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Class Action under Section 245 of Companies Act: The Lower-Threshold Route for Shareholders and Depositors
Indian company law is usually described as having one collective remedy for aggrieved shareholders: the oppression and mismanagement petition under sections 241 and 242. It has two. The Class Action under Section 245 of Companies Act sits alongside it, opens on materially lower numbers for a company with share capital, admits depositors as well as members, and reaches people the oppression jurisdiction does not touch — auditors, audit firms, experts and advisers. It has also been almost entirely unused since it came into force on 1 June 2016, which is the most interesting thing about it.
Class Action under Section 245 of Companies Act is an application to the National Company Law Tribunal by a qualifying number of members or depositors, on behalf of the whole class, complaining that the company’s affairs are being conducted prejudicially to the company, its members or depositors, and seeking restraining orders or damages.
Key Takeaways
- Rule 84(3) of the NCLT Rules 2016 sets the members’ threshold at 5% of members or 100 members, whichever is less, or 5% of issued share capital (unlisted) / 2% (listed). That is half the section 244 member percentage and a fifth of its share-capital route for a listed company.
- Depositors have their own threshold under Rule 84(4): 5% of depositors or 100 depositors, whichever is less, or depositors owed 5% of total deposits.
- The reliefs run from (a) to (h) and include a claim for damages against directors, the auditor including the audit firm, and any expert, advisor or consultant.
- Section 245 has no waiver power. Section 244 does. Miss the Rule 84 numbers and there is no proviso to rescue you.
- Banking companies are excluded outright by section 245(9) — shareholders as well as depositors.
- Two applications on the same cause of action are not allowed; the class must consolidate behind a lead applicant.
What Section 245 of the Companies Act, 2013 Actually Says
The gateway in section 245(1) is an opinion that “the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors”. Note the tense. Section 241 speaks of affairs that “have been or are being” conducted oppressively; section 245 uses only the present continuous. Whether that confines the section to ongoing misconduct is the central unresolved question about it, and we return to it below.
The reliefs are set out at (a) to (h). The first six are restraining orders: against an act beyond the company’s powers; against a breach of the memorandum or articles; a declaration that a resolution altering the memorandum or articles is void where it was passed by suppression of material facts or misstatement, with an order restraining the company and its directors from acting on it; against any act contrary to the Act or any other law in force; and against action contrary to a resolution passed by the members.
Clause (g) is the money limb. It permits a claim for damages, compensation “or demand any other suitable action” from or against (i) the company or its directors for a fraudulent, unlawful or wrongful act or omission or conduct; (ii) “the auditor including audit firm of the company” for an improper or misleading statement in the audit report, or for fraudulent, unlawful or wrongful conduct; and (iii) any expert, advisor, consultant or other person for an incorrect or misleading statement to the company, or for a fraudulent, unlawful or wrongful act. Clause (h) is a residuary power to “seek any other remedy as the Tribunal may deem fit”.
Section 245(2) then does something section 241 cannot: where the claim is against an audit firm, “the liability shall be of the firm as well as of each partner who was involved in making any improper or misleading statement… or who acted in a fraudulent, unlawful or wrongful manner”. Partnership limited liability is not a shield for the partner who was in it.
Section 245 Class Action Thresholds: Where the Numbers are Genuinely Lower
Section 245(3) of the Companies Act, 2013 leaves the eligibility thresholds for a class action to be prescribed by rules. These thresholds were introduced through the NCLT (Second Amendment) Rules, 2019, which inserted sub-rules (3) and (4) into Rule 84 with effect from 8 May 2019. This was nearly three years after Section 245 came into force and contributed to the delay in making the remedy practically accessible.
| Section 244 (oppression) | Section 245 + Rule 84 (class action) | |
|---|---|---|
| Members, by number | 100 members or 1/10th of members, whichever is less | 100 members or 5% of members, whichever is less |
| Members, by share capital — unlisted | 1/10th of issued share capital | 5% of issued share capital |
| Members, by share capital — listed | 1/10th of issued share capital | 2% of issued share capital |
| Company without share capital | 1/5th of members | 1/5th of members — identical |
| Depositors | No standing at all | 100 depositors or 5% of depositors, whichever is less; or depositors owed 5% of total deposits |
| Waiver of the threshold | Yes — proviso to s.244(1) | No equivalent power |
Two practical points follow. For a listed company the 2% route is the easiest collective gateway in the Act, five times easier than section 244. But for a company without share capital the class action offers no numerical advantage at all — and it forfeits the waiver. It is not always the softer door.
What the Tribunal Weighs, and What the Rules Add
Section 245(4) of the Companies Act, 2013 requires the NCLT to consider several factors before admitting a class action application, including whether the member or depositor is acting in good faith; whether persons other than the company’s directors or officers were involved in the matters covered by clauses (a) to (f); whether the cause of action is one that the member could pursue independently rather than through the company; the views of members or depositors who have no personal interest in the matter; and whether the act complained of could be, or is likely to be, ratified or authorised.
