Benefits, Challenges & Effectiveness of Class Action Suits in Enhancing Corporate Governance in India

The contribution of class action suits in enhancing corporate governance standards in India is gradually assuming importance as corporate entities evolve and shareholders’ expectations grow. Class action suits enable various groups with similar complaints to fight corporate injustice and are effective for minority shareholders. The Satyam scandal in 2009 made it imperative to have such mechanisms and thus the provisions of class action were incorporated in the Companies Act, 2013. Nevertheless, they are still not very common because of high qualifying standards and formalities involved; the National Company Law Tribunal (NCLT) has been appointed as the court for these kinds of suits. The advantages of class action suits include shareholders’ power, legal enforcement, fraud prevention, collective relief, and judicial economy. They allow minority shareholders to seek change of undesirable corporate actions, compel organizations to be socially responsible, and are cheaper means of seeking redress. However, they include high eligibility thresholds, ambiguous legal provisions, legal uncertainty, risk of abuse, and funding difficulties to mention but a few. Solving these problems presupposes the improvement of the legal regulation, the clarification of the provisions, and the creation of conditions for the collective shareholders’ actions. The Satyam scandal and the Nestle Maggi noodles case are two examples of how class action suits have affected corporate governance by raising the level of accountability, regulation, shareholders’ power, and corporate culture. The future of class action suits in India is bright with prospects of higher use, case law development, increased corporate governance, and globalization in the future. Proposals for change are to reduce the thresholds for eligibility, to provide clarity on legal provisions, to discourage abusive litigation, to encourage the growth of a litigation funding market, to increase awareness, to enhance regulation, and to allow cross-border class action.