Research and Articles

• The National Company Law Appellate Tribunal (“NCLAT”) refused to dismiss the appeal filed by Jindal Poly Films Ltd. against the admission of a class action suit brought by minority shareholders under Section 245 of the Companies Act, 2013 (“CA 2013”).

• The ruling clarifies that class action proceedings are maintainable where shareholders allege that the affairs of the company have been conducted in a manner prejudicial to their interests.

• The case represents an important development in India’s corporate law framework, highlighting the potential of Section 245 as a tool for minority shareholder protection and enhanced corporate accountability.

Introduction:

The decision of the NCLAT in Jindal Poly Films Ltd vs. Ankit Jain & Ors.¹ marks a significant milestone in the evolution of corporate governance jurisprudence in India. The ruling constitutes the first substantive judicial interpretation of Section 245 of the CA 2013², the statutory provision enabling shareholder class action suits. By upholding the maintainability of a class action petition filed by minority shareholders, the appellate tribunal has effectively operationalised a legal remedy that had remained largely dormant since its notification in 2016³.

The NCLAT’s ruling lends practical significance to a provision that had, until now, seen limited judicial engagement. By affirming the maintainability of proceedings under Section 245, the decision is likely to encourage minority shareholder-led litigation in situations involving alleged corporate misconduct, mismanagement, or promoter-driven transactions prejudicial to shareholder interests. As a beneficial piece of legislation, Section 245 aims to provide collective remedies where individual shareholders may otherwise lack the resources or standing to challenge corporate wrongdoing.

Against this backdrop, this article examines the decision in Ankit Jain v. Jindal Poly Films Ltd. in detail. It analyses how Indian tribunals have interpreted Section 245. The paper further evaluates the procedural and substantive requirements for initiating a class action suit under the CA 2013. 

Factual Background: 

The dispute arose from a class action suit filed before the National Company Law Tribunal (“NCLT”)⁴, New Delhi, by three minority shareholders of Jindal Poly Films Ltd (“JPFL”), a public listed company. Collectively, these shareholders held approximately 4.99% of the JPFL’s share capital, thereby satisfying the statutory threshold (2% shareholding for a listed company) required under Section 245 of the CA 2013. The petition alleged a series of corporate transactions that were purportedly structured in a manner detrimental to the interests of JPFL and its minority shareholders. The shareholders challenged three principal transactions undertaken by JPFL and its group entities between 2019 and 2022. These transactions, according to the shareholders, formed part of a broader pattern of financial restructuring executed through a complex network of group companies. The key transactions under challenge were as follows:  

1. The first transaction related to the issuance and transfer of redeemable preference shares and optionally convertible preference shares to related parties at allegedly undervalued prices;

2. The second involved the write-off of loans extended by JPFL to a group entity; and

3. The third concerned the sale of investments held by a subsidiary to another promoter group entity, again at allegedly undervalued price.

The petitioners alleged that the impugned transactions, when viewed holistically, resulted in a diversion of value from JPFL to promoter-controlled entities. They contended that these arrangements were either concealed or inadequately disclosed, causing significant financial prejudice to both the company and its public shareholders. On this basis, the shareholders instituted a petition under Section 245 before the NCLT, asserting that the affairs of JPFL had been conducted in a manner prejudicial to the interests of the company and its members. The reliefs sought included damages, compensation, and other remedies available under the statutory framework governing class actions.

JPFL, in response, challenged the maintainability of the petition at the threshold stage. A key plank of its argument was that Section 245 is not intended to cover transactions that have already been consummated and is instead limited to restraining ongoing or prospective acts of misconduct. On this basis, JPFL filed an interlocutory application before the NCLT seeking dismissal of the petition.

Subsequently, the three petitioning shareholders exited the company by transferring their shareholding to Monet Securities Private Limited. In light of this, an application was filed before the NCLT seeking deletion of their names and substitution with Monet Securities Private Limited as the petitioners⁵.

In parallel, NLCT has issued notice on an intervention application filed by the Securities and Exchange Board of India (“SEBI”) in this matter. In its application, as reported, SEBI has highlighted serious governance lapses and alleged violations of securities laws following a detailed investigation into transactions undertaken by the company over the period from FY 2013–14 to FY 2023–24. The investigation was triggered by shareholder complaints pointing to potential misuse of funds and misleading disclosures.

SEBI has reportedly quantified the cumulative loss to Jindal Poly and its shareholders at INR 760.12 crore, arising from write-offs, undervalued disposals, and the conversion of loans into zero percent redeemable preference shares at inflated valuations. An additional loss of INR 24.25 crore has been flagged in relation to transactions involving related entities, described as an undisclosed promoter entity. Through its intervention, SEBI has sought to formally place these findings on record before the NCLT while it continues to pursue further regulatory action against the company⁶.

