Class Action Suits | 24 Jun 2021
Why in News
Incidents such as the recent Oil and Natural Gas Corporation Limited (ONGC) barge disaster underline the absence of effective class action suits/lawsuits in India.
- 71 people were killed after Cyclone Tauktae damaged ONGC’s barge vessels off Bombay High.
Oil and Natural Gas Corporation Limited
- It is a Maharatna Public Sector Undertaking (PSU) of the Government of India.
- It was set up in 1995 and is under the Ministry of Petroleum and Natural Gas.
- It is the largest crude oil and natural gas company in India, contributing around 70% to Indian domestic production.
Key Points
- About:
- It is a case brought to court by a group representing a larger set of people, often in thousands, who have suffered the same loss. Such a group forms a class.
- It derives from representative litigation, to ensure justice to the ordinary individual against a powerful adversary.
- The accused in such cases usually are corporate entities or governments.
- Generally, in class action suits, the damages paid may be small at an individual level or may not even be quantifiable.
- The total damages calculated, however, could be large.
- The difference between public interest litigation (Article 32 or Article 226 of the Constitution) and class action suits is that unlike a class action suit, a public interest litigation cannot be filed against a private party.
- History of Class Action Suits:
- While class action suits have a history dating back to the 18th century, these were formally incorporated into law in the US in 1938 under the Federal Rules of Civil Procedure.
- It is a tool extensively used in the US where individuals or small communities, aggrieved by the actions of a large entity, come together to exercise legal options collectively.
- Over the years, class action has become so successful at curbing negligence, that it is now a part of US corporate and consumer laws, environmental litigation, etc.
- While class action suits have a history dating back to the 18th century, these were formally incorporated into law in the US in 1938 under the Federal Rules of Civil Procedure.
- Rules in India for Class Action Suits:
- Civil Procedure Code 1908 :
- The Code of Civil Procedure, 1908 is a procedural law related to the administration of civil proceedings in India.
- Rule 8 refers to representative suits, which is the closest to a classic class action suit in a civil context in India. It does not cover criminal proceedings.
- Companies Act 2013:
- Section 245 of it allows members or depositors of a company to initiate proceedings against the directors of the company in specific instances.
- There are threshold limits, requiring a minimum number of people or holders of issued share capital before such a suit can proceed.
- This type of suit is filed in the National Company Law Tribunal (NCLAT) currently.
- Competition Act 2002:
- Under Section 53(N), it allows a group of aggrieved persons to appear at the NCLAT in issues of anti-competitive practices.
- Consumer Protection Act 2019 (replaced the 1986 Act):
- The Supreme Court has held that in certain complaints under the Consumer Protection Act 1986, they can be considered as class action suits. (Rameshwar Prasad Shrivastava and Ors v Dwarkadhis Project Pvt Ltd and Ors 2018).
- Civil Procedure Code 1908 :
- Benefits:
- Reduced Burden:
- An immediate benefit is that the court has to hear only one case and not several. This reduces the chance of similar cases clogging the already overburdened courts.
- Helps the Weak:
- As not everyone has the means or time to pursue a legal case, a small group of people with funds or the ability to raise money can bring justice to other victims who may be disadvantaged.
- Affects Brand Image:
- Companies are reluctant to face such suits as it affects their brand image. They prefer settling such cases faster to minimize the damage to their reputation.
- An advantage for the accused parties, however, is that they have to deal with only one case.
- Reduced Burden:
- Challenges:
- Underdeveloped system of torts:
- Tort law has not developed sufficiently in India for a number of reasons, primarily due to the high cost and time-consuming nature of litigation.
- Lack of contingency fees:
- The rules of the Bar Council of India do not allow lawyers to charge contingency fees, i.e., a percentage of the damages claimants receive if they win a case.
- This disincentives lawyers from appearing in time-consuming cases that class action suits inevitably are.
- Lack of Third-party financing mechanisms for litigants:
- Since litigation costs are high, class action suits can be made easier by allowing external parties to fund or sponsor the cost of litigation.
- Some states like Maharashtra, Gujarat, Madhya Pradesh, and Karnataka have made changes in the Civil Procedure Code to allow this.
- Since litigation costs are high, class action suits can be made easier by allowing external parties to fund or sponsor the cost of litigation.
- Underdeveloped system of torts:
Way Forward
- India should move in the direction of such accountability, which is taken seriously in developed economies, and which makes them better abodes for employment and business.
- Lawyers should be incentivised for taking such cases, it will be a good first step in bringing class action suits into the mainstream.
- Class action suits are necessary if India is to improve its ease of doing business rankings, especially in disaster prevention and risk of life.