Verdict corner: Dealing with man-made disasters

It is the duty of the government to work towards a law that can effectively cover industrial calamities

The complaint filed by the government against Nestle India in the National Consumer Disputes Redressal Commission—seeking R640 crore in damages for alleged unfair trade practices, false labelling and misleading advertisements—is the first instance of a class action suit filed in India under the Consumer Protection Act, 1986, by the state. The complaint accuses Nestle India of promoting instant noodles containing excessive lead as healthy with the sole aim of enhancing profits.

Though the class action suit is not a new concept, it has gotten recognition and enforceability only after the introduction in the Companies Act, 2013, vide Section 245. In law, a class action or a representative action is a lawsuit where a large group of people collectively move the court to seek compensation. Such lawsuits originated in the US and have been embraced by other countries too.

In India, representation suits can be filed under Section 91 of the Code of Civil Procedure, under Section 12(1)(c) of the Consumer Protection Act, and there can be PILs in high courts and the Supreme Court, and class petition for human rights violations. Even aggrieved shareholders can file an oppression and/or mismanagement before the Company Law Board under Section 397 and 398 of the Act. Despite having provisions, the government has not filed any class action suit so far to protect the interests of consumers, says Supreme Court lawyer Abhinav Mukherjee.

“Even though in a different context, the government has used its regulatory powers to order a merger in the NSEL scam for the benefit of its investors. In the current case, it has used its powers under the Consumer Protection Act to initiate action against Nestle for the benefit of consumers,” he said.

The government had recently introduced a share swap arrangement for the proposed merger between NSEL and Financial Technologies (India) Ltd. The government had also filed a case before the Company Law Board for removal and supersession of the FTIL board, to allow the government to appoint its own nominees in their place, to “prevent further acts of fraud, misfeasance, breach of trust.”

Besides, four investors early last year had filed a class action lawsuit against FTIL, promoted by entrepreneur Jignesh Shah, in the Bombay High Court to prevent it from selling assets as the company’s unit NSEL battles a R5,574.35 crore payment crisis. The suit seeks to recover Rs 5,000 crore at an annual interest of 16%. The case was filed as a representative suit under the Civil Procedure Code, 1908, as the new law enacted in August last year to regulate Indian companies, which provides for class action suits, is yet to be notified.

Class action suits gained prominence during the Satyam fiasco in 2009, when lakhs of shareholders of Satyam Computer Services (now Mahindra Satyam) came together and sued the company. They claimed damages worth Rs 5,000 crore and moved the NCDRC and the Supreme Court, but their claims were rejected as India had no law enabling class action lawsuits. However, their counterparts in the US filed class action suit claiming compensations to the tune of $125 million (about R700 crore) from the company.

Legal experts feel the scope of class action suits under Section 245 of the new Companies Act is very restricted and relates to only companies. “It has nothing to do with class actions as provided in the Consumer Protection Act,’’ says Dheeraj Nair, partner at J Sagar Associates. “Among the various new inductions in the 2013 Act, the concept of ‘class action’ which is aimed at increasing investor protection is definitely pronounced. It will provide shareholders with greater rights once notified as compared to their individual rights as provided earlier under Section 397 of the Companies Act, 1956.”

In the Maggi case, Supreme Court lawyer R Chandrachud feels that food safety officers had enough powers to penalise Nestle for non-compliance under the Food Safety and Standards Act. “The government is misleading public and shying away from its responsibility to ensure public health is not compromised. In fact, consumers should claim compensation/damages both from the government and Nestle for allowing hazardous food substance in the market for so many years,” he said.

Last week, a federal judge in California ruled that eBay must face class action suit, alleging that its policies are unfair to sellers and make it easy for dishonest buyers to defraud them. Even Regions Bank had agreed to a $612,500 class action lawsuit settlement over allegations that it improperly benefited from the procurement and issuance of a certain lender-placed flood insurance scheme. FMCG company Colgate-Palmolive has agreed to a class action settlement in a litigation that accused the manufacturer of Softsoap antibacterial hand soap of deceptive marketing practices.

Legal experts feel India doesn’t have any law on such man-made disasters. “The government should learn from the Bhopal gas tragedy and make sure India has perfect laws in place. The US has specific laws to deal with such situations. We don’t have the required legislations except the IPC. But if people are indicted under it, they manage to get scot-free,” said a Supreme Court advocate.

According to experts, there is enough to draw from the global experience on how to craft our own laws especially relating to industrial disasters. The US government in 2010 had named energy giant BP as the responsible party for the massive oil spill in the Gulf of Mexico, and asked the company to pay a fine of $4,300 per barrel of spilled oil for the disaster, which killed 11 people.

It is the duty of the government to work towards a legislation that can deal with industrial disasters. There is a need to have a standalone law that deals with the settlement of claims as well as fixing criminal liability in such cases.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 21-08-2015 at 00:14 IST