2026 (3) TMI 111 - AT - Companies Law

Class Action Scope: past transactions can be remedied under shareholder class suits, and petition admission was upheld.

Section 245 class actions may seek remedies for acts prejudicial to the company and its members including past or concluded transactions where damages or ... Maintainability of class action under Section 245 for past and continuing transactions - scope of reliefs under Section 245(1)(g) and (h) including claims against third parties - Compliance of Section 245(4) - illegal and systematic fraudulent acts - prejudicial to the interests - application of Section 245(4) factors (good faith and locus to pursue) and relevant NCLT Rules in admission. Maintainability of class action under Section 245 for past and continuing transactions - Class action under Section 245 is maintainable in respect of impugned transactions pleaded as past, continuing or systematically orchestrated and not confined to exclusively in praesenti acts. - HELD THAT: - The Tribunal construed Section 245 as permitting reliefs for acts prejudicial to the company and its members whether the acts are past, present or likely to occur. The provisions, read as a whole and in light of the legislative history (J.J. Irani Committee and subsequent Bills), show Parliament intended class actions to vindicate the interests of the company as well as its members. The Tribunal noted that certain reliefs under Section 245, such as damages or compensation, necessarily contemplate past or concluded transactions. Where allegations assert a scheme or systematic concealment that prevented shareholders from knowing or authorising transactions, those transactions cannot be treated as simply closed for the purpose of excluding Section 245. On the facts, the impugned transactions were pleaded as part of a continuum and thus the Tribunal correctly held admission on maintainability was justified. [Paras 18, 24] Maintainable; the NCLT rightly held Section 245 can apply to past and continuing impugned transactions on the prima facie record. Scope of reliefs under Section 245(1)(g) and (h) including claims against third parties - Reliefs under Section 245(1)(g) and residuary clause (h) extend to claims of damages or other suitable actions against the company, its directors and third parties, and may include remedies addressing loss suffered by the company and consequential loss to shareholders. - HELD THAT: - The Tribunal interpreted sub clause (g) to permit claims 'from or against' the company, directors or other persons, observing the use of 'or' demonstrates Parliament's intent to permit actions against third parties (directors, auditors, experts). Clause (h) is a wide residuary head empowering the Tribunal to grant other remedies as fit. The court reasoned that where the company itself is a victim of alleged fraudulent or wrongful conduct by promoters or others, reliefs aimed at restoring the company's position (including compensation) and thereby protecting the minority shareholders fall within Section 245. Consequently, seeking compensation traceable to past misconduct was not outside the statute's ambit. [Paras 22, 23] Section 245(1)(g) and (h) permit claims against third parties and remedies for past misconduct; the Tribunal correctly interpreted and applied these provisions. Application of Section 245(4) factors (good faith and locus to pursue) and relevant NCLT Rules in admission - The NCLT appropriately considered Section 245(4) factors (good faith and whether the cause of action could be pursued in individual right) and the relevant NCLT Rules in admitting the petition; there was no failure to apply mind or to consider statutory ingredients. - HELD THAT: - The Tribunal examined evidence on good faith (communications by the petitioners seeking information, independent valuation by FTI and the sequence of events) and assessed whether the reliefs sought could be pursued only as a class action rather than by individual members. It applied Rule 84/85 considerations regarding threshold shareholding, impracticability of joinder and common questions of fact or law, and recorded satisfaction on these pre conditions. Given the prima facie allegations of systematic concealment and market/regulatory investigations, the admission was a threshold/prima facie exercise; detailed merits remain open for fuller adjudication. On this basis the appellate court declined to interfere with the impugned admission order. [Paras 25, 27] The NCLT did consider Section 245(4) and relevant Rules and its admission on those grounds was not interfered with. Final Conclusion: On the prima facie record the Tribunal correctly held the company petition under Section 245 was maintainable: Section 245 covers past, continuing or concealed transactions; its reliefs encompass claims against directors and third parties and remedies for loss to the company and members; and the NCLT properly applied Section 245(4) and the relevant Rules in admitting the petition. The appeal is dismissed. Issues: (i) Whether the Company Petition under Section 245 of the Companies Act, 2013 was maintainable and whether the NCLT was justified in admitting the petition and directing issuance of public notice under Rule 87 of the NCLT Rules, 2016.Analysis: The Tribunal examined Section 245(1) and (4) of the Companies Act, 2013 and the relevant NCLT Rules (including Rule 84(3)(ii)(b), Rule 85 and Rule 87) to determine threshold eligibility and prima facie satisfaction. The Tribunal considered whether Section 245 is confined to continuing acts or also covers past/concluded transactions, the scope of reliefs under Section 245(1)(g) and (h) (including claims for damages or compensation against the company, its directors or third parties), and whether applicants acted in good faith and could pursue the cause of action in their own right. The Tribunal reviewed factual allegations of concealment, undervaluation and related party transactions with reference to Regulation 23 of the SEBI (LODR) Regulations, 2015, and noted market regulator (SEBI) and enforcement (ED) inquiries as relevant prima facie material. The Tribunal also applied the statutory definition of good faith (Section 3(22) of the General Clauses Act, 1897) and considered whether joinder of all class members would be impracticable and whether representative petitioners would adequately protect class interests.Conclusion: The Tribunal held that Section 245(1) permits class actions for acts prejudicial to the company and its members, including past and concluded transactions where damages or restitution are sought; that reliefs under Section 245(1)(g) and (h) can extend to third parties and past acts; that the petition met the statutory threshold (2% / 4.99% shareholding) and prima facie satisfaction; and that the NCLT did not err in admitting the petition and directing issuance of public notice. The appeal against the admission and notice direction was dismissed.