THE IMPENDING REALITY OF CLASS ACTION SUITS
By Varsha Raghavan, V Year, School of Law, SASTRA University
Introduction
With the ever increasing complexity of India’s society and industry, the inability of Government mechanisms to deal with perpetrators of mass wrong or to act as a deterrent has become all the more pronounced. Thus, the need to fashion a collective redressal mechanism has become exigent. Unlike the US and the European Countries, India had never made laws for collective representation and even when it was finally introduced in 2013; it only was only in the Companies Act catering solely to Securities class actions. The population of India is still grappling with problems that could be adjudged in their favour if solid provisions for product liability, consumer and employment class actions are introduced.
The concept of Public Interest Litigation in India does provide an answer of sorts but it does not fully compensate for the gap left by the absence of provisions for Class Action Suits mainly because PILs can only be filed against Government authorities (though private parties can also be included as co- respondents). The yawning void revealed itself when the victims of India’s largest accounting fraud, the Satyam scandal, stood by helplessly as their US counterparts received nearly $125 Million as compensation. With that rude wake up call, India awoke to the Class action regime, though what must have been a power walk after that has been more of a marathon, and an extremely slow on at that.
Provisions relating to Class Action Suits
Section 245 (1) of the Companies Act, 2013, read along with Section 245 (3) empowers the shareholders to take action against the company, its directors, management, auditors and consultants engaged in misleading and fraudulent practices. The shareholders or depositors may file an application with the National Company Law Tribunal (NCLT) regarding the same. The legislation, impressing on the gravity of such frauds, has also provided for the creation of a mandatory Investor Education Protection Fund which shall reimburse the legal fee of such class action.
Apart from this, there are certain representative action procedures allowed in other substantive laws. The Consumer Protection Act, 1986 provides for class action by allowing “one or more consumers, where there are numerous consumers having the same interest” to be considered as “complainant” under Section 2(1)(b). Further, Section 12(1)(c) provides that a complaint maybe filed by “..One or more consumers, where there are numerous consumers having the same interest…. on behalf of, or for the benefit of, all consumers so interested” with regard to deficient services, goods or unfair trade practices.
The Competition Act, 2002, the prevailing antitrust regime in India, has under Section 19(1)(a) of the Act provided that any person, consumer, consumer association or trade association can file complaints for inquiry regarding anti competitive agreements or abuse of dominant position. Further, section 53N(4) provides that if competition law violations cause any loss or damage, persons aggrieved by the violations can form a group, (thereby creating a class) and file compensation claims before the COMPAT after it has finally decided the matter. The far reaching judgment in the case of Belaire Owners’ Association Vs. Dlf Ltd, [2011]102CLA336(CAT), has endorsed the formation of a "group of similarly affected persons" to file a class action suit against exploitative business giants. It was followed by a penalty of over Rs 6,000 crore on 11 Indian cement producers [2013]112CLA387(CCI] after finding them guilty of cartelization based on a letter of the Builders Association of India. Despite these bold steps, class action litigation in the arena of Competition Laws remains in its nascent stages.
Other than this, the Industrial Disputes Act not only allows an individual worker to raise an industrial dispute alone but also through Section 2- A allows a group of workers to unite and press their demands collectively. But then again, the provisions are not as wide as one might hope. The Securities Exchange Board of India had introduced regulations in 2009, promising legal aid (through the investor protection fund) to finance investor associations that propose to fight collective suits. Despite bearing a lot of expectation and hope, this measure was pulled out and now, investor associations wishing to file class suites must approach the Centre through the Ministry of Corporate Affairs (MCA). This obviously has made it difficult for investors to pursue claims since receiving aid from the Government is not so easy.
Apart from these legislations, the Indian Civil Procedure Code under Order-1, Rule-8 permits representative actions whereby a large body of persons who are interested in a matter can bring action together as a group and one or several of them shall act as a representative on behalf of the group. But predictably, the considerable delay involved in the adjudication procedures hampers the productivity of the provision. Clearly, these lukewarm, scattered provisions and the several practical barriers that come with them will not and cannot deliver the benefits of proper mass tort legislation.
International Significance
Class Action Litigation is now a highly evolved concept in the US. In the United States, Rule 23, Federal Rules of Civil Procedure acts as a model for most class action rules. In general, the procedures there are trans- substantive with securities class actions being treated differently than others. The Rule 23 model laid down the basic requirements of a class action suit- commonality, adequacy, numerosity and typicality. The global financial crisis flagged off the surge in US consumer class action litigation against financial institutions. This paved way for the now well-established class action battlegrounds of environmental, product liability and antitrust claims. With a working mechanism in place, the legal environment has moved on to improving the litigation process
In Europe on the other hand, the European Commission is considering whether to legislate a coherent pan-European approach to collective redress actions. It has adopted proposals for a Directive on antitrust damages actions and set out a series of common, albeit non-binding principles for collective redress mechanisms in EU member states. UK has made headway in this process and has sought to learn from fallbacks of the US system. Australia and China already have working class action systems in place.
With the world nations gearing up to protect the interests of its consumers, it is high time India strived for a touch of class. As their respective systems become more and more sophisticated, nations are now looking to translational and multinational dispute settlements that arise with the expansion of global market. The Air Passenger [British Airways Plc and Virgin Atlantic Airways Ltd., Passenger Settlement] antitrust suit, decided in US, was the first step in this regard. It processed over 228,000 refunds out of which 182,000 originated from British Passengers. Consequently, many more steps have been undertaken in cases like Re. Air Cargo Shipping Services Antitrust Litigation [http://www.aircargosettlement2.com/(Last visited on August 2nd, 2015)], Parmalat [Re. Parmalat, Securities Litig., 04- Civic- 7897 (S.D.N.Y)] etc.
Like Governments all around the world, India must also act proactively in addressing major wrongs. To start with, the civil reinforcement system must be in place and to achieve that, exclusive mass tort legislation has to be enacted consistent with our own legal regime and culture. If this is achieved, it will level the playing field between the major corporations and the individual claimant, reduce litigation costs and conserve judicial resources. India also has to take a more liberal approach with respect to allowing contingency fee in class action regime. Without the concept of contingency fee, costs of litigation can be quite high and beyond the reach of individual claimants. Creating an environment that allows a clique of lawyers catering specially to class action proceedings will benefit the society immensely and as the stakes increase, it is more important than ever to have a single, co-ordinated approach to address mass wrongs.