NCLAT Refuses to Stay ₹2,500 Cr Class Action Suit Against Jindal Poly Films

The New Delhi bench of the National Company Law Appellate Tribunal (NCLAT) on Thursday refused to dismiss India’s first corporate class action lawsuit against Jindal Poly Films Limited. The bench, led by Justice Yogesh Khanna and Technical Member Ajai Das Mehrotra, upheld the admission of the shareholder class action before the National Company Law Tribunal (NCLT).

“The Ld. NCLT in the impugned order has satisfied itself regarding fulfilment of all requisite pre-conditions under Section 245 read with relevant Rules. Thus, we are not inclined to interfere in the impugned order and hence the appeal is dismissed,” the Appellate Tribunal said.

A Delhi bench of the NCLT on February 5 allowed the class action petition under Section 245 of the Companies Act, 2013 to proceed and directed issuance of a public notice to all shareholders of Jindal Poly Films. The case was brought by three shareholders, Ankit Jain, Rina Jain and Ruchi Jain Hanasoge, who together held a 4.99% stake in the company in March 2024. They alleged that certain promoter-linked transactions caused a financial loss of ₹2,518.45 crore to the company and its public shareholders.

What the Case is About

The shareholders have challenged three key transactions by Jindal Poly Films Limited.

First, the company invested over ₹700 crore in Redeemable Preference Shares (RPS) and Optionally Convertible Preference Shares (OCPS) of group firm Jindal Powertech between FY14 and FY17. These were later sold in March 2023 to promoter-linked entities at steeply discounted values, despite an improvement in the firm’s financial position following debt settlements, allegedly causing a loss of ₹2,518.45 crore.

Second, a ₹83.85 crore trade advance extended to group firm Jindal Thermal was converted into a loan and written off in FY19. Fresh loans worth ₹410 crore were later extended in FY21–FY22, leading to an alleged loss of ₹127.96 crore.

Third, the company’s subsidiary sold its 11.41% stake in Jindal Thermal in FY21 to a promoter-linked firm for ₹6.93 crore, against an acquisition cost of ₹31.18 crore, allegedly resulting in a further ₹135.34 crore loss to the company and minority shareholders.

What Jindal Poly Films Argued

The company argued that the transactions challenged in the petition were completed in 2019, 2021 and 2022 and therefore cannot be examined under Section 245 of the Companies Act, 2013, which, it contended, is meant to restrain ongoing or continuing acts prejudicial to shareholder interests.

It submitted that the NCLT admitted the class action petition solely on the basis of the applicants holding a 4.99% stake and forming a prima facie opinion, without examining key requirements under Sections 245(1) and 245(4), including whether the petitioners acted in good faith, whether the matter could instead be pursued under Sections 241–242, or whether the transactions had already been ratified by shareholders at AGMs.

Jindal Poly Films also submitted that the tribunal failed to assess whether the impugned transactions actually caused losses to the company, arguing that any alleged reflection loss cannot be addressed through a class action under Section 245. It further relied on the Standing Committee on Finance’s report to argue that derivative actions were consciously excluded from the scope of Section 245.

However, the Appellate Tribunal noted that the allegations against Jindal Poly Films Limited and its promoters involve illegal and systematic fraudulent acts that have allegedly caused significant losses to minority public shareholders.

It observed that investigations by the Securities and Exchange Board of India (Sebi) and the Directorate of Enforcement prima facie indicate that the company’s affairs may have been conducted in a manner prejudicial to both the company and its members.

The NCLT found that the petitioners, holding 4.99% share capital, satisfied the minimum threshold under Section 245 and had formed a bona fide opinion based on unrefuted transactions. It further held that Section 245 is a shareholder-friendly provision that can be invoked for past, present or continuing acts, even where remedies under Sections 241–242 may also be available. A class action, it said, is appropriate in cases involving numerous shareholders to avoid multiplicity of proceedings and to ensure common legal issues are addressed collectively.

In the case, senior advocates Dr A.M. Singhvi and Ramji Srinivasan appeared for Jindal Poly Films Limited, while Sunil Fernandes, Abhijeet Sinha, Krishnendu Dutta, Arun Kathpalia and Abhinav Vasisht represented the respondents before the NCLAT.