In absence of a distinguishing factor, the underlying principle of class action gets frustrated and nullified. The Companies Act, 2013 confers rights upon members and depositors to initiate two proceedings with regard to the same subject matter. This is second part of a three part series
Who can sue for class action?
Section 245(1) of the Companies Act, 2013 now empowers the members, depositors or any class of them to proceed with a class action suit if they are of the opinion that the management or affairs of the company are being conducted in manner that is pre-judicial to the interests of the company or its members or depositors. Section 245(3) further provides for a minimum number of class actioners for perusing a class action as below:
Type of Company
Company with Share Capital
100 members of the Company or 10% of total no. of members
100 depositors of the Company or;
10% of total no. of depositors or;
Any depositor or depositors to whom the company owes 10% of total deposits of the company
Company without Share Capital
1/5th of total no. of members
It is pertinent to note the language of the section to a substantial extent is similar to what has been provided under oppression and mismanagement under section 241 of the Act. Section 241 provides that a member can move an application for oppression and mismanagement if “the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company”. Thus with respect to members, one can see that Act the outlines of two sections are not distinct from each other.
The Act incorporated class action provisions to provide members with additional rights against abuse of powers by the company. The member now thus has a right to proceed under section 241 as well as section 245 separately and distinctly, if the affairs of the company are being conducted in a manner prejudicial to the interests of the company. Thus, the section apparently gives the member a right to initiate two proceedings on same subject matter. This is diabolically opposed to the principle of res judicata as provided under Civil Procedure Code, 1908.
Also, the Act empowers only members and depositors to proceed under class action. It has grossly failed in its attempt to include creditors, debenture holders and other stakeholders of the company.
Section 245 further provides that an application for class action suit can be filed before the Tribunal “on behalf of the members or depositors”. Will this apparently mean that such an action is brought on behalf of all the members? If the answer were in affirmative, would the damages be awarded to the class as whole or to only those who brought the action? If the answer were negative, then how would the same classify as “class” with respect to class action.
Even if one assumes that it included all members, then, it would also include those members who were or might be behind the wrongs complained of. In such a case how would the Tribunal ensure just and proper distribution of monetary compensation. The Act thus grossly fails to reflect upon the above questions and absence of such clear demarcations would only result in confusion having wide implications.
Who can be sued for Class Action?
As per the provisions of section 245 (1) (g) a class action suit can be brought against:
Upon perusal of the section, one finds that class action suits under the Act can be brought against third parties also. It will thus be very difficult to escape the provisions by the professionals and to take any stand as the words used in the clause have a very wide meaning and includes any wrongful act or conduct on part of professional.
This is prima facie in violation with the principles of privity of contract, which states that only parties to the contract can sue each other to enforce their rights or claim damages. It is pertinent to note here that there exist separate contracts- one between the members and the company and the other between the company and the consultant/expert. There exists privity between the member and the company and between the company and the member.
Even if one was to assume that the members being the beneficiaries of such contracts had the authority to bring an action in equity, the same would not hold good under common law principles as such actions in equity are always claimed through a party to the contract who either holds the position that of a “cestuique trust” or that of a principal suing through an agent. What appears instantly from the perusal of the section is that members and depositors are directly claiming damages from third parties rather than claiming through the company.
This indeed is opposed to common law principles and would thus create confusion with respect to implementation of the section.
The intention to introduce class actions was to provide an additional tool in the hands of the members and to recognise the same as a supplementary remedy. But sadly the provisions have been introduced without even comprehending as to how it would accommodate the already existing remedies under common law. This surely comes across, as work of haste, which will eventually open the Pandora’s box and will give rise to serious analytical and interpretational issues.
Where Class Action Suits are instituted?
Section 245(1) provides that all class action suits shall be instituted in the Tribunal. Tribunal as defined in Section 2 (90) of the Companies Act, 2013 means the National Company Law Tribunal.
The Tribunal being a quasi-judicial body shall consist of a President and such number of judicial and technical members as the Central Government may deem necessary. All appeals from an order of the Tribunal shall lie before an Appellate Tribunal and appeals from order of the Appellate Tribunal shall lie before the Supreme Court.
Civil courts under section 430 of the Act have no jurisdiction to entertain any proceeding in respect to any matter, which the Tribunal or the Appellate Tribunal is empowered to determine. The section further provides that any court or any other authority in respect of any action taken or to be taken by the Tribunal shall grant no injunction.
It is very surprising to note here that the jurisdiction of a quasi –judicial body has been empowered tremendously to the extent that it has ousted the jurisdiction and powers of a judicial body per se.
How can class action suits be instituted?
Sections 245(4) and 245(5) provide for procedure to be followed while instituting the class action suits under the Act.
As per section 245(4) the Tribunal while considering a class action shall take the following into account –
• Whether the member or depositor, while seeking relief under class action, is acting in good faith;
• Any evidence as to the involvement of any person other than directors or officers of the company.
