INDIA Law and Practice Contributed by: Vijayendra Pratap Singh, Asif Ahmed, Bhanu Jindal and Jitesh Lakra, AZB & Partners
records of their clients and their respective benefi - cial owners. The Securities and Exchange Board of India (SEBI) has also issued multiple guidelines and circulars for identifying ultimate beneficial ownership among companies listed on a stock exchange. 3.3 Shareholders’ Claims Against Fraudulent Directors Under the Companies Act, shareholders may institute oppression and mismanagement proceedings against the company and its director(s) where, inter alia, the affairs of the company have been or are being con - ducted in a manner that is prejudicial to public interest or shareholders’ interests. The requirement for initiating such proceedings has been provided for under the Companies Act as not less than 100 members or one tenth of the total mem - bers (whichever is less), or any member(s) holding one tenth of the paid-up share capital of the company, in the case of a company that has a share capital. For a company that does not have a share capital, not less than one fifth of the total members of such a company can initiate such proceedings. The Delhi High Court has clarified that provisions under the Companies Act, including Sections 241 and 242, allowing for initiation of proceedings and the relief of freezing assets and disgorgement of prop - erty as disgorgement, are civil actions in the nature of equitable relief. The Companies Act also permits institution of class actions before the National Company Law Tribunal to seek certain orders, such as to claim damages or to demand any other suitable action from or against the company or its directors for any fraudulent, unlawful or wrongful act or omission on their part. For a com - pany that has a share capital, a “class” is defined as not less than 100 members or not less than 5% of the total members (whichever is less), or members holding not less than 5% of the share capital of a company in the case of an unlisted company, and not less than 2% of the issued share capital in the case of a listed company. For a company without a share capital, a “class” has been defined as not less than one fifth of the total members of such a company.
Recently, the National Company Law Tribunal (NCLT) admitted India’s first corporate class action suit under Section 245 of the Companies Act instituted by minor - ity shareholders. The order of admission was chal - lenged before the National Company Law Appellate Tribunal (NCLAT), which dismissed the appeal and upheld the maintainability of the class action. 4. Overseas Parties in Fraud Claims 4.1 Joining Overseas Parties to Fraud Claims Fraud Under the Contract Act A suit for declaration of contract rendered void on account of fraud, or for claiming damages on account of such fraud committed by a private party, may require the joinder of an overseas party. Such joinder is governed by the CPC, which does not distinguish between joinders of an overseas party and a domestic party. Joinder is allowed on account of liability under the same contract (Order I Rule 6) or on account of a cause of action (Order II Rule 3). Courts may issue a notice/summons to an overseas party, and, if they fail to appear or defend, the courts may proceed ex parte to decide the suit. A decree passed by an Indian court against an over - seas party, specifically for damages on account of fraud, may need to be enforced specifically. Where a decree is sought to be enforced in a reciprocat - ing country notified under the CPC, the decree would become enforceable in the reciprocating country. However, for non-reciprocating countries, a decree may only hold evidentiary value and may have to be Indian law allows fraud of a civil nature to be arbitrated between parties. Any allegation of fraud that affects the private dispute between parties is arbitrable, unless the allegation is that the arbitration agreement itself is vitiated by fraud. However, allegations involv - ing criminal aspects of fraud, forgery or fabrication, and which hit at the very formation of the contract, fall within the domain of public law and must be adju - dicated by the courts. adjudicated on merits. Arbitrability of Fraud
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