Jindal Poly Films minority shareholders have moved the Supreme Court seeking recall of its June 8 order that referred the dispute between the company and a shareholder to arbitration, arguing that India’s first corporate class action suit could not be settled without proper representation.
While seeking revival of their class action suit, a group of 29 minority shareholders led by a Sohag Nanavati has asked the court to implead them as parties in the case, saying their presence is indispensable for securing a complete and effective adjudication of the class action suit, which was admitted by the National Company Law Tribunal on February 5 and upheld by the National Company Law Appellate Tribunal on February 26.
They justified their participation so as to safeguard the rights and interests of the represented class of minority public shareholders and avoiding multiplicity, fragmented representation, or adjudication in the absence of those who are statutorily bound by the result.
According to the shareholders, “the denial of such participation would result in a situation where the fate of a representative proceeding is decided without hearing those who stand to be most directly affected by its outcome. Such exclusion would not only undermine the representative nature of the proceedings but would also deprive the SC of the benefit of submissions from persons whose interests are co-extensive with the subject matter of the appeal.”
The plea stated that the matter involved is not just a “bilateral dispute but a representative proceeding affecting a wide body of public investors.”
The move comes in the wake of the SC setting aside India’s first class action suit, which was admitted against Jindal Poly Films by its minority shareholders, who hold 4.99% of the share capital. The apex court had referred the dispute between the company and substitute petitioner Monet Securities to arbitration after both sides agreed to a consent order and had appointed retired chief justice of the Madras High Court, Manindra Mohan Shrivastava, as the sole arbitrator to decide upon the disputes expeditiously.
Ankit Jain, the original petitioner, and other shareholders had moved the tribunal against a transactions undertaken by Jindal Poly Films, which allegedly stripped the company of valuable assets and resulted in monetary losses to minority shareholders. Jain estimated the total loss to the company at more than Rs 2,500 crore. Last month, the tribunal substituted Monet Securities as Jain had sold his shares in Jindal Poly Films to the former, which acquired around 5% stake in the company.
Jindal Poly Films had opposed the shareholders’ stand, saying 5% shareholders couldn’t run the company and that the allegations made by them related to transactions from earlier years which were concluded by 2022, and hence, the suit was not maintainable. Besides, it said that minority shareholders couldn’t use a class action suit as a substitute for filing an oppression and mismanagement complaint.
Experts say that the development is likely to have a significant impact on the class action suit, as it will put to rest pertinent questions regarding the representation of aggrieved shareholders. “Considering that this is India’s first corporate class action suit, it’s crucial that the SC considers their concerns, since the purpose of suit is to protect the rights of class of shareholders. The Supreme Court’s earlier order (June 8 Order) appointing an arbitrator while keeping all contentions open has paved the way for this development…The crucial development is not only expected to clarify the rights of minority shareholders but also set a precedent for future class action suits, Amish Shroff, Partner, Rajani Associates, said.
The shareholders alleged that a complex web of transactions was devised by Jindal Poly Films to cause wrongful loss to itself and them. The three transactions included sale of financial instruments in the nature of 0% optionally convertible preference shares and 0% redeemable preference shares held by Jindal Poly Films in Jindal India Powertech, at squat valuations in 2021-22.
The write-off of loans provided by Jindal Poly Films to Jindal India Thermal Power in 2018-19 allegedly resulting in diminution of value of the securities of the company and sale of shares held by Jindal Films India (a wholly owned subsidiary of Jindal Poly Films) in Jindal Thermal to Champak Niketan, a promoter group entity, in which majority shares are owned by a trust belonging to the promoter group of Jindal Poly Films, Gunjan Trust, in 2020-21.
