Sometimes a company's wrongdoing harms not one shareholder but hundreds or thousands at once. Funds raised from the public are misused. Depositors are not repaid. Accounts are manipulated with the help of auditors. Individually, each investor's loss may not justify a separate case. Together, their claim can be significant.
Section 245 of the Companies Act, 2013 introduced class actions to Indian company law. Members or depositors meeting a minimum number or percentage can apply to the NCLT, on behalf of all of them, to restrain wrongful acts and to claim damages from the company, its directors, its auditors, and advisers who misled them. The provision has been used far less than its potential suggests, partly because it requires organisation and patience. This page explains when it is worth considering.
हिंदी में सारांश
जब किसी कंपनी के गलत कामों से à¤à¤• नहीं बलà¥à¤•à¤¿ सैकड़ों शेयरधारकों या जमाकरà¥à¤¤à¤¾à¤“ं (depositors) को नà¥à¤•à¤¸à¤¾à¤¨ होता है, तो कंपनी अधिनियम की धारा 245 के तहत वे मिलकर NCLT में "कà¥à¤²à¤¾à¤¸ à¤à¤•à¥à¤¶à¤¨" याचिका दायर कर सकते हैं। इसमें गलत कामों पर रोक और कंपनी, निदेशकों, ऑडिटरों या सलाहकारों से हरà¥à¤œà¤¾à¤¨à¤¾ माà¤à¤—ा जा सकता है। इसके लिठनà¥à¤¯à¥‚नतम संखà¥à¤¯à¤¾ या पà¥à¤°à¤¤à¤¿à¤¶à¤¤ में सदसà¥à¤¯ या जमाकरà¥à¤¤à¤¾ होने चाहिà¤à¥¤
Is this your situation?
- You are one of many shareholders harmed by the same decision or misconduct of a company
- You placed a deposit with a company and it has not repaid many depositors
- Public money raised by the company appears to have been misused
- Statements in a prospectus or offer documents turned out to be misleading
- Auditors signed accounts that hid serious problems
- Other affected investors are willing to come together
Who can file
Members
Members of a company with share capital can file if they meet the minimum number of members, or a minimum percentage of members or of the issued share capital, as prescribed by the rules. The thresholds for listed companies are lower in percentage terms than for unlisted companies.
Depositors
Depositors can file if they meet the minimum number of depositors, or a percentage of depositors, or are owed a percentage of the company's total deposits, as prescribed.
Joint filing
Members or depositors usually come together through an association. Each joining person's consent is recorded.
Excluded companies
Section 245 does not apply to banking companies. Other exclusions depend on the rules.
Different from oppression
Oppression petitions need 10% shareholding (or a waiver) and focus on the conduct of the company's affairs towards members. Class actions are designed for large groups and can extend to claims against auditors and advisers.
Notice to the class
The NCLT ensures public notice to all members or depositors of the class, so that the outcome binds and benefits the whole class.
What relief can be sought
Restrain ultra vires acts
Stop the company from doing acts beyond its memorandum or articles.
Restrain breach of law
Stop acts that breach the Companies Act or other laws, or resolutions passed by suppressing material facts or misstatements.
Restrain misuse of funds
Prevent actions contrary to resolutions passed by members.
Damages from the company and directors
Claim damages or compensation for fraudulent, unlawful or wrongful acts.
Damages from auditors
Claim damages from the company's auditors, including the audit firm, for improper or misleading statements in audit reports or for fraudulent or unlawful conduct.
Damages from experts and advisers
Claim against experts, advisers or consultants who made misleading statements to the company.
How a class action is built
Form the class
We help the affected members or depositors form a group, collect proof of their holdings or deposits and record consents. Meeting the threshold is the first test.
Identify the wrong and the wrongdoers
We analyse the company's filings, offer documents, financial statements and audit reports to identify specific acts and the persons responsible.
Draft the application
The application sets out the class, the wrong, the persons responsible and the relief claimed, with documents. Interim relief may be sought to preserve assets.
