Awakening of Shareholder Activism

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Awakening of Shareholder Activism: Reflection on Indian Framework

Introduction “Shareholder activism is not a privilege- it is a right and a responsibility. When we invest in a company, we own part of that company and we are partly responsible. If there is something wrong, we must become active and vocal.” –Mark Mobius Recognizing the significance and need for bringing about a transformation towards protection of minority shareholders’ interest, Indian legislature introduced the concept of Class Action Suit (“CAS”), or what is popularly known as ‘representative suit’, within range of safeguards provided statutorily. This radical development has evidently found a strong foothold within the growing arena of corporate governance in India.[1] A civil law remedy in United States[2] and a crucial weapon for safeguarding investors’ interest within a company, class action recognizes shareholder activism as just another component that is devised procedurally to entitle investors the right to take collective action against the prejudicial actions done by or on behalf of the company.[3] The new Companies Act, which was long-anticipated and welcomed in India recently, lays down a strict regime for those accepting deposits from the public and also gives protection for whistle blowers.[4] Class Action Suits: Concept and Scheme in other Jurisdictions In common parlance, the term ‘class action’ suggests a legal recourse collectively initiated by a group of investors, having common interest and cause of action, on behalf of the company to seek remedy on behalf of all the other aggrieved investors. In other words, it gives right to one member on behalf of a group to initiate an action against the defending company on the premise that they have the same locus standi.​[5] Governed by Federal Rules of Civil Procedure, 1938[6] and State laws within the framework of United States, class action has, over time, culminated into a broad spectrum of jurisprudence and procedural underpinnings. CAS was gradually broadened to cover monetary remedy.[7] On the other hand, European Union has restricted the scope of this remedy only to aggrieved consumers.[8] Another jurisdiction where the concept finds emphasis is Australia wherein this crucial component of discipline for shareholder activism has been generally discerned in light of principles of common law.[9] Significance and Lessons from Satyam Class action will afford protection to small and dissenting investors and make directors and promoters more accountable. Even though CAS has been well-established within Indian frame, the concept was not accorded much importance until it was statutorily recognized through introduction of its scheme within Companies Act of 2013 (the “2013 Act”). In the advent episodes of corporate farces like Enron in United States and Satyam in India, shareholder protection has evolved as a novel discourse that reinforces responsibility of insiders to bolster their role as patrons for legal compliance of internal affairs. In addition to providing effective and economically viable recourse against the company than on an individual basis,

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