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Governance

Class Action Suits

  • 24 Jun 2021
  • 7 min read

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.
  • 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).
  • 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.
  • 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.

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.

Source: IE

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