• Whether the cause of action is one which the member or depositor could pursue in his own right rather than through an order under this section;
• Any evidence before it that corroborates that the members or depositors of the company have no personal interest in the matter being proceeded as class action;
• Where the cause of action is yet to occur, the Tribunal shall duly consider all acts and circumstances that would be likely (i) authorised by the company before it occurs; or (ii) ratified by the company after it occurs;
• Where the cause of action has already occurred, the Tribunal shall duly consider and evaluate all acts and circumstances that would be likely ratified by the Company.
Once the Tribunal admits an application as class action, the following procedure shall in terms of section 245(5) be followed:
• A public notice shall be served to all the members or depositors of the class;
• All similar applications in any jurisdiction shall be consolidated into a single application and a lead applicant shall be appointed from amongst them;
• No two class actions for the same cause of action shall be allowed; and
• The company and any other person responsible for the oppressive act shall pay for the cost and expenses connected with class action suits.
Section 245(5) provides that the costs and expenses in connection with class action suits shall be borne by the company and the person responsible for the “oppressive act”. It is pertinent to note here that the section casts the liability to bear costs of application upon the person who does or is responsible for the oppressive act. This could possibly mean that the member or depositor who is moving the application is aggrieved of an oppressive act. Insofar as the member is concerned, they already have a right to proceed under section 241 for oppression. This section, thus grossly fails to demarcate or distinguish circumstances when a member can proceed under section 241 and when can reliefs be sought under section 245. In absence of such distinguishing factor, the underlying principle of class action, which aims at reducing multiplicity of suits, gets frustrated and nullified. The Act thus confers rights upon members and depositors to initiate two proceeding with regard to same subject matter.
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On Tuesday, Moneylife ran a story on how touts are making a fast buck through Tatkal online appointments for passports. Within 24 hours a VP of TCS, which is in PPP with the government’s Passport Division, promises to address the issue
The story on how passport agents in Pune are indulging in mass grabbing of Tatkal online appointments resulting in the passport applicant unable to get his appointment online for days on end was published in Moneylife on Tuesday.
In less than 24 hours, the story has had a great impact with Tanmoy Chakroborty, vice president & head for government industry solutions unit (ISU) at Tata Consultancy Services (TCS), which is in public-private-partnership (PPP) with Passport Division of the Ministry of External Affairs (MEA). He assured Moneylife that he would investigate into the matter with immediate effect by investigating into the volume flow and peaks, which can be monitored through the computers of the Passport Seva Kendra (PSK).
In an email sent to this writer, Chakroborty stated, “We will certainly work with RPO Pune and the MEA to analyse all that you have mentioned and to look at the pain points of Applicants in Pune.”
“We always take feedback from any one seriously and we will once again look at the patterns of volume flow and peaks and troughs in Pune in conjunction with MEA and revert with the steps if any that will be taken to further make it a pleasing experience - the application for a passport,” he added.
Chakroborty stated that ever since TCS has begun using technology to make the passport applicant’s experience smooth-sailing, many passport agents are out of business and are pursuing other means of livelihood. He says, “Passport Agents perhaps is passé as the system deployed offers total transparency and I understand the such passport agents, who used to operate in the past-- prior to our system being deployed--- are rapidly looking for alternate employment as there is nothing left for them in the passport application process in India!”
He also mentioned in his email that ever since TCS has entered the scenario, it has successfully served over 1.2 crore applicants, all over India. Adding that he would look into the Tatkal appointment scam in Pune seriously, he wrote, “Since we have introduced the payment over the portal system the wait time in almost all the PSKs has disappeared which means that more bonafide applicants are getting appointments within a reasonable period of time .’’
Chakroborty sent the email in response to the writer’s mail after the story was published in Moneylife on Tuesday. The email stated, “Thanks to your persistent efforts, most of the problems that passport applicants used to face before our campaign in March 2013 have been eased, as they have been addressed by you very effectively. However, since the last couple of months, online appointments for Tatkal passport have become a big issue as most of the applicants do not get their online appointment for several weeks. This has nullified the value of procuring Tatkal passport which is to be issued between 1 and 7 days.
The story in Moneylife gives an insight of what the applicant goes through when he tries to get the appointment. Would be very grateful if you could check where the loophole is and how is it that a passport agent can give Tatkal appointment in 24 hours whereas a citizen going by the legal way cannot get it for weeks on end. Looking forward to hearing from you on this issue.”
(Vinita Deshmukh is consulting editor of Moneylife, an RTI activist and convener of the Pune Metro Jagruti Abhiyaan. She is the recipient of prestigious awards like the Statesman Award for Rural Reporting which she won twice in 1998 and 2005 and the Chameli Devi Jain award for outstanding media person for her investigation series on Dow Chemicals. She co-authored the book “To The Last Bullet - The Inspiring Story of A Braveheart - Ashok Kamte” with Vinita Kamte and is the author of “The Mighty Fall”.)
Can Coal India be restructured into smaller independent units, in order to ensure serious competition and to ensure production and development of coal resources in the country?
