The government is set to introduce a new plan focused on providing financial support to minority investors who initiate class action lawsuits under the Companies Act law. This scheme derives from section 245 of the act, allowing investors to take legal action when they believe the management or operations of a company are causing harm to their interests.
Understanding Class Action Lawsuits
Originating from western nations, the class-action lawsuit offers an alternative solution for investors aiming for collective redress. In these lawsuits, the plaintiff, representing a group or class, litigates against one or multiple defendants.
The Benefits of the Scheme
The proposed initiative aims to enhance the protective measures for investors and promote resorting to class action lawsuits. It plans to offer financial aid to minority investors for filing class action lawsuits through the Investor Education and Protection Fund (IEPF). The IEPF comes under the jurisdiction of the Ministry of Corporate Affairs, which is responsible for promoting investor awareness and safeguarding their interests.
Significance of Class Action Lawsuits
The promotion of class action suits stimulates relevance in light of various occurrences where investors fall prey to illegal money collection schemes and get affected by corporate governance issues or fraudulent practices within some corporations. Minority investors usually lack the necessary resources to engage in class action lawsuits. Provisions have been made for disgorgement, further supporting class action suits as a powerful tool to empower minority shareholders, who are most affected by these issues. Entities such as auditors and credit rating agencies could be held accountable under a class-action lawsuit.
| Aspect | Description |
|---|---|
| IEPF Formed When | 7th September 2016 |
| IEPF Under Section | 125 of the Companies Act, 2013 |
| IEPF Purpose | Administration of Investor Education and Protection Fund |
| IEPF Function | Refunds of shares, unclaimed dividends, matured deposits/debentures etc. to investors and promote awareness among investors |
Understanding the IEPF Authority
The Central Government of India established the IEPF Authority on 7th September 2016 as per the provisions of Section 125 of the Companies Act, 2013. The Authority carries the responsibility of administering the Investor Education Protection Fund (IEPF), aiding in share refunds, unpaid dividends, matured deposits/debentures, etc., and boosting investor awareness.
Objective of IEPF
The main purpose of IEPF is to refund unclaimed dividends, matured deposits, matured debentures, and application money due for refund and interest directly to the investors. Furthermore, it aims to foster education, awareness, and protection amongst investors. Any disgorged amount is distributed among eligible and identifiable applicants for shares or debentures, shareholders, debenture-holders, or depositors who have suffered losses due to misconduct by any person, following the court’s orders.