Legal Framework:

Section 245 of CA 2013 introduces the concept of shareholder class actions in Indian landscape. The provision enables members or depositors to collectively approach the court of law where the affairs of a company are conducted in a manner that is prejudicial to their interests, the interests of the company itself, or its depositors. The objective of the provision is to provide an effective remedy where individual shareholders may lack the resources or standing to challenge corporate misconduct, thereby strengthening minority shareholder protection.

The requirements for filing a class action petition are as follows:

1. Eligibility of Applicants

   A class action suit may be filed by members or depositors of the company, acting collectively on behalf of the affected class.

2. Minimum Numerical Threshold

   1. In the case of companies having share capital, the following thresholds apply at least 100 members, or not less than 5% of the total number of members, whichever is lower; or members holding a prescribed percentage of issued share capital, subject to payment of all calls on their shares.

      Specifically, 2% of issued share capital in case of a listed company and 5% of issued share capital in case of an unlisted company

   2. In the case of companies without share capital, the application must be filed by not less than one-fifth of the total number of members.

   3. Similarly, depositors may initiate a class action suit if they are not less than 100 depositors, not less than 5% of the total number of depositors, whichever is less; or any depositor or depositor to whom the company owes not less than 5% of the total deposits of the company.

3. Opinion of Prejudice

   Applicants must demonstrate that they are of the opinion that the management or conduct of the affairs of the company is being carried out in a manner prejudicial to the interests of the company; the interests of its members; or the interests of its depositors. This requirement forms the substantive foundation of a class action claim.

4. Factors Considered by the Tribunal (Section 245(4))

   Before admitting a class action petition, the Tribunal must consider several factors to ensure the legitimacy of the claim. These include:

   1. Good faith of the applicants in bringing the action;

   2. Whether the cause of action could be pursued individually by the member or depositor;

   3. Views of disinterested members or depositors of the company;

   4. Whether the alleged act or omission could be authorized or ratified by the company;

   5. Evidence indicating the involvement of persons other than the directors or officers; and

   6. These factors allow the Tribunal to filter out frivolous or vexatious claims while preserving genuine collective grievances.

This section confers broad remedial powers on NCLT, which may be broadly classified as preventive, compensatory, and residual in nature. NCLT may grant injunctive relief to restrain the company from undertaking ultra vires acts, breaching its memorandum or articles, or acting contrary to statutory provisions or shareholder resolutions. It may also declare resolutions void where they have been obtained through suppression of material facts or misrepresentation. In addition, members or depositors may seek monetary relief in the form of damages or compensation from the company, its directors, auditors, or other professionals for fraudulent, wrongful, or misleading conduct. The provision further includes a residuary clause empowering the Tribunal to grant any other remedy it considers appropriate, thereby enabling flexible relief depending on the circumstances of the case.

The procedural aspects of class action proceedings are governed by the National Company Law Tribunal Rules, 2016, particularly Rules 84 and 87⁷. Rule 84 prescribes the procedure for filing a class action application under Section 245, requiring it to be filed in Form NCLT-9 and served upon the company and other respondents. The rule also reiterates the statutory thresholds for members or depositors initiating such actions. While determining admissibility, the Tribunal may consider whether the class is sufficiently numerous to make individual joinder impracticable, whether common questions of law or fact exist, and whether the representative applicants can adequately protect the interests of the class. These requirements ensure that the action functions as a genuine representative proceeding.

Once the application is admitted, Rule 87 mandates the issuance of a public notice to all members or depositors belonging to the affected class. This notice ensures transparency, enables participation by other class members, and helps prevent multiple parallel proceedings by allowing consolidation of similar claims and, where necessary, the appointment of a lead applicant.

NCLAT Ruling: 

Before the NCLAT, the JPFL raised several arguments challenging the maintainability of the class action petition. Arguments made by the JPFL were four-fold:

1. It contended that the petition had adversely affected JPFL’s market performance, noting that the share price had allegedly declined by approximately 31% during the pendency of the proceedings. JPFL argued that the issuance of public notice under the NCLT order had contributed to this decline and caused reputational harm.

2. JPFL argued that Section 245 should apply only to ongoing conduct and not to transactions that had already been completed. According to the company, the statutory language referring to the affairs of the company “being conducted” suggested a present or continuing action rather than past conduct. It further argued that permitting class actions for past transactions would effectively transform Section 245 into a substitute for oppression and mismanagement proceedings under Sections 241 and 242.

3. JPFL also contended that Section 245(1)(g) does not permit claims seeking compensation for the benefit of the company itself. Instead, it argued that the provision only allows claims against or from the company, and not on behalf of the company.