According to statistical data available, Coal India is heading towards a fall in production during this fiscal, ending this month, when it may find that it has fallen short by about 10 million tonnes. All indications are that it may barely touch about 482 million tonnes.
The estimated daily production is 1.7 million tonnes. There was fear that the strike notice given by its officers, who thankfully, was called off, would have resulted in loss of 5 million tonnes of coal. Earlier, of course, cyclone Phailin did cause production delays due to flooding, but, more importantly officials have claimed that three power utilities refused to pickup coal saying that they have sufficient stocks on hand, which resulted in lower production!. To some extent, this must be accepted.
There appears to be some problems relating to the issues raised by the officers' association, which had threatened to go on this strike. Explaining the reasons, VP Singh, President of the Coal Miners Officers' Association, stated that the major issues that remained unresolved for years cover: revision of pay; releasing performance related payments and implementation of New Pension Scheme.
In fact, the performance related payment, which was agreed upon in 2007 has not been implemented (released) for the last 6 years due to administrative delays on the part of the Union Ministry of Coal and, of course, the Coal India Ltd itself. How does one expect put his heart and soul in the job, when agreed payments are not put into effect, for years on end? According to VP Singh, the arrears of performance related payment and terminal benefit of nearly Rs1,000 crore (since the wage agreement in January 2007) is still to be cleared! It is needless to point out that no one can run such a mammoth organisation with unhappy set of workers.
There has been one other major issue that has plagued the relation between
NTPC (National Thermal Power Corporation) and Coal India Ltd relating to poor quality of coal supplied, and being charged at a higher rate, bearing in mind the caloric values of coal delivered. NTPC buys a little more than 140 million tonnes of coal and supplies have been coming from both Eastern coalfields and Mahanadi coalfields.
Because of the quality issue, NTPC had held up payments, withholding as much as Rs3,035 crore against coal supplied; after series of discussions and the introduction of thrid party sampling and strict enforcement of "cash and carry" mechanism by Coal India in October 2013, NTPC cleared dues since then, but no decision could be made on the old dues. Finally, in the meeting held on 6th March both the companies decided to settle remaining dues based on sampling results at every mine's end for the previous 3 months. This reconciliation exercise is expected to be over this fiscal. It was found that the higher grade slippage (about 7.5%) occurred from supplies emanating from Eastern Coalfields.
For CIL, NTPC's business worth Rs32,000 crore could not be compromised at any cost.
CIL carries enormous responsibilities in ensuring timely supply of quality coal to its various consumers. Movement logistics, faster clearance at pit heads and overall evacuation of coal and delivering the same to consumer point are essential for not only its own survival, but can jeopardize national plans.
For instance, captive power plants continue to face coal supply crunch. Press reports indicate that there are 382 captive power plants' applications for 40,000 MW capacities are pending with various ministries, such as Coal, Power and Central Electricity Authority. It is reported that Rahul Sharma, Chairman of Indian Captive Power Producers' Association (ICPPA), has pointed out that fuel scarcity is hampering investments of over Rs2 lakh crore directly in these captive power projects, while another Rs80 lakh crore in end-user industries.
After all, if the captive power producers could have a direct and uninterrupted supply of fuel (coal mostly), the power generated could be supplied to where the demand is and will greatly reduce the burden on the national grid. So, all the subsidiary units of Coal India have to be geared up to increase their production at all costs.
There have been problems relating to allocation of coal blocks, their withdrawal, and the lack of mining activities in some of these, due to reasons beyond the control of the allottee, such as lack of various ministerial clearances. In fact, there have been debates and discussions if such a large responsibility must vest with one organisation. So much so, that the Government of India appointed Deloitte to study this issue.
In fact, Deloitte made an extensive study on the possibilities of Coal India being restructured into smaller independent organizations, in order to ensure serious competition and to ensure production and development of coal resources in the country, from existing, known mines, which are all subsidiary units of CIL.
It was reported that, once the Union Government received a substantial dividend of 290% (an interim one, at that), they shelved the idea of restructuring, though, the Coal Minister Sriprakash Jaiswal told the presspersons, on the sidelines of the inaugural session of the 5th Asian Mining Congress and International Mining Expo (IME 2014), last month, that the Deloitte report is still under study of the Ministry. Though many major internationally reputed miners were conspicuous by their absence, there was interest shown by those who joined the Expo.
Poland, who has fairly long years of experience and mining technology has shown keen interest in participating in India.
Looking at the great responsibility that CIL carries on its shoulders, it may be worthwhile for the Ministry of Coal in particular, and government in general, to consider the recommendations made in the Deloitte report and make it public for serious discussion and debate.
It would greatly depend upon the new government that may take over after the elections, but, privatising the coal mines into independent companies would be one avenue for increasing our coal production and reducing our imports.
Second, would be to invite direct foreign participation by reputed international companies, by specific invitations, would result in increased production and introduction of most available advanced technology and machinery.
This is some food for thought.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)