Class Action Has Entered the Boardroom. And Promoters Should Stop Smirking.

  

  

By Adv Sreeraj Muralidharan 

BBM, FCS, LLB, CFORA

advsreerajm@gmail.com 

 

When I read that a ₹2,500 crore shareholder class action had been admitted before the NCLT, I did not gasp. I did not celebrate. I did not analyse the stock price.

I smiled.

Because for years I have watched promoters treat Section 245 of the Companies Act, 2013, like a decorative sword hung on a drawing room wall. It exists. It looks impressive. Nobody assumes it will be used.

Indian promoters have historically relied on one comforting assumption: minority shareholders do not move together. They complain in WhatsApp groups. They sell shares. They grumble on X (Twitter). They do not coordinate.

That assumption is beginning to wobble.

A shareholder class action under Section 245 is not merely a petition. It is a behavioural shift. And behavioural shifts in capital markets are more dangerous than statutory amendments.

Let us be clear. Admission is not liability. The company may defend itself successfully. The petition may fail. But that is not the real story. The real story is that shareholders are discovering aggregation.

And aggregation multiplies leverage.

For more than a decade, Section 245 sat quietly inside the Companies Act, 2013, like a gym membership purchased in January and ignored by February. Everyone admired the concept of minority shareholder protection. No one believed Indian shareholders had the patience to use it seriously.

But patience grows when capital grows.

India today has deeper retail participation, institutional investors who are less sentimental, and digital tools that allow investors to organise faster than promoters can issue clarifications. The ecosystem required for shareholder class action in India is no longer theoretical.

Promoters who still think governance is a filing ritual are in for educational reform.

In too many boardrooms, compliance is treated like a religious ceremony. ROC forms filed? Auditor signed? Disclosure inserted somewhere in the annual report between the corporate social responsibility paragraph and the sustainability optimism? Good. Move on.

But class action litigation is not impressed by ritual.

It examines prejudice. It examines conduct. It examines whether decisions were merely technically correct or substantively fair.

There is a difference.

Compliance is what you show regulators.
Defensibility is what you survive shareholders with.

And many promoters confuse the two.

If shareholder class action litigation in India begins to mature, you will see subtle changes in corporate behaviour. Board minutes will grow longer. Independent directors will ask uncomfortable questions instead of nodding respectfully. Valuation reports will be written as if someone hostile might read them line by line.

Because someone hostile might.

The real danger in a shareholder class action before the NCLT is not the damages figure. Damages are calculable. Lawyers love calculable things. The real danger is narrative contagion. The moment a petition is admitted, analysts whisper. Banks re-evaluate. Acquirers discount. Due diligence becomes forensic rather than polite.

Valuation does not collapse because of orders. It collapses because of doubt.

And doubt spreads faster than compliance certificates.

This is not anti-promoter commentary. I represent promoters. I understand control. Control builds companies in India. Control allows speed. Control tolerates risk.

But control without insulation invites friction.

Fragmented dissent is manageable.
Organised dissent is expensive.

For years, promoter strategy relied on fragmentation. One shareholder here, another there, manageable irritants. But Section 245 of the Companies Act was designed precisely to neutralise fragmentation. It allows minority shareholders to speak in chorus.

And a chorus is harder to ignore than a solo complaint.

If you are a promoter reading this and thinking, “This is exaggerated,” ask yourself a few brutally honest questions.

Would your related party transactions survive cross-examination by someone who is not invited to your Diwali party?
Were your capital restructuring decisions defensible, or merely convenient?
Do your board minutes reflect actual application of mind, or are they attendance registers in paragraph form?
If a forensic accountant reviewed your disclosures with hostile intent, would you sleep peacefully?

These are not moral questions. They are survival questions.

Corporate governance risk is not about appearing ethical. It is about being litigation-resistant.

The Companies Act, 2013, gave minority shareholders a statutory weapon in Section 245. For a decade, it collected dust. If it begins to gather momentum now, the Indian promoter ecosystem will enter its next evolutionary stage.

Markets mature in layers. First comes ambition. Then comes capital. Then comes consolidation. Eventually comes accountability.

Accountability is rarely dramatic when it begins. It is procedural. It is technical. It is admitted.

And then it grows teeth.

In my experience, the law is patient with arrogance. It allows comfort. It tolerates overconfidence. It ignores small shortcuts.

But when capital organises, the law stops being theoretical.

And when shareholders organise, control negotiates.

That is not activism.

That is markets growing up.

And markets, unlike promoters, do not enjoy nostalgia.