CLASS ACTION LAWSUITS

 

 

INTRODUCTION

 A class action lawsuit is a legal proceeding in which a large group of people collectively sue a defendant, typically a corporation or business, for damages or other legal remedies. The group of people, known as the "class," must have suffered similar harm or injury, and the lawsuit is typically initiated by one or a few individuals who represent the entire class.

The need for a class action lawsuit arises when it is not feasible for each member of the class to file an individual lawsuit. This can occur when the harm or injury is widespread, and it would be impractical for each person to file a separate lawsuit. It can also occur when the damages sought by each individual are relatively small, making it financially unfeasible for them to pursue their claims on their own. In these cases, a class action lawsuit allows the group to pool their resources and pursue their claims as a collective.

Class action lawsuits can be brought for a variety of reasons, including consumer protection, employment discrimination, environmental pollution, and securities fraud, among others. They are often used to hold large corporations accountable for their actions and to provide compensation to 
individuals who have been harmed by those actions. 

The process for initiating a class action lawsuit typically involves filing a complaint with the court, which outlines the claims of the class and the legal basis for those claims. The court will then determine whether the lawsuit can proceed as a class action, based on factors such as the size and commonality of the class, the adequacy of the proposed class representatives, and the typicality of the claims of the class members. 

If the lawsuit is certified as a class action, notice will be provided to all potential class members, and they will have the opportunity to opt out of the class and pursue their own individual claims. The case will then proceed through the litigation process, including discovery, motion practice, and trial, if necessary. If the class prevails in the lawsuit, the court will typically award damages or other legal remedies that are distributed among the class members based on their individual losses.class action lawsuits provide a mechanism for individuals who have suffered a similar harm or injury to band together and pursue their claims as a collective, when it would be impractical or 
financially unfeasible for them to pursue their claims individually. They are an important tool for holding large corporations accountable for their actions and providing compensation to those who have been harmed by those actions.

STATEMENT OF PROBLEM 

One of India's worst corporate scandals, the "Satyam scandal," often known as "India's Enron," occurred in January 2009. It was being investigated whether Satyam Computers Services Limited ("SCSL") had misrepresented its financial information to its board, stock exchanges, regulators, investors, and other stakeholders. Following that, the approximately 300,000 SCSL shareholders who attempted to file class action lawsuits under the Companies Act, 1956 but were unsuccessful due to the lack of such a mechanism. On the other hand, American investors were allowed to pursue their portion of damages in US courts in a class action lawsuit against SCS. 

Which compelled the Indian Government to add such a mechanism in 2013 act, even after the mechanism being in place, India has not seen a big class action suit since then, attributing to this problem could be the lack of awareness of the stakeholders of their rights. This paper aims to see all the rights and remedies that are available to the stakeholders as well as the corporation. 

Need for the Research 

There’s a need for research on class action lawsuits in the Indian context, as there are several issues that need to be addressed.  

Firstly, there is a lack of awareness among the public about class action lawsuits, and many people are not aware of their legal rights to join such lawsuits.  

Secondly, the Indian legal system is still evolving, and there is a lack of clarity on the procedural rules and requirements for filing and pursuing class action lawsuits. 

Thirdly, there is a need to examine the effectiveness of class action lawsuits as a mechanism for redressing grievances in the Indian context. It is unclear whether class action lawsuits are an effective tool for providing relief to large numbers of affected individuals, especially given the delays and complexities of the Indian legal system. 

Fourthly, there is a need to examine the role of the judiciary in promoting and facilitating class action lawsuits in India. The judiciary has an important role to play in interpreting the legal provisions related to class action lawsuits and in ensuring that the rights of the affected individuals are protected. 

Finally, there is a need to examine the potential impact of class action lawsuits on businesses and the economy in India. While class action lawsuits are intended to hold businesses accountable for their actions, there is a concern that they could discourage investment and innovation, and could 
lead to an increase in litigation costs for businesses.

RESEARCH METHODOLOGY 

Research review- 
 
The Researcher under the guidance of the supervisor has gone through the- 
 
1. Books published on the subject 
2. Landmark Judgments 
3. Articles and Journal published on the topic 
4. News published in the newspapers 
5. Internet searches 

Research Objectives

• Understanding the legal framework of class action lawsuits: This objective could involve examining the laws and regulations governing class action lawsuits, both at the federal and state levels. It could also involve analyzing key court decisions that have shaped the legal landscape of class action litigation. 
• Exploring the impact of class action lawsuits on companies: This objective will involve studying the financial and reputational effects of class action lawsuits on companies, as well as the ways in which companies respond to such lawsuits. 
• Investigating the role of lawyers in class action lawsuits: This objective could involve examining the motivations of lawyers who initiate or defend against class action lawsuits, as well as their strategies and tactics. 
• Assessing the effectiveness of class action lawsuits in promoting social justice: This objective could involve evaluating the extent to which class action lawsuits serve as a tool for promoting the interests of marginalized groups, and assessing the challenges and limitations of this approach. 

