Examining the Scope of Class Actions under the Companies Act, 2013: Threshold Admissibility, Past Transactions and the Derivative Action Debate

Class Actions Revisited: Expanding Shareholder Remedies under the 2013 Act

What if a small group of shareholders could reopen deals that your board signed off years ago, loans, write‑offs or related‑party sales that everyone thought were “done and dusted”? Class action remedies under the Companies Act, 2013 (“Companies Act” or “the Act”) were introduced to strengthen shareholder protection and enhance corporate accountability[1]. However, their contours, particularly vis-à-vis oppression and mismanagement proceedings, continue to evolve through judicial interpretation.

In its order dated 5 February 2026, the National Company Law Tribunal (“NCLT”), Principal Bench, New Delhi, in Ankit Jain & Ors. v. Jindal Poly Films Limited & Ors.[2], examined whether a class action petition under Section 245 could be rejected at the threshold on grounds of maintainability, on the basis that the allegations pertained to past transactions and were in substance derivative in nature.

The decision assumes significance for corporates and promoter-driven groups, as it clarifies the entry-level scrutiny applicable to class actions and signals a relatively liberal approach at the notice stage.

From Capital Allocation to Contention: The Transactions that Triggered Judicial Scrutiny

The petitioners, collectively holding 4.99% of the share capital of a listed company, invoked Section 245 of the Companies Act alleging that the affairs of the company were conducted in a manner prejudicial to the company and its public shareholders.

The challenge arose from a series of complex intra-group financial transactions undertaken over several years, including investments through optionally convertible and redeemable preference shares, loans advanced to group entities, subsequent write-offs, and eventual sale of securities to promoter-controlled entities at valuations alleged to be grossly understated.

The respondent company opposed the petition at the threshold by filing an application seeking dismissal on maintainability, contending that the petition was, in substance, a derivative action dressed up as a class action, and that Section 245 of the Act could not be invoked to challenge past and concluded transactions.

Issues Raised before the Tribunal

The Tribunal was called upon to consider, at a preliminary stage, the following issues[3]:

• Whether a class action petition under Section 245 of the Act can be rejected at the threshold on the grounds that the reliefs sought are in substance derivative and for the benefit of the company.

• Whether Section 245 of the Act is confined only to preventive relief in respect of present and continuing acts, or whether it extends to past and concluded transactions.

A Liberal Gatekeeping Approach: How the NCLT Interpreted Section 245 at the Threshold

At the outset, the Tribunal reaffirmed that at the stage of considering maintainability, the enquiry is limited to whether the statutory threshold requirements have been satisfied and whether the pleadings disclose a prima facie case warranting issuance of notice.

It was undisputed that the petitioners met the numerical threshold prescribed under Rule 84(3)(ii)(b) of the NCLT Rules. The Tribunal therefore proceeded to examine whether the allegations, taken at face value, were sufficient to form an opinion that the affairs of the company were being conducted in a manner prejudicial to the interests of the company or its members.

Rejecting the respondent’s contention that Section 245 of the Act is purely preventive, the Tribunal placed emphasis on the textual breadth of Section 245(1)(g) and (h), which expressly contemplate claims for compensation, damages, and “any other suitable action”. According to the Tribunal, the statutory language does not confine the remedy only to ongoing conduct and necessarily presupposes examination of past acts where compensation or damages are sought.

On the argument that the petition was derivative in nature, the Tribunal declined to apply rigid distinctions borrowed from US jurisprudence. It held that Section 245 of the Act, is a self-contained code, designed to protect not only members but also the company itself, and that reliefs sought for the benefit of the company do not ipso facto render a class action non-maintainable.

Importantly, the Tribunal clarified that disputed questions such as valuation, alleged undervaluation, or loss are matters for adjudication after pleadings are complete and cannot form the basis for rejecting a class action at the threshold.Accordingly, the Tribunal concluded that the petition disclosed a prima facie case, dismissed the maintainability objection, and directed that the matter proceed further.

From Oppression to Class Actions: Tracing the Jurisprudential Shift

Indian courts have consistently drawn a distinction between preventive jurisdiction under oppression and mismanagement provisions and broader shareholder remedies, while cautioning against interference with past and concluded transactions.

