Jindal Poly Films dispute, India's first class action suit, sent by Supreme Court to arbitration

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New Delhi: Setting aside India's first class action suit, the Supreme Court referred the minority shareholder dispute against Jindal Poly Films to arbitration after both sides agreed to a consent order on Monday.

The apex court appointed retired chief justice of the Madras High Court, Manindra Mohan Shrivastava, as the sole arbitrator to decide upon the disputes expeditiously. The seat of arbitration will be Delhi, a bench of justices Prashant Kumar Mishra and Atul S. Chandurkar said while setting aside the National Company Law Tribunal's February 5 order and the National Company Law Appellate Tribunal's February 26 order which had admitted and upheld the class action petition, respectively, against Jindal Poly Films filed by its shareholders, who hold 4.99% of the share capital, under Section 245 of the Companies Act, 2013.


A class action suit refers to a legal proceeding by a group of people with identical claims against a single entity.

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The tribunal had noted that Section 245 explicitly contemplates class actions for acts prejudicial to the interests of the company, not just its members, and that the reliefs available are not limited to ongoing conduct, a decision appealed by Jindal Poly Films in the Supreme Court.

Ankit Jain, the original petitioner, and other shareholders had moved the tribunal against a transactions undertaken by Jindal Poly Films, which allegedly stripped the company of valuable assets and resulted in monetary losses to minority shareholders. Jain estimated the total loss to the company at more than ₹2,500 crore.

The shareholders alleged that a complex web of transactions was devised by Jindal Poly Films to cause wrongful loss to itself and them. The three transactions included sale of financial instruments in the nature of 0% optionally convertible preference shares and 0% redeemable preference shares held by Jindal Poly Films in Jindal India Powertech, at squat valuations in 2021-22. The write-off of loans provided by Jindal Poly Films to Jindal India Thermal Power in 2018-19 allegedly resulting in diminution of value of the securities of the company and sale of shares held by Jindal Films India (a wholly owned subsidiary of Jindal Poly Films) in Jindal Thermal to Champak Niketan, a promoter group entity, in which majority shares are owned by a trust belonging to the promoter group of Jindal Poly Films, Gunjan Trust, in 2020-21.

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Jindal Poly Films had opposed the shareholders' stand, saying 5% shareholders couldn't run the company and that the allegations made by them related to transactions from earlier years which were concluded by 2022, and hence, the suit was not maintainable. Besides, it said that minority shareholders couldn't use a class action suit as a substitute for filing an oppression and mismanagement complaint.

Statement from minority shareholders

Approximately 40,000 public shareholders, whose interests were at the heart of the class action proceedings, were neither consulted nor informed before the matter was referred to private arbitration. By consenting to private arbitration, Jindal Poly Films and Monet Securities have extinguished the rights of approximately 40,000 public shareholders without their consultation or consent. The Company defending the class action and the shareholder prosecuting it suddenly appeared on the same side – united in diverting the matter to a private, confidential proceeding where the vast majority of affected shareholders would have no voice, participation, or remedy.

The fundamental concern that demands an answer is: when the dispute is with all public shareholders as a class and even includes SEBI as an intervenor, how can one shareholder – particularly one that was recently substituted into proceedings initiated by others – unilaterally settle the dispute and extinguish the rights of the entire class by converting it into in personam proceedings? A statutory class action remedy intended to protect an entire shareholder class appears to have been effectively settled through the consent of a single substituted shareholder, raising serious questions about representation and due process.

The matter was disposed of without examination of the substantive allegations, SEBI findings, or the concerns raised on behalf of minority shareholders, effectively moving the dispute away from a public forum to a private proceeding. The development raises larger concerns about whether class action proceedings under Section 245 of the Companies Act can be rendered ineffective through private settlements or arbitration arrangements, potentially setting a significant precedent for minority shareholder rights in India. The rights of approximately 40,000 aggrieved public shareholders of Jindal Poly Films Limited, whose collective remedy has been so devastatingly snatched away, need immediate protection. The minority shareholders are currently evaluating the implications of the development and considering their next steps and available remedies in accordance with applicable law.