshold. It involves an application made by not less than one hundred members or one-tenth of total number of members. Here, the focus is on protecting members from conduct that is oppressive to members, prejudi- cial to their interests or contrary to the public interest. Section 245 of the Companies Act, in contrast, is structured as a collective or representative remedy available to members and depositors, acting as a class. It is triggered where the affairs of the company are being conducted in a manner prejudicial to their collective interests, and it incorporates specific pro- cedural safeguards for class actions, enabling a group to seek relief on behalf of all similarly placed stake- holders. The reliefs under the two provisions are also distinct. Section 242 read with Section 241 of the Companies Act confers a remedial toolkit to bring the matters complained about to an end. It includes orders that can regulate the affairs of the company, ensure proper conduct, direct purchase of shares, impose restric- tions on share transfers or allotments, terminate or modify agreements, remove managerial personnel or directors and grant other just and equitable reliefs. In essence, the idea is to undo past misconduct and put a supervisory/regulatory mechanism in place. Section 245 of the Companies Act, on the other hand, provides a structured class action framework with enumerated injunctive and declaratory remedies and, significantly, enables claims for damages or com- pensation. Injunctive and declaratory reliefs (such as restraining ultra vires acts, restraining breaches of the memorandum or articles, and declaring certain reso- lutions void) can also be issued under Section 245.
The NCLT in Jindal Poly Films Ltd also noted this dis - tinction between the provisions and stated that the availability of Sections 241–242 of the Companies Act does not foreclose a Section 245 application where the eligibility and prima facie requirements are met. The two remedies, though potentially overlapping in their factual predicates, are conceptually and proce- durally independent. Indian v US jurisprudence The Indian class action framework under Section 245 of the Companies Act invites comparison with the well-established class action regime in the United States of America. Class actions in the United States are maintained through judicial certification, which requires satisfaction of four key prerequisites: (i) numerosity – ie, a sufficiently large class; (ii) common- ality – ie, shared questions of law or fact; (iii) typicality – ie, the claims or defences of the representative party are typical of those of the class; and (iv) adequacy of representation. United States jurisprudence on these requirements is extensive. West v Randall , 29 F. Cas. 718 (C.C.R.I. 1820), one of the earliest class action cases, addressed the neces- sity of joining all interested parties. S mith v Sworm- stedt , 57 US 288 (1853), established the foundational principle that where the parties interested in a suit are numerous and the subject matter is common to all, a court of equity may permit a portion of the parties to represent the entire body. In addition, the Tooley test, articulated in Tooley v Donaldson , Lufkin & Jenrette , Inc ., 845 A.2d 1031 (Del. 2004), provides the analyti- cal framework for distinguishing between direct and derivative actions, turning on who suffered the alleged harm and who would receive the benefit of any recov- ery. The Indian statutory framework under Section 245 of the Companies Act does not adopt the judicial certifi- cation approach. Instead, Section 245 prescribes the numerical thresholds as eligibility criteria and requires the NCLT to form a prima facie opinion on the preju- dicial nature of the conduct complained about. The United States prerequisites of commonality, typical- ity and adequacy of representation do not find an express statutory equivalence in Section 245 of Com- panies Act, although the requirement that the class
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