Rule 85 goes further, and imports a recognisably American gatekeeping test: whether the class is so numerous that joinder of all members is impracticable; whether there are questions of law or fact common to the class; whether the representative parties’ claims are typical; and whether they “will fairly and adequately protect the interests of the class”. Numerosity, commonality, typicality and adequacy are the four requirements of Rule 23 of the United States Federal Rules of Civil Procedure. Indian drafting has borrowed the architecture without the opt-out damages machinery that makes it work there.
Procedure Once Admitted
- The application is made in Form NCLT-9 under Rule 84, with copies served on the company and the other respondents.
- On admission, the Tribunal must direct public notice to the class. Rule 87 requires publication within seven days of admission, at least once in a principal vernacular newspaper of the State in which the registered office is situated and once in an English newspaper circulating in that State, in Form NCLT-13, with placement on the company’s website and on the websites of the Tribunal, the Ministry of Corporate Affairs, the concerned Registrar of Companies and — for a listed company — the stock exchange, until disposal.
- The applicant pays for the notice up front, and recovers it from the company if the application succeeds. On a widely-held company this is not a trivial sum, and it falls due before any recovery is in sight.
- All similar applications are consolidated into one, the class chooses a lead applicant, and the Tribunal appoints one if the class cannot agree. Two class actions on the same cause of action are not permitted.
- A member may opt out with the Tribunal’s permission and pursue an individual claim under any other law.
- The order binds the company, all members and depositors, the auditor or audit firm, the expert, the consultant, the adviser, and any other person associated with the company.
Two sanctions bracket the process. Failure to comply with an order made under the section exposes the company to a fine of ₹5 lakh to ₹25 lakh, and every officer in default to imprisonment up to three years with a fine of ₹25,000 to ₹1 lakh. In the other direction, an application found to be frivolous or vexatious must be rejected for reasons recorded in writing, with costs of up to ₹1 lakh payable to the opposite party.
Section 246: The Sting in the Tail
Section 246 — notified on 9 September 2016, later than section 245 itself — applies sections 337 to 341 of the Companies Act 2013 mutatis mutandis to an application under section 241 or section 245. Those are winding-up provisions, and importing them changes the character of the proceeding considerably. Section 339 fixes personal liability, without limitation of liability, on persons knowingly party to carrying on the business with intent to defraud creditors. Section 340 empowers the Tribunal to assess damages against delinquent directors and officers for misfeasance or breach of trust. Section 341 extends that liability to the partners or directors of a firm or company. A class action is therefore not merely a shareholders’ complaint; it carries a misfeasance and fraudulent-trading jurisdiction with it.
Ten Years, and No Decision on the Merits
Section 245 of the Companies Act, 2013 is generally traced to the Satyam collapse in 2009, which exposed the absence of an effective statutory collective remedy for Indian investors comparable to the class action mechanism available in the United States. The J.J. Irani Committee had recommended introducing class action provisions in 2005, and the Standing Committee on Finance reiterated the recommendation while examining the 2009 and 2011 Companies Bills. Creditors, however, were deliberately excluded on the premise that their existing contractual remedies were sufficient.
The remedy that emerged has been used barely at all. The first applications reached the Principal Bench of the NCLT only in 2024. On 5 February 2026 the Principal Bench ruled on maintainability in one of them (CP No. 58/245/PB/2024), holding that petitioners holding 4.99% satisfied the 2% listed-company route in Rule 84(3)(ii)(b), that section 245 is not confined to preventive relief and reaches concluded transactions, and that the availability of sections 241 and 242 does not oust it. The NCLAT dismissed the appeal on 26 February 2026 (Company Appeal (AT) No. 47 of 2026), holding that the impugned transactions “are not limited to being continuing in nature but also include the transactions already concluded”. On 8 June 2026 the Supreme Court, by consent, referred the underlying dispute to arbitration and set aside both orders, leaving all contentions open.
The position as matters stand is therefore unusually clean: section 245 has been invoked, admitted once and affirmed once on appeal, and there is nevertheless no surviving appellate authority on the section and no decision on its merits anywhere in India.
The Open Questions
That leaves several unresolved legal questions surrounding Section 245 class actions under the Companies Act, 2013, which advisers should approach with caution.
Does section 245 reach concluded transactions? The textual argument against is the tense: “are being conducted”, where section 241 says “have been or are being”. The argument for is that clause (g) — a damages claim for a past wrongful act — and clause (h) would be largely unworkable if the section stopped at conduct still in progress. The Tribunal and the Appellate Tribunal accepted the second reading in 2026; with those orders set aside, the point is open for the next respondent.
Is it a class action or a derivative action in disguise? Where the relief sought benefits the company rather than the individual members, the objection is that the claim is derivative and belongs under sections 241 and 242. The answer given below was that Indian drafting is self-contained and American doctrine is not determinative. It is the live question in the field.
