The ministry of corporate affairs (MCA) will start talks with the Insurance Regulatory and Development Authority (Irda) for the development of concept of class action suit in India.
?The class action suit has to go hand-in-hand with the insurance industry as it is in US,? said Salman Khurshid, minister of corporate affairs.
?We are going to take concepts and ideas from other countries regarding the class action suit but not blindly follow them as the Insurance Bill will be taken up by the Standing Committee after the Companies Bill,? Khurshid said.
Ashwin Parekh, director, KPMG said, ?It is a good move on part of the MCA to at least make sure that there is some sort of financial reimbursement on account of malpractices or losses arising from the fraudulent practices resulting in losses to the investors.?
Parekh said that in other markets, where such indemnification is also covered by insurance companies, one will find that the corporates can buy risk cover to ensure the investors are indemnified. However, challenges for the Indian market would include the pricing of such covers and the quantification models to price such risks.
Hiten Kotak, executive director, Pricewaterhouse Coopers Pvt Ltd said, ?The class action suit will be a important tool in the hands of the investors as it would avoid mushrooming of the IPOs of companies who don?t have any definitive business plan due to which investors really suffer. This kind of amendment will avoid such situation influenced by the undesirable sources.?
Kotak also believes that in other countries, class action suits are taken by those who are actually affected but the introduction of this concept in India might be used in an adverse manner by competitors of the companies.
?It may also lead to frivolous cases and the Indian courts are already overloaded with a large number of litigations,? said Kotak.