4. JPFL maintained that the alleged losses suffered by the petitioners were merely “reflective losses” arising from a decline in share value rather than direct losses capable of supporting a class action claim.

The shareholders, on the other hand, argued that the impugned transactions constituted concealed related-party transactions structured to benefit promoter entities. They alleged that the transactions were significantly undervalued and resulted in financial losses to the company as well as to minority shareholders. The respondents further contended that the transactions violated the requirements of Regulation 23 of the SEBI (LODR) Regulations, 2015, which mandates shareholder approval for material related-party transactions. The respondents also argued that the alleged conduct amounted to fraud within the meaning of Section 447 of the CA 2013 due to concealment and misrepresentation of material information. They emphasized that Section 245 was specifically designed to address situations where the company itself becomes a victim of wrongdoing by those in control of its management. Accordingly, they argued that relief in the form of damages and other remedies was fully permissible under Section 245(1)(g) and Section 245(1)(h).

The NCLAT ultimately upheld the NCLT’s decision and dismissed the appeal. The Tribunal held that the language and legislative intent of Section 245 clearly permitted class actions relating to past and concluded transactions. It observed that the provision refers to both “wrongful acts or conduct” as well as “any likely act,” thereby encompassing both completed and prospective misconduct. The Tribunal further noted that claims for damages or compensation inherently relate to past acts and therefore cannot be excluded from the scope of the provision.

Significantly, the Tribunal rejected the attempts to import restrictive principles from American class action jurisprudence. Instead, it emphasized that Section 245 must be interpreted within the specific statutory framework and legislative intent of Indian corporate law. Having found that the statutory thresholds, good faith requirements, and procedural safeguards were satisfied, the NCLAT concluded that the petition was maintainable and allowed the proceedings to continue before the NCLT. Now that the case has been declared maintainable by the NCLAT bench, it will revert to the NCLT and will be heard on merits.

Analysis

The ruling raises several important questions regarding the future trajectory of shareholder litigation in India.

Firstly, to clarify, class action remedies under Section 245 and oppression and mismanagement proceedings under Sections 241–242⁸ are distinct. While both provisions aim to protect shareholder interests, they operate in fundamentally different contexts. Oppression and mismanagement proceedings are typically initiated by individual shareholders seeking relief from conduct that is oppressive or prejudicial to them. In contrast, Section 245 enables collective action by a group of shareholders where the conduct of the company’s affairs is prejudicial not only to individual members but also to the broader shareholder class or to the company itself. Although the lower threshold requirement under Section 245 might initially appear to create a potential loophole, the statutory safeguards, such as the requirement of good faith and the Tribunal’s scrutiny at the admission stage, serve as effective checks against misuse.

Secondly, the case reflects the changing profile of minority shareholders in India. Traditionally, minority shareholders were often passive investors with limited engagement in corporate governance matters. However, the emergence of institutional investors, activist shareholders, and sophisticated market participants has significantly altered this dynamic. Contemporary shareholders are increasingly strategic in their approach, monitoring corporate disclosures, regulatory compliance, and governance practices. The availability of class action remedies under Section 245 provides such investors with a powerful tool to collectively enforce their rights and challenge questionable corporate transactions.

Finally, the decision has important implications for corporate governance practices within Indian companies. Promoters and management teams must now recognize that transactions involving related parties, complex group structures, or financial restructuring may be subject to greater scrutiny by minority shareholders. Companies may therefore need to strengthen their internal governance mechanisms, enhance disclosure practices, and ensure robust compliance with regulatory frameworks such as the SEBI (Listing Obligations and Disclosure Requirements) Regulations.

In this sense, the Jindal Poly Films case may represent the beginning of a new era in Indian corporate governance, one in which minority shareholders play a more active and influential role in holding management accountable. The decision not only breathes life into a long-dormant statutory provision but also signals the judiciary’s willingness to facilitate collective shareholder action in appropriate cases.

Sonakshi Babel, Maulin Salvi and Nishchal Joshipura
You can direct your queries or comments to the authors.

¹Jindal Poly Films Ltd. v. Ankit Jain, 2026 SCC OnLine NCLAT 178. 

²Section 245, Companies Act, 2013.

³Enforcement Notification S.O. 1934(E) dated 01/06/2016.

⁴Ankit Jain v. Jindal Poly Films Ltd., 2026 SCC OnLine NCLT 654.

⁵Ankit Jain vs Jindal Poly Films Limited & Ors., CP No.58/245/PB/2024.

⁶Available at: https://www.ndtvprofit.com/business/nclt-issues-notice-on-sebi-intervention-plea-in-jindal-poly-case-11332942.

⁷Rule 84 and 87, National Company Law Tribunal Rules, 2016

⁸Section 241-242, Companies Act, 2013.