Key Research Questions

• How do class action lawsuits impact the legal and financial landscape of corporations, and what are the implications for stakeholders? 
• What are the benefits and drawbacks of class action lawsuits for plaintiffs and defendants, and how do they influence settlement outcomes? 
• What factors contribute to the success or failure of class action lawsuits, and how can these be improved? 
•  What are the key challenges facing plaintiffs in class action lawsuits, and how can these be overcome? 

Research Methodology 

The methodology that has been adopted for this research is Doctrinal method. Under this methodology, secondary information such as articles, research papers, websites, books and journal along with review of statutes is adopted. 

Books and other reference as guided by the faculty that have been primarily helpful in giving this project a firm structure. Newsletters, websites, dictionaries, and articles have also been referred. Footnotes have been provided wherever needed, either to acknowledge the source or to point to a particular provision of law.

 

 

Research Hypotheses 

The following hypotheses are made:

1. While the laws relating to class action lawsuit are in place, but still failed to accommodate the needs of the needs of the stakeholders and has failed to keep up with the time.

2. Cost of a lawsuit is more on the stakeholders rather then on the corporation.  

REVIEW OF LITERATURE- 

• By Thomas S. Ulen : An introduction to the law and economics of class action litigation

The author Thomas S. Ulen explains that "Class action litigation" refers to the combination of related compensation claims into a single, sizable class of plaintiffs. Both negative and positive social effects may result from this practise. If the facts giving rise to the claims are significantly similar, then there may be significant savings in litigation and court administrative costs from presenting those facts once rather than numerous times. This is an example of the societal benefits of combining disparate claims. However, establishing a class of litigants and combining their claims may come at a huge social cost. This method, for instance, might enable people who have baseless negative expected-value claims to extract an arbitrary settlement from the defendant or defendants. The paper surveys additional sources of class-action litigation's social costs and benefits, assesses the empirical research on these cases, and analyses current policy discussions in the United States regarding class-action litigation reform. The essay comes to the conclusion that class action litigation can have significant net social benefits, but only if courts diligently manage the class certification process in order to discover and prevent the class action lawsuit's social cost-generating elements. 

• By Brian C. McTier & John K. Wald: The Causes and Consequences of Securities Class Action Litigation

The authors explain look at how securities class action lawsuits affect a company's investment and financing decisions. Overinvesting businesses are more likely to face legal action. In general, businesses increase leverage, cash reserves, and firm-specific risk after a lawsuit, while decreasing overinvestment activity and compensation. In addition, there is some evidence that corporations reduce their diversification after a lawsuit. Overall, these modifications are consistent with a post-suit decline in agency issues that resulted in sizable adjustments to real investment practices. The research supports the idea that security class action lawsuits bring agency issues to light, which are subsequently at least partially rectified.

• By Matteo Arena & Brandon Julio: The Effects of Securities Class Action Litigation on Corporate Liquidity and Investment Policy

 The authors have elucidated in their article about the possibility of securities class action litigation affects business investment and savings practices. Companies that are more exposed to securities lawsuits have a lot more money on hand in case potential settlements or other associated liabilities arise. The outcome is not a result of plaintiffs picking on companies with large cash levels, but rather a result of businesses building up capital in preparation of lawsuits. Firms at risk of litigation have lower market values for their cash. Litigation risk has an impact on corporate investment decisions as well because businesses tend to cut back on capital expenditures as a result. Their findings are impervious to endogeneity issues and any erroneous temporal effects.

• By Amar Gande & Craig M. Lewis: Shareholder-Initiated Class Action Lawsuits: Shareholder Wealth Effects and Industry Spillovers

This paper examines how dramatically lower stock prices respond to class action lawsuits brought by shareholders. Based on lawsuit filings against other companies in the same industry, we discover that shareholders partially anticipate these lawsuits and capitalize some of these losses prior to a lawsuit filing date. We demonstrate that the filing date effect (shareholder losses quantified on the lawsuit filing date) is smaller and the partial anticipation effect (shareholder losses capitalized prior to a lawsuit filing date) is bigger the more likely a corporation is to be sued. Our research reveals that the filing date impact understates the size of shareholder losses, and that this understatement is more pronounced for companies that are more likely to be sued.

• By Dishi Bhomawat: Class action suits by shareholders in India

The author has come to the conclusion that the inclusion of class action lawsuits in the Indian corporate governance system is merely a token effort. The Indian legislators have not taken advice from their international colleagues. There are no clauses to prevent pointless lawsuits. It is also debatable whether Indian law would be able to accommodate global class action lawsuits.

