NCLT Delhi Rejects Jindal Poly Films' Objection, Allows Minority Shareholders' Class Action To Proceed

The National Company Law Tribunal (NCLT) at New Delhi has rejected an objection raised by Jindal Poly Films Limited challenging the maintainability of a class action petition filed by its minority shareholders to move forward.

The company had contended that the petition was, in substance, a derivative action seeking relief for the company and was therefore not maintainable as a class action under Section 245 of the Companies Act, 2013.

The tribunal ruled that Section 245 of the Companies Act, 2013, is a beneficial provision that cannot be constrained by American jurisprudence on derivative actions and permits shareholders to seek relief even where the remedy ultimately benefits the company.

A Principal Bench comprising President Justice Ramalingam Sudhakar and Technical Member Ravindra Chaturvedi held that “the distinction between class action and derivative action in the laws of the United States has been developed in a different legal context and cannot be mechanically applied to the Indian legal framework under Section 245 of the Companies Act.”

The bench added that, “given the specific and express language of Section 245, which is tailor-made for Indian investors, there is no reason to be influenced by US jurisprudence.”

The petition was filed by Ankit Jain and other minority shareholders, who together hold 4.99% of the issued share capital of Jindal Poly Films Limited.

Instead of approaching the tribunal in an oppression and mismanagement plea, the shareholders invoked Section 245 of the Companies Act, alleging prejudice in the manner in which the company was run.

It mainly centered on transactions involving the sale of Optionally Convertible Preference Shares and Redeemable Preference Shares by Jindal Poly to promoter-linked entities, including SSJ Trust and Jindal Poly Investment. Jain and others alleged that these transactions were carried out at grossly undervalued rates, causing losses to the company in excess of Rs 2,500 crore, according to a valuation report relied upon by them.

Jindal Poly Films opposed the petition by filing an interlocutory application on maintainability. The company argued that the reliefs sought, including compensation for alleged losses suffered by the company, were in the nature of a derivative action and could only be pursued under Sections 241 and 242 of the Companies Act relating to oppression and mismanagement.

In support of its case, the company relied on the Delaware Supreme Court's decision in Tooley v. Donaldson, Lufkin & Jenrette Inc. to contend that claims seeking relief for the company could not be maintained as a class action under Section 245.

The company further argued that Section 245 is preventive in nature and cannot be invoked to challenge past and concluded transactions. According to the respondents, the statutory language requiring that the affairs of the company “are being conducted” in a prejudicial manner limited the provision to present and continuing acts.

Rejecting these submissions, the tribunal held that the scope of Section 245 is materially different from oppression and mismanagement proceedings.

The bench noted that Section 245(1)(g) expressly permits shareholders to “claim damages or compensation or demand any other suitable action from or against the company or its directors.” It held that this statutory language makes it clear that relief can be sought even where the benefit ultimately accrues to the company.

“We are of the view that Section 245 is equipped to encompass concerns and questions raised by the Petitioners with respect to affairs of Respondent No.1 Company,” the tribunal observed. It emphasised that Parliament had consciously created a remedy that is “more defined than a derivative action, in respect of shareholders in a public limited company.”

On the argument that Section 245 applies only to ongoing conduct, the tribunal held that such an interpretation would defeat the object of the provision.

“The right to initiate actions against third parties like experts and advisers for any incorrect, misleading statements or any fraudulent, unlawful or wrongful act, makes it clear that the conduct of affairs of the company past, present and continuing actions also can be impeached,” the tribunal held.

The tribunal further noted that the petitioners satisfied the statutory threshold under Rule 84(3)(ii)(b) of the National Company Law Tribunal Rules, 2016, which requires members of a listed company to hold at least 2% of the issued share capital. The shareholding of the petitioners, aggregating to 4.99%, was not disputed by the company.

At the threshold stage, the bench held that the petition disclosed a prima facie opinion that the affairs of the company were being conducted in a manner prejudicial to the interests of the company and its members.

“These transactions are not denied by Respondent albeit the alleged loss. These we hold are prima facie opinion to initiate the proceedings,” the Tribunal said, adding that it would be open to the respondents to deny the allegations at the appropriate stage.

Accordingly, the tribunal dismissed Jindal Poly Films' application against the maintainability of the plea and admitted the class action petition for issuance of notice. It directed that a public notice be published to all class members in compliance with the NCLT Rules. The matter will be taken up next on April 2. 

For Petitioner: Senior Advocate Abhinav Vashisht, with Advocates Vaibhav Kakkar, Abhishek Swaroop, Anupam Prakash, Akshita Sachdeva, and Kirti Talreja.

For Respondents: Senior Advocate U.K. Chaudhary with Advocates Divyam Agarwal, NPS Chawla, Ankit Aggarwal, Priya Chauhan, Nishtha Khurana, and Asher Revi Job for Jindal Poly; Advocate Biswajit Dubey for R2 and R4; Senior Advocate Sunil Fernandes with Advocates Shankari Mishra, for R14 in CP-58/2025 and R-16 in IA-132/2024;

For Interveners: Advocates Anant Merathia and Priyanka Varma