Enforcement of Corporate and Securities Laws in India: The Arrival of the Class Action?

Chapter from Enforcement of Corporate and Securities Law: China and the World. Howson, N.C. and Huang, R.H., eds. Corporate governance in Asia has garnered a great deal of recent scholarly attention.1 One topic that permeates discussions across countries is the enforcement of corporate and securities laws – with some countries relying primarily on public enforcement (i.e. enforcement by government) while others rely on some combination of public and private enforcement (i.e. enforcement by private shareholders). Further, understanding how enforcement is operationalised and its concomitant strengths and weaknesses enables us to better appreciate the actual corporate governance situation in many countries. In light of this, the enforcement of corporate and securities laws in India is examined in this chapter with special attention paid to the recent reforms that allow for class actions, for the first time, under Section 245 of the Companies Act 2013 of India. To explore this issue in greater depth, this chapter examines the likely value of private enforcement against the background of India’s ownership structure aand institutional context. This involves laying out what the pre-existing methods of enforcement are and how, if at all, the class action provision builds on their edifice. It also involves a general assessment of how successful this incarnation of the class action is likely to be in the Indian corporate governance space. The overall conclusion is that class actions are likely to be of limited value because of: (1) the glacial speed of the Indian courts, (2) the lack of contingency fees, (3) the limited availability of monetary remedies under the class action provision, and (4) the interaction between ownership structure in India – virtually all firms are controlled – and the absence of fiduciary duties owed by controllers to minority shareholders. The last point suggests that the class action in India is a procedural device that is only weakly tethered to an underlying duty