Literature on Indian corporate governance standards is scarce. This essay explores the relatively new idea of class action lawsuits in India. In the last ten years, India has developed as a center for investment. In order to understand the Indian legal system in relation to its overseas equivalents, this paper has practical consequences.

The law's deterrents are not strong enough to stop pointless lawsuits. It's important to strike a balance between the company's interests and the rights of the shareholders. A pointless class action lawsuit could be bad for the business's financial standing.

As a result, the clause regarding class action lawsuits is a futile effort. Class action lawsuits have a long way to go before they are a successful form of relief. One can only hope that the specific procedure, if it is announced, will help to clarify this murky clause.

• By Theodore Eisenberg & Geoffrey Miller: The Role of Opt-Outs and Objectors in Class Action Litigation: Theoretical and Empirical Issues

 This paper revealed that class action opt-out and objection rates are typically trivially low percentages of the class, which is consistent with earlier research into more constrained data sets. Dissent rates rise as the per capita class recovery rises and fall as the number of class members does. Opt-outs are the most prevalent form of dissent in bulk tort and civil rights cases, whereas objections are the most common form in those involving civil rights. In situations involving stocks and consumers, dissent is far less frequent. For unknown reasons, dissent rates have likewise been declining over time throughout the spectrum of cases, including optouts and objections.

As for the pattern of class approval, we find that objection rates are higher for unapproved settlements than for approved ones, suggesting that courts may give weight to objections when evaluating class settlements or that the objections reflect weaknesses in the settlement that are also independently identified by the class. Opt-outs and objections have no statistically significant relationship with attorney fees, either in absolute terms or as a percentage of the recovery.

• By Tobias Barrington Wolff: Preclusion in Class Action Litigation

This paper revealed that the preclusive effect that a class judgement should have upon the no class claims of absentees has not received sustained attention despite the significant focus placed on class action over the past 25 years. It is a serious omission. When a claim is certified for class treatment, claim and issue preclusion would proceed as usual, which could jeopardize the process and the high-value claims of individual absentees. In turn, such a danger can led to ex ante conflicts of interest within a class that, if unresolved, can prohibit certification. The few courts that have acknowledged the issue have thrown up their hands in defeat and declined to certify potentially helpful classes out of concern for the potential for preclusive outcomes.

Even worse, the majority of courts have done nothing to solve the issue. This situation was not just brought about by a lack of diligence. Due to a serious misunderstanding of the positive law bases for a judgment's preclusive consequences, courts have been reluctant to consider preclusion during certification. The first comprehensive analysis of these difficulties is provided in this article. It discusses the risk that claim and issue preclusion, when those doctrines are applied to class litigation in their original form, can present to class members. Then it provides a more thorough explanation of the positive law bases for a judgment's preclusive effect, pointing out the way for courts to regain their rightful role in limiting the preclusive implications of the class actions they oversee.

• By Param Pandya: The Fate of Class Action Suits in India: Then & Now?

This paper examines the establishment of the statutory class action in India in great detail. It starts with an economic analysis of corporate law to highlight the numerous issues that affect minority shareholders, then it delves into a critique of the Foss v. Harbottle Rule. Derivative Actions are afterwards acknowledged as an exception to the stated rule.

This dissertation attempts to enumerate the evolution that this very thought through in order to explain the pre-existence of derivative and representative suits in India as a common law heritage. This justifies the logic behind their rarity in terms of litigation practise in India. It then concentrates on examining the factors that led to the introduction of statutory class actions in India.

A thorough understanding of Section 245 of the 2013 Companies Act, read in accordance with the Rules for Chapter XVI and the procedure thereunder, is made available. In addition, a look at the structural transformation of class action in India is essential. The second half is a critical examination of the challenges that this new iteration of Class Action in India is going to confront in the future. This new iteration of the class action will take place in India in an effort to resolve the unresolved disputes surrounding class actions in that country.

• By Parimala Veluvali: An Overview of Progressive Activism - The Class Action Suit

This paper examines the stands Pre-2013 Act, where the shareholders are regarded as the company's owners, they are only witnesses to the Directors' decisions. The phrase "shareholder activism" refers to the shareholders' active involvement in the fight against the management's improper actions. The Companies Bill, 2011 aims to improve the protection of stakeholder rights and interests by proposing numerous changes to the laws governing the Indian corporate sector. One such improvement is the addition of the class action clause, which, if put into practice, will give the minority shareholders a powerful weapon to use against the Management's repressive practices. According to Clause 245 of the proposed bill, any specified number of members, depositors, or any class of them, as the case may be, may file a class action lawsuit if they believe that the management or conduct of the company's affairs is being done in a way that is harmful to the interests of the company, its members, or its depositors. The Company's minor stockholders, whose wealth was lost within a matter of days without their fault, suffered silently in the context of the hotly contested, widely published, and in-depth Satyam Case.