Why so little used? The explanation is economic rather than legal. There is no contingency-fee or litigation-funding market for dispersed retail investors; the Rule 87 publication cost falls on the applicant before recovery; and tribunal pendency erodes whatever is recovered. Set against that is the floodgates case for restraint: representative litigation at scale is not something the NCLT is resourced to absorb, and Rule 85’s gatekeeping plus the costs sanction in section 245(8) are the design answer. Whether they suffice is untested, precisely because nothing has been decided.
The banking carve-out. Section 245(9) is absolute, and its critics point to bank frauds in which neither depositors nor shareholders had any route against directors or auditors. The defence is regulatory rather than doctrinal: banks are supervised under the Banking Regulation Act, and an open damages action against a bank’s balance sheet carries a systemic-stability risk that an ordinary company does not. Both propositions are reasonable; the reader should know that the exclusion is a policy choice, not an oversight.
What this Means for You
If you are a shareholder in a listed company, check the 2% arithmetic before you assume you are locked out — it is a fifth of what the oppression route demands, and there is no need to plead oppression at all. If you are a depositor, section 245 is the only provision in the Act that gives you standing in your own right. Two cautions. First, there is no waiver, so the numbers must be right on the day you file. Second, budget for the public notice: it is your cost, it falls due within seven days of admission, and on a widely-held company it is real money. Because there is still no decision on the merits, treat the strategic value of a class action as partly leverage and partly untested.
Frequently Asked Questions
How many shareholders do I need? Under Rule 84(3), 5% of the total members or 100 members, whichever is less; or members holding 5% of the issued share capital of an unlisted company, or 2% of a listed one.
Is section 245 easier than section 244? On the numbers, yes for a company with share capital — half the member percentage, and a fifth of the share-capital route for a listed company. For a company without share capital both require one-fifth of the members, and section 245 additionally lacks the waiver power.
Can depositors bring one? Yes, and Rule 84(4) sets a separate threshold for them. This is the only collective remedy in the Act that depositors can invoke in their own right.
Can we sue the auditors? Clause (g) permits a claim against “the auditor including audit firm”, and section 245(2) fixes liability on the firm and on each partner who was involved. Experts, advisers and consultants are also within reach.
Does it apply to banks? No. Section 245(9) excludes banking companies without qualification, so bank shareholders lose the remedy along with bank depositors.
Has a class action ever succeeded? Not yet. No application has been decided on its merits, and the only two orders on maintainability were set aside in June 2026 when the parties agreed to arbitrate.
Glossary
Class action — a proceeding brought by a representative party on behalf of a defined class, binding every member of the class. Derivative action — a claim brought by a member to enforce a right belonging to the company itself. Numerosity, commonality, typicality, adequacy — the four class-certification requirements adopted by Rule 85 of the NCLT Rules. Misfeasance — breach of duty or trust by an officer, actionable under section 340. Opt out — leaving the class with the Tribunal’s permission so as to pursue an individual claim.
Read Next
- Oppression and Mismanagement under Sections 241-242: A Shareholder’s Guide to NCLT/NCLAT Remedies — the cluster guide to the principal collective remedy.
- Section 244 Waiver: How a Shareholder Below the 10% Threshold Gets Into the NCLT — the alternative where the class-action numbers do not work.
- NCLAT Appeal Limitation: The 45-Day Clock, the Certified Copy, and What Can Actually Be Challenged — appealing an order refusing admission.
Sources
- Companies Act 2013, sections 37, 244, 245, 246, 337 to 341, 430 (in force: section 245 from 01.06.2016; section 246 from 09.09.2016)
- National Company Law Tribunal Rules 2016, Rules 84, 85, 86 and 87; Forms NCLT-9 and NCLT-13
- National Company Law Tribunal (Second Amendment) Rules 2019, in force 08.05.2019 — inserting Rule 84(3) and 84(4)
- Report of the Expert Committee on Company Law (J.J. Irani Committee), May 2005
- Standing Committee on Finance, reports on the Companies Bill 2009 and the Companies Bill 2011
- NCLT, Principal Bench, CP No. 58/245/PB/2024, order dated 05.02.2026 (maintainability of a class action; scope of section 245)
- NCLAT, Company Appeal (AT) No. 47 of 2026, order dated 26.02.2026
- Supreme Court of India, order dated 08.06.2026, referring the dispute to arbitration by consent and setting aside the orders of 05.02.2026 and 26.02.2026
- NCLT, Principal Bench, CP No. 92/245/PB/2024, order dated 27.05.2024
Advocate Aaditya Bhatt
Senior Standing Counsel Income Tax Department, Advocate Gujarat High Court. Aaditya combines his technical and legal expertise to deliver strategic counsel in litigation, constitutional, and regulatory matters. He represents clients before High Courts and Tribunals with a technology-driven approach.
