WHAT IS CLASS-ACTION SUIT?
A Class-Action Suit is usually brought against corporate entities or governments by a group of people who have suffered the same loss, and this group forms a class. The jurisprudence of the class action suit is derived from the concept of representative litigation i.e. to provide access to justice to the ordinary individual against a powerful opponent. In such suits, generally unliquidated damages are awarded that may be minuscule for an individual, however, for the group, it is a hefty amount. Class Action suits reduce litigation by avoiding multiple suits.
Class Action Suit is a widely popular phenomenon in the US as the US has well-defined and strong tort laws. But in recent times, these collective redressal mechanisms have spread throughout the globe, driven by a combination of corporate scandals, legislative reforms, and litigation funding opportunities. Litigation funding is common in these collective redressal actions, especially in the West. In several jurisdictions around the globe, it has also acted as a motivation for the victims to bring a class action. This article explores the development of class actions against corporate entities or governments in India and its interrelatedness with litigation funding.
WHAT IS LITIGATION FUNDING?
Litigation funding refers to the financing of a class action suit (or other commercial lawsuits) by a funder in exchange for a portion of the recovery made from the outcome of the suit. An agreement is executed between a litigant and a funder. If the litigant does not succeed, the costs are covered by the funder. The litigation funding industry is flourishing globally and going forward it is going to impact claims action suits immensely.
LITIGATION FUNDING OF CLASS ACTION SUITS IN INDIA
There are several laws in India envisaging the provisions related to Class Action Suit: (i) Rule 8 of Civil Procedure Code, 1908 refers to representative suits, which is the closest to a classic class action suit in a civil context in India; (ii) Section 245 of Companies Act, 2013 allows members of a company to initiate proceedings against the directors of the company in specific instances. However, there is a requirement of minimum number of people or holders of issued share capital to proceed with such a suit in the National Company Law Tribunal (NCLAT); (iii) Section 53N of Competition Act, 2002 allows a group of aggrieved persons to appear before the NCLAT in issues of anti-competitive practices; and (iv) Consumer Protection Act, 2019 has given the power to the Central Consumer Protection Authority (“CCPA”) to initiate class-action suits on behalf of the consumers under Section 10 (1) of CPA.
One of the greatest examples in Indian history of class action suits is the Bhopal gas leak from the Union Carbide factory in 1984, where more than 3,700 people had died.
The provisions related to the class-action suit were streamlined in Indian laws by the legislature after the ‘Satyam scandal’ in 2009. The key reason for the lack of initiation of class action suits by victims in India is the huge litigation costs being involved.
In the recent incident of the ONGC barge disaster, families of 71 people were killed after Cyclone Tauktae battered ONGC’s barge vessels off Bombay High. The reports regarding the sinking of a barge in the Arabian Sea in wake of Cyclone Tauktae stated that authorities at ONGC were aware of the “potential danger” but took “no effective” steps to bring the mariners to safety. The ONGC management had extended an immediate relief of Rs 1 lakh to the survivors and Rs. 2 lakhs for the victims’ families. In such an incident, the survivors or victims’ families may seek litigation funding to bring a class action suit against such negligent authorities.
In another current happening, class action suit provisions were invoked to protect a group of consumers by CCPA against 9 firms for failing to refund payments during the coronavirus pandemic and also for not displaying the “country of origin” on the products. Such violation of consumer rights was taken into consideration by CCPA and CCPA has warned the accused (firms) of initiation of a class-action suit in National Consumer Disputes Redressal Commission (NCDRC). Established in 2020 under the Consumer Protection Act, the CCPA has the mandate to promote, protect and enforce the rights of consumers as a class. It is empowered to conduct investigations into violation of consumer rights and institute complaints/prosecution, order recalls of unsafe goods and services, order discontinuation of unfair trade practices and misleading advertisements, impose penalties on manufacturers/endorsers/publishers of misleading advertisements.
The litigation funding market has been developing in India for private litigation, class actions, and arbitration matters. Now, India has its own first litigation funding company providing non-recourse funding to litigants to cover their litigation costs involved in class-action suits to alleviate the risks and to ensure access to justice to the victims. The company offers litigation financing to victims (litigants), that can be non-recourse, single case, and portfolio financing. The increasing influence and reach of this Indian litigation funding company in this area might help the dramatic increase in filings of class action suits in recent years.
The provisions related to the class-action suit were streamlined in Indian laws by the legislature after the ‘Satyam scandal’ in 2009. The key reason for the lack of initiation of class action suits by victims in India is the huge litigation costs being involved.