Section 245 Class Actions Extend to Past Concluded Transactions and Remedies for Loss Caused to the Company.

The Appellant, a public listed company, challenged an order dated 05.02.2026 passed by the NCLT dismissing its challenge to the maintainability of a Class Action petition.

Respondents 1–3 (holding 4.99% shares) filed the petition under Section 245 of the Companies Act, 2013, alleging three fraudulent transactions between 2019 and 2022.

They alleged the Appellant’s promoters systematically undervalued investments in group companies (Redeemable Preference Shares and Optionally Convertible Preference Shares) and sold them to promoter-controlled trusts at a fraction of their fair market value, causing a loss of approximately ₹2500 crores.

The Appellant contended that Section 245 applies only to ongoing acts ("are being conducted") and not concluded past transactions, and that the petition was a derivative action in the guise of a class action.

The court primarily applied Section 245 of the Companies Act, 2013, which governs class action suits by members/depositors against management for conduct prejudicial to the company or its members.

It relied on the J.J. Irani Committee Report (2005) to establish that class actions are intended to protect the company's interests from persons in control.

The court applied Section 245(1)(g) regarding claims for damages against directors/promoters for fraudulent conduct and Section 245(1)(h) as a residuary power.

It further utilized Regulation 23 of the SEBI (LODR) Regulations, 2015, regarding the requirement for shareholder approval in material related-party transactions.

The Tribunal rejected the Appellant's narrow interpretation of Section 245, ruling that the power to grant "damages or compensation" under Section 245(1)(g) inherently necessitates the review of past, concluded transactions, as damages cannot be awarded for acts yet to occur.

It noted that the use of "are being conducted" includes the ongoing impact of concealed fraudulent acts.

Regarding the "derivative action" argument, the Tribunal held that Section 245 explicitly allows actions prejudicial to the "interests of the company," confirming that shareholders can seek relief when the company is a victim of fraud by its controllers.

The Tribunal found the NCLT had sufficiently scrutinized the threshold (4.99% against the required 2%) and the "good faith" of the applicants, who had engaged external auditors (FTI Consulting) before filing.

The alleged systematic undervaluation to bypass the SEBI materiality threshold provided a prima facie case of conduct prejudicial to the members.

The Court affirmed that Section 245 covers past fraudulent acts and allows for remedies for the benefit of the company.

It upheld the NCLT’s direction to issue public notice to the shareholders under Rule 87 of the NCLT Rules, 2016, as all statutory ingredients under Section 245(1) and (4) were met.

All pending applications were dismissed.