In Shanti Prasad Jain v. Kalinga Tubes Ltd.[4],the Supreme Court held that relief under oppression provisions requires a continuous course of oppressive conduct, and that isolated or concluded acts, absent continuity, may not suffice (Para 397). This principle was reaffirmed in Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad[5], where the Court emphasised that oppression remedies are exceptional and preventive in nature.

However, in Tata Consultancy Services Ltd. v. Cyrus Investments Pvt. Ltd.[6],the Supreme Court clarified that while the jurisdiction under Sections 241–242 is largely remedial and preventive, the statutory language must be interpreted contextually, and not in a manner that renders the remedy illusory.

High Courts have also cautioned against conflating derivative actions with statutory remedies. In Rajeev Saumitra v. Neetu Singh[7], the Delhi High Court recognised the conceptual distinction between personal shareholder rights and actions brought on behalf of the company, while underscoring that statutory frameworks may modify traditional common-law doctrines.

Comparatively, while the Tooley test, which was developed by the Delaware Supreme Court in Tooley v. Donaldson, Lufkin & Jenrette Inc.[8],distinguishes between direct and derivative actions, Indian courts have repeatedly held that foreign jurisprudence cannot override clear statutory language[9].

The Tribunal’s refusal to confine Section 245 to purely preventive relief reflects a pragmatic appreciation of modern corporate structures, where the economic impact of managerial decisions often materialises over time. To read the provision excluding scrutiny of past transactions would, in practice, render the compensatory limbs of Section 245 of the Act largely futile. The NCLT’s approach therefore aligns the statutory text with commercial reality, while consciously resisting an unduly formalistic importation of common-law derivative action doctrines into a self-contained Indian framework.

Key Takeaway and Implications for Boards, Promoters and Businesses

• Reassess legacy intra‑group deals: mandate periodic board‑level reviews of historic restructurings, funding arrangements, write‑offs and related‑party sales to identify transactions that could be perceived as prejudicial in hindsight.​

• Elevate valuation governance: insist on clear valuation methodologies, independent fairness opinions where material, and reasoned minutes capturing why the board considered the outcome fair to the company and all shareholders.​

• Strengthen related‑party oversight: tighten frameworks for identifying connected parties, managing conflicts and documenting deliberations so that the approval record can withstand a Section 245 challenge years later.​

• Integrate Section 245 into board risk dashboards: treat class‑action exposure as a distinct risk category, with regular reporting from management and in‑house teams on potential triggers and mitigation steps.​

• Recognise that group‑level optimisation can be re‑characterised as minority prejudice: transactions that shift value within a promoter group at marginal valuations are particularly vulnerable to class‑action scrutiny.​

From a governance perspective, the decision underscores the need for boards and promoter groups to reassess how historical intra-group transactions are documented and justified. Valuation methodologies, related-party approvals, and disclosure narratives that appeared defensible at the time of execution are increasingly being tested through the lens of minority shareholder prejudice. Section 245 the Act proceedings, given their low admission threshold, may therefore emerge as a preferred vehicle for challenging legacy transactions that were previously assumed to be insulated from post-facto scrutiny.

[1] Andy Mukherjee, Class-Action Suits Come to Indian Markets, Finally, Bloomberg.com, May 15, 2024, https://www.bloomberg.com/opinion/articles/2024-05-15/india-markets-class-action-suits-are-here-finally (last visited Feb 10, 2026)

[2] Ankit Jain & Ors. v. Jindal Poly Films Limited & Ors.,CP No. 58/245/PB/2024

[3] Supra

[4] Shanti Prashad Jain v. Kalinga Tubes Ltd., AIR 1965 SC 1535, para 20.

[5] Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad, (2005) 11 SCC 314

[6] Tata Consultancy Services Ltd. v. Cyrus Investments Pvt. Ltd., (2021) SCC OnLine SC 272

[7] Rajeev Saumitra v. Neetu Singh, 2016 SCC OnLine Del 512

[8] Tooley v. Donaldson, Lufkin & Jenrette Inc., 845 A.2d 1031

[9] Hind Overseas (P) Ltd. v. Raghunath Prasad Jhunjhunwalla, (1976) 3 SCC 259)

Disclaimer

The note is prepared for knowledge dissemination and does not constitute legal, financial or commercial advice. AK & Partners or its associates are not responsible for any action taken based on its contents.

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