A New Era for Shareholder Rights: How India’s First Major Class Action Under Section 245 Is Reshaping Corporate Accountability 

A New Era for Shareholder Rights: How India’s First Major Class Action Under Section 245 Is Reshaping Corporate Accountability 

For nearly a decade, Section 245 of India’s Companies Act, 2013 sat dormant—a powerful legal remedy waiting for the right case to bring it to life. That wait ended on February 5, 2026, when the National Company Law Tribunal (NCLT) in Delhi admitted what is now officially India’s first major shareholder class action, fundamentally altering the landscape of corporate governance and minority shareholder protection in the country. 

The case, brought by minority shareholders of Jindal Poly Films Limited (JPFL), alleges a staggering INR 25 billion (approximately USD 300 million) diversion of value through related-party transactions that favored promoter-linked entities at the expense of public shareholders. But beyond the headline numbers and the specific allegations lies something far more significant: a judicial interpretation that may forever change how Indian companies approach governance, related-party transactions, and their obligations to minority stakeholders. 

The Long Wait for a Sleeping Giant 

When the Companies Act, 2013 was enacted, Section 245 was hailed as a game-changer for shareholder democracy. Modeled on class action mechanisms in mature markets like the United States, it promised to give minority shareholders a collective voice against corporate malfeasance. Yet for reasons ranging from procedural uncertainty to a general reluctance to challenge entrenched promoter-led governance structures, the provision remained largely unused for nearly a decade. 

That dormancy reflected a broader reality of Indian corporate life. In a market dominated by promoter-led companies—often structured with complex webs of holding entities, sister concerns, and related-party networks—minority shareholders frequently found themselves with theoretical rights but limited practical recourse. The NCLT’s recent ruling changes that calculus dramatically. 

The Jindal Poly Films Case: A Blueprint for Modern Shareholder Activism 

The JPFL petition is notable not merely for the magnitude of the alleged value diversion but for the sophistication of the evidentiary foundation upon which it rests. The minority shareholders commissioned an independent forensic report that allegedly traces a troubling pattern: asset sales by JPFL to promoter affiliates occurring shortly after those same affiliates secured substantial concessions from lenders. 

According to the petition, this timing was no coincidence. The transactions allegedly allowed promoter-linked entities to strengthen their balance sheets precisely when they needed to demonstrate improved financial health to creditors—all while the listed company and its public shareholders absorbed the negative impact. 

What makes this case particularly compelling is the parallel investigation by the Securities and Exchange Board of India (SEBI), which reportedly corroborated key findings. The market regulator’s probe allegedly uncovered evidence of “large-scale misuse of corporate funds, diversion of value to promoter-linked interests, and disclosure and compliance lapses.” According to SEBI’s findings, these transfers were strategically staggered over extended periods and routed through multiple entities—a deliberate effort to obscure their cumulative impact on shareholder value. 

The Legal Battle: Reflective Loss Versus Direct Prejudice 

When JPFL mounted its defense, it chose a sophisticated legal argument rooted in Delaware corporate jurisprudence. Invoking what is known as the “Tooley Test,” the company argued that the alleged harm was suffered by the corporation itself rather than by individual shareholders. In this view, any decline in share price resulting from corporate asset depletion constitutes “reflective loss”—damage that flows indirectly through the corporate entity and is therefore properly addressed through oppression and mismanagement provisions (sections 241-242 of the Companies Act) rather than through class action mechanisms. 

This argument, if accepted, would have significantly narrowed the scope of Section 245. By treating shareholder class actions as available only where shareholders can demonstrate injury distinct from that suffered by the corporation, it would have preserved the traditional hierarchy that prioritizes corporate-level remedies over individual or collective shareholder actions. 

The NCLT decisively rejected this approach. 

A Principled Rejection of Foreign Doctrinal Imports 

In a ruling that legal scholars will likely analyze for years to come, the NCLT declined to import the reflective loss distinction into Indian law. The bench held that Section 245 must be interpreted as a “positive enactment”—on its own terms, through the lens of Indian legislative intent, rather than through imported foreign jurisprudence. 

The tribunal’s reasoning is worth examining closely. Observing that Parliament intended Section 245 to carry a remedial scope broader than what JPFL’s interpretation would permit, the NCLT held that the provision protects against conduct prejudicial to either the company or its members. Crucially, the court ruled that prejudice to both need not be simultaneously established for a class action to lie. 

This interpretation matters enormously. It means that minority shareholders need not prove that corporate wrongdoing harmed them in ways separate and distinct from harm to the company. If corporate actions prejudice shareholders—through value erosion, disclosure failures, or governance lapses—they may have standing to bring a class action even if the corporation itself was also harmed. 

Beyond Ongoing Conduct: Retrospective Scrutiny 

The NCLT also rejected JPFL’s argument that Section 245 relief should be limited to ongoing conduct. The tribunal recognized that such a restrictive reading would create a perverse incentive structure: companies could engage in systematic value diversion through transactions that, once completed, might be insulated from scrutiny even if their ill effects continued to harm shareholders. 

This aspect of the ruling carries particular weight for Indian corporations. Legacy transactions that appeared procedurally compliant at the time—transactions that may have received board approval, been disclosed in annual reports, and ostensibly met regulatory requirements—may now be vulnerable to retrospective challenge if their substantive fairness can be questioned. 

The tribunal also confirmed a lower invocation threshold for listed companies. The petitioners’ 4.99 percent holding sufficed to maintain the action, a standard that significantly empowers minority shareholders in publicly traded companies where institutional holdings often fall below traditional thresholds for initiating shareholder actions. 

