NCLAT Refuses to Stay India's First Corporate Class Action Against Jindal Poly Films

Jindal Poly Films Ltd Faces Setback in Corporate Class Action Lawsuit

Key Developments:

• The National Company Law Appellate Tribunal (NCLAT) has declined to stay proceedings in India's first corporate class action lawsuit filed by minority shareholders of Jindal Poly Films Ltd.
• The lawsuit, initiated in March 2024, alleges fraudulent conduct and siphoning of ₹2,500 crore by the company's promoters and management.

Background:

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• The National Company Law Tribunal (NCLT) Delhi bench had admitted the class action petition under the Companies Act on February 5, issuing notice in the matter.
• Jindal Poly sought an urgent stay on the NCLT order, arguing that disclosures could cause irreparable reputational and market harm, but the NCLAT declined to grant interim relief.

Case Details:

• The case was initiated by minority shareholders Ankit Jain, Rina Jain, and Ruchi Jain Hanasoge, who together hold a 4.99% stake in the company.
• The shareholders allege that more than ₹2,500 crore was siphoned off through undervalued asset sales and related-party transactions involving promoter-linked entities.
• Section 245 of the Companies Act allows a group of shareholders to file a single case before the NCLT if they believe a company is acting unfairly or causing loss to investors.

Implications:

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• The proceedings are being closely watched by minority investors and corporate boardrooms, as a ruling in favour of the shareholders could mark a significant moment for shareholder activism in India.
• The use of class action remedies is rare in India, but the Jindal Poly matter has brought the provision into active use, following its introduction in 2013 following the Satyam scandal.