Class action suit is brought by one party on behalf of a group of individuals to file for claims against erring companies in a court of law.
As per the provisions of the proposed bill, re-introduced in the Lok Sabha in August, shareholder associations can take legal action in case of company fraud and also take part in investor protection activities and class action suits.
Specifically, we are enabling the moving of class actions. I think this will be considered in more details. People should be enabled to move against defaulters, Khurshid said after a conference on class action suits. The minister said class action suits should not serve the purpose of people who want to wreck a company. We are also looking at how to structure it (class action provision) to suit the shareholders, at the same time dissuading inconsequential appeals, he said.
The Companies Act 1956, does not provide for class action suits against perpetrators of company frauds. Neither the Sebi Act provide any such facility.
The matter of providing investor protection came to focus after shareholders lost millions after the downfall of Satyam Computer following the disclosure of financial bungling by its then chairman Ramalinga Raju.
In the US, the securities laws have empowered defrauded investors to claim compensation from the errant parties. The Securities and Exchange Commission (SEC) can also enforce action and get damages/ compensation for investors. At present, 12 class action suits are pending before a US court against IT firm Satyam Computer Services.