Public notice and consolidation
The NCLT directs public notice to all members or depositors of the class. Similar applications may be consolidated into one.
Hearing and evidence
The respondents, including directors and auditors where named, reply. Evidence and arguments follow.
Order and distribution
If the NCLT grants relief, the order binds the company and the class. Damages are dealt with as directed by the tribunal.
When a class action makes sense
Class actions take time and organisation. They make most sense where:
- the loss is spread across many investors but traceable to a single course of conduct;
- there are identifiable defendants beyond the company itself, such as directors or auditors with professional indemnity cover;
- regulators have already found wrongdoing, which supports the claim;
- investors want both a stop to ongoing misconduct and compensation.
Where the company is already insolvent, depositors and members may be better served by filing claims in the insolvency process, or by homebuyers' or depositors' remedies under the IBC. See file your claim. Where the dispute is about control of a private company, an oppression petition is usually more suitable.
Time and typical cost
Fees for group actions are usually shared among members and agreed in writing. They do not depend on the outcome.
| Stage | Usual time | What it involves |
|---|---|---|
| Forming the class | 1 to 3 months | Association, consents, proof of holdings |
| Investigation and drafting | 1 to 2 months | Filings, audit reports, expert input |
| Admission and notice | Several weeks | Public notice to class |
| Hearing and decision | A year or more | Pleadings, evidence, arguments |
Documents you will need
Each member or depositor
- Proof of shareholding or deposit (certificates, demat statements, deposit receipts)
- Identity proof and consent to join
About the wrong
- Offer documents, prospectus, deposit brochures
- Annual reports and audit reports
- Regulatory orders or show cause notices
- Correspondence with the company
Depositors of a non-bank company
Here's a made-up example. Over 400 retirees in the NCR had placed deposits with a non-banking company that advertised high returns. Repayments stopped, and an inspection by the regulator recorded diversion of funds to promoter entities. The company was not yet in insolvency.
The depositors' association collected deposit receipts from 260 members, well above the prescribed threshold. We filed a class action under Section 245 before NCLT New Delhi against the company, its directors and its statutory auditors, seeking an order restraining further transfers of assets and damages. The NCLT directed public notice to all depositors and passed interim orders restraining the directors from disposing of identified properties pending the hearing.
Mistakes investor groups make
- Filing before the class is verified: the eligibility threshold is checked first. Collect proof of holdings or deposits for every member before filing.
- Suing only the company: where the company has little money left, claims against directors and auditors may be the real source of recovery.
- Weak evidence of wrongdoing: regulatory orders, audit qualifications and forensic findings carry weight; newspaper reports alone do not.
- Poor coordination: large groups need a small committee empowered to instruct lawyers and take decisions quickly.
- Ignoring insolvency: if the company is heading into insolvency, a class action may be frozen by the moratorium. Plan for claims in that process too.
- Unrealistic expectations on time: class actions are slower than individual cases. Groups should be prepared for a long process.
Class action versus other remedies
| Remedy | Who can use it | Main purpose |
|---|---|---|
| Class action (Section 245) | Members or depositors meeting the prescribed threshold | Stop wrongful conduct and claim damages for the whole class |
| Oppression petition (Sections 241-242) | Members with 10% or waiver | Relief against unfair conduct of the company's affairs |
| Claim in insolvency | Any creditor, including depositors | Recovery through a resolution plan or liquidation |
| Complaint to regulators | Investors and depositors | Regulatory action against the company or its officers |
| Individual civil suit | Any person with a claim | Personal recovery, usually slower for small claims |
Claims against auditors
Section 245 is one of the few routes that lets investors claim directly against a company's auditors in a group action before the NCLT. A claim may lie where the audit report contained improper or misleading statements, or where the auditors acted fraudulently or unlawfully. Separately, the National Financial Reporting Authority regulates auditors of certain companies and can take disciplinary action. A class action against auditors needs careful expert input on auditing standards, and is strongest where a regulator or forensic audit has already identified failures.
