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Govt for provisions in Companies Bill to compensate retail investors

Last Updated: Wednesday, October 28, 2009 - 21:37

New Delhi: Taking lessons from Satyam
episode, the government is looking at making provisions in the
Companies Bill for compensating aggrieved retail investors
fighting class action suits against fraud-hit companies.

"Within the company law framework, we don`t have a
system of compensation (for people filing class action suits
against a company)... that is the major lacuna we are trying
to address in the Bill (Companies Bill 2009)," Corporate
Affairs Minister Salman Khurshid said here today.

As per the provisions of the proposed bill, re-introduced
in the Lok Sabha in August, shareholder associations can take
legal action in case of company fraud, and also take part in
investor protection activities and class action suits.

"Specifically we are enabling the moving of class
actions. I think this will be considered in more details. The
problem with any class action is that the facility should be
there. People should be enabled to move against defaulters,"
Khurshid said after a conference on class action suits.

Class action suit is brought by one party on behalf of a
group of individuals to file for claims against erring
companies in a court of law.

The matter of providing investor protection came to focus
after shareholders lost millions after the downfall of Satyam
Computer following the disclosure of financial bungling by its
the then chairman Ramalinga Raju.

The Minister said class action suits should not serve the
purpose of people who want to wreck a company. "We are also
looking at how to structure it (class action provision) to
suit the shareholders, at the same time dissuading
inconsequential appeals," he said.

The Companies Act 1956, does not provide for class action
suits against perpetrators of company frauds. Neither the Sebi
Act provide any such facility.

In the US, the securities laws have empowered defrauded
investors to get compensation from the errant parties. The
Securities and Exchange Commission can also enforce action and
get damages/ compensation for investors.

At present, 12 class action suits are pending before a US
court against IT firm Satyam Computer Services.

Bureau Report

First Published: Wednesday, October 28, 2009 - 21:37

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