Immediate Implications for Corporate Governance 

For corporate India, this ruling fundamentally alters the risk calculus around related-party transactions and governance practices. 

Arm’s Length in Substance, Not Just Form 

The days when related-party transactions could survive on technical compliance alone are ending. The NCLT’s ruling signals that transactions must meet arm’s length standards in substance as well as form. This means valuations must be robust and defensible, supported by credible methodologies and independent assessments. Board deliberations must be contemporaneously documented, with clear records of how directors evaluated transaction terms and satisfied themselves of their fairness to minority shareholders. 

Retrospective Vulnerability 

Companies must now conduct targeted internal reviews of past related-party transactions, particularly those that may have benefited promoter-linked entities at the expense of listed company shareholders. The JPFL case demonstrates that historical transactions—even those that seemed procedurally compliant at the time—may invite scrutiny if their economic substance can be questioned. 

Organized Minority Action as a Strategic Reality 

Perhaps most significantly, the NCLT’s ruling implicitly recognizes coordinated minority action as a legitimate mechanism for joint redress. Companies can no longer assume that fragmented shareholder bases will remain passive. The ruling creates a viable pathway for institutional investors, activist shareholders, and organized minority groups to pool their holdings and pursue collective remedies. 

Expanded Liability Exposure 

The implications extend beyond corporate entities to individual directors, officers, and even professional advisers. The JPFL petition reportedly seeks to extend scrutiny to professionals whose advice allegedly misled stakeholders, suggesting that Section 245 might be deployed against actors beyond company management. 

This potential expansion of liability creates new considerations for: 

Directors and Officers: Key management personnel may need to reassess their personal exposure and the adequacy of indemnity arrangements and directors’ and officers’ insurance coverage. The possibility of direct shareholder claims under Section 245 adds a new dimension to director liability that traditional D&O policies may not fully address. 

Auditors and Valuers: If the JPFL case proceeds against professional advisers, it would establish Section 245 as a mechanism for holding auditors, valuers, and other professionals accountable where their work product contributed to shareholder harm. This prospect raises significant professional liability considerations for advisory firms serving listed companies. 

The Dual Risk Environment 

Companies now face what can only be described as a dual risk environment. Regulatory inquiries by bodies like SEBI may proceed in parallel with shareholder litigation, creating compounding risks. Findings emerging from regulatory investigations may directly inform claims in shareholder actions, and vice versa. 

The dismissal of JPFL’s appeal by the National Company Law Appellate Tribunal (NCLAT) confirms that this dual-risk environment is now a permanent feature of the Indian corporate landscape. Companies can no longer treat regulatory compliance and shareholder litigation as separate, siloed concerns. 

A Turning Point in Indian Corporate Law 

The emergence of Section 245 as a credible collective enforcement tool represents a key turning point in Indian corporate law. For decades, the dominant narrative around Indian corporate governance centered on promoter dominance and minority shareholder vulnerability. While regulatory frameworks have evolved—through successive rounds of corporate governance reforms, enhanced disclosure requirements, and SEBI’s stewardship code for institutional investors—enforcement mechanisms have often lagged behind. 

The JPFL ruling changes that. By breathing life into a statutory provision that existed in theory but not in practice, the NCLT has created a meaningful accountability mechanism that balances the scales between controlling shareholders and minority investors. 

What Comes Next 

For companies and their advisers, the path forward requires recalibrating risk matrices to account for this new enforcement reality. Some specific considerations emerge: 

Enhanced Documentation: Board minutes and committee records should reflect substantive engagement with related-party transaction terms, not merely procedural approval. 

Valuation Rigor: Companies should ensure that valuations supporting related-party transactions withstand scrutiny, with clear methodologies, independent inputs, and documented rationales for key assumptions. 

Disclosure Strategy: Given the NCLT’s emphasis on shareholder prejudice, companies should evaluate whether existing disclosures adequately inform minority shareholders of related-party transaction risks. 

Insurance Review: Directors and officers should review D&O coverage to ensure it addresses potential shareholder class action exposure. 

Shareholder Engagement: Companies may need to develop more proactive strategies for engaging with minority shareholders, recognizing that organized groups may now pursue collective remedies. 

The Broader Significance 

Beyond its immediate implications for corporate practice, the JPFL ruling signals something deeper about the evolution of Indian capitalism. The gradual emergence of Section 245 as an effective accountability mechanism reflects a broader shift toward stronger checks on corporate power and clearer accountability standards in listed companies. 

For minority shareholders—whether retail investors, institutional funds, or foreign portfolio investors—this development is fundamentally positive. The ability to pursue collective remedies through class actions provides a meaningful check on conduct that might otherwise remain unchallenged. 

For the Indian corporate sector as a whole, the ruling may accelerate trends toward better governance, more transparent related-party transactions, and greater attention to minority shareholder interests. While the transition may be uncomfortable for companies accustomed to greater latitude in related-party dealings, the long-term effect may be a more robust, more trustworthy market that attracts broader participation from both domestic and international investors. 

The Jindal Poly Films case will continue to unfold as the substantive allegations are tested. But regardless of the ultimate outcome on the merits, the NCLT’s interpretation of Section 245 has already changed Indian corporate law. A decade after the Companies Act, 2013 promised minority shareholders a powerful collective remedy, that promise is finally being realized—and the reverberations will be felt across corporate India for years to come.