Checklist for an investor group
- Count the members or depositors willing to join and compare with the prescribed threshold
- Collect proof of holding or deposit from each member
- Form a small steering committee with authority to instruct lawyers
- Gather the company's filings, offer documents and annual reports
- Collect any regulatory orders, inspection reports or audit qualifications
- Identify directors, auditors and advisers who may be responsible
- Check whether the company is, or may soon be, in insolvency
- Agree how costs will be shared among members
How a class action fits with other steps
Investor groups rarely rely on one remedy alone. Depositors may complain to the regulator that supervises the company, file claims under special deposit-protection laws where applicable, and approach the police in cases of fraud. Shareholders of listed companies may complain to SEBI. A class action before the NCLT complements these steps by giving the group a forum to stop ongoing harm and claim damages from those responsible.
If the company enters insolvency, the moratorium may pause the class action against the company. Depositors and other creditors should then file claims with the resolution professional (see file your claim), while considering whether claims against directors and auditors can continue in parallel. Planning for this possibility at the outset avoids losing time if insolvency comes.
Shareholders and a misleading offer
Here's a made-up example. An unlisted Delhi company raised money from around 800 retail investors through a private placement, describing a large confirmed order that turned out not to exist. Within a year, the share value collapsed and the promoters had moved funds to a related company.
The investors' association gathered proof of holdings from enough members to meet the threshold and filed a class action under Section 245 before NCLT New Delhi against the company, its directors and the adviser who prepared the placement memorandum. It sought orders restraining further transfers to the related company and damages. The NCLT directed public notice to all investors in the placement and restrained the company from transferring identified assets while the case proceeded.
Reliefs a class can ask for
| Relief | Example |
|---|---|
| Restrain the company from acting beyond its memorandum or articles | Stop an investment the articles do not permit |
| Declare a resolution void | A resolution passed by suppressing material facts |
| Restrain the company from breaching law or its constitution | Stop a related-party deal without approvals |
| Claim damages from directors | For fraudulent or wrongful acts or omissions |
| Claim damages from auditors | For improper or misleading statements in the audit report |
| Claim damages from experts or advisers | For incorrect or misleading statements made to the company |
Funding and costs
Class actions take time and money, and members need to agree at the start how costs will be shared and who decides on settlement offers. Section 245 allows the tribunal to have regard to the cost of the action, and the Investor Education and Protection Fund may reimburse costs in some cases. A clear written arrangement between the members, approved by the steering committee, avoids disputes later about who instructs the lawyers and how any recovery is shared.
Frequently Asked Questions
What is a class action under Section 245?
A group application by members or depositors to the NCLT, on behalf of the whole class, to stop wrongful conduct and claim damages.
How many members or depositors are needed?
A minimum number, or a prescribed percentage of members, share capital, depositors or deposits. We check the current thresholds when forming the class.
Can we sue the auditors?
Yes. Section 245 allows claims against the company's auditors, including the audit firm, for improper or misleading statements in audit reports.
Does a class action replace an oppression petition?
No. They are different remedies. Oppression petitions suit control disputes; class actions suit wrongs affecting many investors.
Does it apply to banks?
Section 245 does not apply to banking companies.
What if the company goes into insolvency?
A moratorium may stop proceedings against the company. Claims may then need to be filed in the insolvency, though claims against directors and auditors may raise separate questions.
Who pays the costs?
Usually the members of the class share costs. The NCLT can also make orders on costs.
How are your fees decided?
By the size of the class and complexity, agreed in writing with the association. They do not depend on the result.
Part of a Group Harmed by a Company?
Ask your association to contact us with the number of affected investors and the key documents. We will assess whether a class action is viable.
This page gives general information about the law as it stood when it was last reviewed. It is not legal advice on your case and does not promise any result. IBC rules and NCLT procedures change often, so outcomes depend on your own documents, dates and facts.
Need help with Class Action by Shareholders or Depositors?
Send us the notice, the petition or the order. We will tell you where you stand, which bench hears it and the date the next step is due, in plain words.
