NCLAT reserves order on Jindal Poly's plea against admission of class action suit

The National Company Law Appellate Tribunal (NCLAT) on Friday reserved its order on Jindal Poly Films Ltd’s appeal challenging the admission of India’s first corporate class action suit filed by minority shareholders, alleging fraudulent conduct by the company’s promoters and management.

The appellate tribunal heard arguments from both Jindal Poly and minority shareholders. It will decide whether to grant a stay on the National Company Law Tribunal’s (NCLT) 5 February order admitting the class action and issuing a formal notice.

Jindal Poly has sought an urgent stay, stating that unless the NCLT order is put on hold, it will be required to send communications to nearly 40,000 shareholders, as well as to the stock exchanges and the market regulator. The company said this could cause irreparable reputational and market harm.

The Delhi bench of the NCLT had admitted the petition filed by minority shareholders, marking the first time an Indian company tribunal formally issued notice in a corporate class action under Section 245 of the Companies Act, 2013, nearly two years after the case was filed.

The case was initiated in March 2024 by minority shareholders Ankit Jain, Rina Jain and Ruchi Jain Hanasoge, who together hold a 4.99% stake in the company.

They allege that over ₹2,500 crore was siphoned off through undervalued asset sales and related-party transactions involving promoter-linked entities.

Challenging the NCLT order, Jindal Poly argued that the class action suit was not maintainable and that Section 245 cannot be used as a substitute for an oppression and mismanagement petition under Sections 241–242 of the Companies Act, which requires a higher shareholding threshold. According to the company, the issues raised relate to governance concerns that should have been pursued through other statutory remedies.

The company also submitted that minority shareholders had earlier initiated proceedings against a group entity before another bench of the tribunal and later filed the present class action petition.

Section 245 was introduced in 2013 following the Satyam scandal, based on recommendations of the J.J. Irani Committee, to strengthen minority shareholder protection. It allows shareholders holding at least a 2% stake in a listed company to collectively seek remedies for alleged fraud, mismanagement or unfair practices.

According to the petition, Jindal Poly invested about ₹703.79 crore between 2013 and 2017 in group power companies—Jindal Powertech and Jindal India Thermal Power—through 0% preference shares.

In FY21, these companies secured debt waivers totalling over ₹7,000 crore, thereby improving their valuations. The shareholders allege that Jindal Poly later sold its stake at deeply undervalued prices to promoter-linked entities, resulting in losses exceeding ₹2,500 crore to public investors.

The tribunal’s decision will determine whether the NCLT’s admission order stands or is stayed. If no stay is granted, the class action will proceed on merits, in what is being closely watched as a significant development for minority shareholder rights in India.