Class action lawsuits could take off in India after tribunal rulings

13 Jun, 2013

Indian competition lawyers anticipate a series of class action lawsuits once the Competition Appellate Tribunal (COMPAT) gives its decision on appeals filed against orders of the Competition Commission of India (CCI) in the DLF abuse of dominance case and over an alleged cement cartel case.

 

India’s Competition Act 2002 has always allowed for class action suits, but to date not a single case of this type has been filed in the country.

 

The Indian Builders Association filed with the CCI against cement manufacturers in the country for allegedly forming a cartel, which was investigated by the antitrust agency, following which the watchdog penalized the cement producers INR 63.07bn.

 

In its quarterly newsletter (July-September 2012), the CCI said that the Builders Association can also take class action by filing an application with the COMPAT for the award of compensation to offset loss/damages caused to its members. This is provided that the tribunal upholds CCI’s order. Trade associations can benefit and take advantage of opportunities offered by the Competition Act and help the industry, the CCI pointed out in the newsletter.

 

Section 53 N(4) of the Competition Act, 2002 (as amended) allows parties to file compensation claims before the COMPAT as a class of similarly aggrieved persons once there has been a final decision, said Arshad (Paku) Khan, executive director (competition/antitrust), Khaitan & Co.

 

If class action suits start getting used, “the stakes in India, which are already high because of the large fines imposed by the CCI, become even higher, especially for cases involving price-fixing for commodity goods or other situations where multiple persons have suffered harm from the same competition breach by the same company,” Khan told PaRR.

 

The Lok Sabha [the lower house of the India’s legislature] approved the Companies Bill, 2011 in December 2012. This bill includes a provision for class action lawsuits, allowing a group of investors with common interest in a matter to sue the management of a firm, its auditors or a section of shareholders in case of suspected wrong. This option is not available under the current Companies Bill.

 

Under Section 245 and 246 of the new Bill, class action suits may be filed by investors in a court of law if they believe that the affairs of the company are being conducted in a manner detrimental to the interest of the company and its shareholders. The aim of this amendment to introduce class action suits is to help improve the quality of financial reporting and corporate governance.

 

The Satyam Computer Services scandal of January 2009 saw US investors who owned American Depositary Receipts (ADRs) demand a settlement to the tune of USD 125m by mounting a class action suit. Indian investors, however, failed to get any compensation from the INR 80bn fraud committed by the founder shareholders of Satyam.

 

However, unless there is an evolution in the legal profession compelling the Bar Council of India to revise the Rules of Professional Conduct, it is difficult to see a surge of class action suits in the country, K K Sharma, founder of KK Sharma Law Offices and the former director general and head of the CCI’s Antitrust and Merger divisions, told PaRR.

 

Section 49(1)(c) of the Advocates Act, 1961, the Bar Council of India Rules, in Part IV, Chapter II, direct that an advocate should not act or plead in any matter in which he has a financial interest, Sharma said. 

 

Even the draft Code of Ethics of the Bar Council of India does not permit Conditional Fee Agreements. “We, as a law firm, have to decline a number of matters, from abroad, because of these professional standards,” Sharma told PaRR.

 

Many law firms might be happy to litigate on behalf of small groups and individuals who do not have the capacity to pay immediately, if the rules permitted the law firms to do so, Sharma said.

 

Overseas, there are numerous cases in which lawyers collect a number of petitioners and fight different cases and claim the fee in the end from the outcome of the judgment. In India, however, this would amount to professional misconduct, Sharma noted.

 

Section 53 N of the Competition Act, 2002 deals with award/ compensation arising out of the findings of the Commission or the orders of the Appellate Tribunal in an appeal against any findings of the Commission or under section 42 A or under section 53 Q of the Act, Sharma said. Incorporating this section in the Competition Act does not take away the rigours of the existing professional conduct rules, he noted.

 

By invoking this provision (section 53 N), the central government or a state government or a local authority or any enterprise or any person may make an application, if they can show that they have suffered damage. That does not exclude the possibility of some of the big customers/parties of a given entity, either singly or in a group, engaging lawyers on a fee basis for taking such cases and filing for damages, Sharma said.

 

Sharma added that provisions of the Companies Bill 2011, under section 245 and 246, may in due course, also allow for the initiation of class action suits.

 

by Freny Patel in Mumbai

 

For more information, please visit: www.parr-global.com

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