Class Actions in India (section 245): What Companies Must Know in 2026

Last updated: July 13, 2026

Class actions in India have moved from a dormant statutory provision to a live litigation risk for companies of every size. Section 245 of the Companies Act, 2013, India’s dedicated representative action mechanism, saw a significant uptick in filings and admissions through 2025 and into 2026, driven by more assertive shareholders, widening depositor activism, and an increasingly confident National Company Law Tribunal (NCLT) bench. This guide delivers a practical defence and compliance playbook for general counsel, in-house litigation teams, and boards confronting the prospect of a Section 245 class action, covering statutory thresholds, procedural steps, strategic defence options, settlement structuring, and directors-and-officers (D&O) insurance exposure.

Executive Summary: 6 Key Things General Counsel Must Know

Before diving into the statute and case law, the following checklist distils the six points every board and GC should absorb immediately when a Section 245 representative action is threatened or filed.

• Exposure scope. Section 245 permits members and depositors to sue the company, its directors, auditors, experts, advisers, or consultants, individually or collectively. The potential defendants extend well beyond the corporate entity itself.
• Quantitative thresholds are low. As few as 100 members (or 5% of total members, whichever is less) can initiate proceedings. For listed companies, shareholders holding just 2% of issued share capital also qualify. Depositor thresholds mirror this structure.
• Immediate steps matter. A litigation hold on all potentially relevant documents, electronic and physical, must be activated within 24 hours. Board notification and D&O insurer notification should follow within 72 hours.
• Evidence preservation is non-negotiable. The NCLT has the power to order discovery and production. Spoliation or destruction of documents after notice exposes directors to personal adverse inferences and potential contempt proceedings.
• D&O policies require urgent review. Many standard D&O wordings exclude claims arising from “regulatory proceedings” or “acts of the company.” The Section 245 class action sits awkwardly across both categories, and coverage disputes are common.
• Settlement posture should be assessed early. NCLT orders under Section 245 are binding on the entire class. Early, structured compromise, before adversarial positions harden, often yields better outcomes than protracted tribunal proceedings.

What to Do in the First 24–72 Hours

1. Issue a company-wide litigation hold and document-preservation notice.
2. Convene an emergency board or audit-committee briefing to assess factual exposure.
3. Notify D&O insurers under the policy’s “circumstances” or “claims made” clause.
4. Engage external litigation counsel experienced in NCLT representative actions.
5. Commission an internal fact-finding review, scope, timeline, and privilege protocol.
6. Prepare a confidential board memorandum mapping potential remedies, costs, and settlement parameters.

Understanding Class Actions in India: Section 245 Explained

A Section 245 class action is the statutory mechanism under the Companies Act, 2013 that enables a prescribed number of members or depositors to bring representative proceedings before the NCLT on behalf of all similarly affected persons. It is India’s closest equivalent to the class action models found in the United States (Federal Rule 23) and Australia (Part IVA of the Federal Court of Australia Act), although it differs materially in scope, procedure, and remedial reach.

Statutory Text and Core Provisions

Section 245(1) of the Companies Act, 2013 provides that a requisite number of members, depositors, or any class of them may, if they are of the opinion that the management or conduct of the affairs of the company is being conducted in a manner prejudicial to the interests of the company or its members or depositors, file an application before the Tribunal.

The application may seek orders to restrain the company from committing an act that is ultra vires the articles or memorandum, to restrain the company from committing a breach of the provisions of the Act, to declare a resolution void if passed by suppression of material facts or obtained by misstatement, to restrain the company from acting contrary to a special resolution, or to claim damages or compensation or demand any other suitable action as the Tribunal deems fit.

Purpose and Policy Rationale

The provision was introduced to overcome the historic reluctance of individual shareholders and depositors to challenge corporate misconduct when the cost and complexity of solo litigation made it economically irrational. By aggregating claims into a single proceeding, Section 245 aligns India’s corporate governance framework with international best practice on minority shareholder protection and collective accountability.

How Section 245 Fits with Other Collective-Redress Mechanisms

The practical distinction for corporate defendants is critical: a Section 245 class action targets directors and officers personally, alongside the company, and results in orders that bind the entire represented class, a feature absent from the CPC representative suit.

Section 241 vs Section 245, Practical Distinctions for Corporate Defence

Sections 241–242 of the Companies Act address oppression and mismanagement claims brought by individual members or the Central Government. Section 245, by contrast, is a collective action mechanism with broader standing rules and a wider remedial toolkit. From a defence perspective, companies should note that a Section 241 petition and a Section 245 application can proceed concurrently, and the NCLT may consolidate or hear them together. However, the binding-class effect and the potential for damages and compensation orders are unique to Section 245, making it the higher-exposure proceeding.

Who May Bring a Section 245 Class Action: Standing and Thresholds

Standing requirements for a Section 245 class action are defined by quantitative thresholds that differ depending on whether the company is listed or unlisted, and whether the applicants are members or depositors. These thresholds are deliberately low, a deliberate policy choice to facilitate access to justice, and represent one of the most important factors in any corporate exposure assessment.

Members vs Depositors: Quantitative Thresholds

Common Factual and Legal Tests for Maintainability

Beyond the numerical threshold, the NCLT will assess whether the applicants satisfy the maintainability requirements that have emerged from tribunal practice. These include commonality of interest (whether the claims share a common question of law or fact), adequacy of representation (whether the named applicants can fairly represent the class), and the existence of a genuine grievance rather than a commercially motivated or vexatious claim. Early indications suggest that NCLT benches are becoming more rigorous in their admissibility scrutiny, particularly where shareholder class actions appear designed primarily as a pressure tactic in corporate control disputes.

Representative Plaintiffs and Joinder Mechanics

The representative applicants must demonstrate that they are acting in a bona fide capacity on behalf of the class. The NCLT may permit additional members or depositors to join the proceedings after filing, provided the quantitative thresholds continue to be met. In mass claims scenarios, it is common for applicants to submit a consolidated list of represented persons alongside the application, a practice that has been encouraged to streamline proceedings and reduce interlocutory disputes over standing.

Class Action Procedure in India: How Section 245 Claims Proceed Before the NCLT

The procedural lifecycle of a Section 245 class action follows a structured path through the NCLT, with each stage presenting distinct defence opportunities and risks for corporate respondents.

Filing and Admission Stage

The application is filed before the NCLT bench having territorial jurisdiction over the registered office of the company. At the admission stage, the Tribunal examines whether the quantitative thresholds are met, whether the application discloses a prima facie case, and whether the claims are maintainable. This is the single most important stage for corporate defendants: a well-prepared maintainability challenge at admission can prevent the case from proceeding to a full hearing and avoid the reputational and operational disruption that accompanies admitted class proceedings.

Interim Reliefs

The NCLT has broad power to grant interim relief during the pendency of a Section 245 application. This may include orders restraining the company from continuing the impugned conduct, preserving documents and assets, or directing the company to maintain the status quo. For defendants, opposing interim relief applications requires a carefully marshalled evidentiary record, because interim orders, even if ultimately reversed, can materially constrain corporate decision-making and transaction timelines.

Evidence and Notice Requirements

After admission, the NCLT directs notice to all members of the represented class through public advertisement and direct communication. Evidence is typically submitted through affidavits, with limited cross-examination at the Tribunal’s discretion. The absence of a full discovery regime comparable to common-law jurisdictions means that the Tribunal’s power to direct production of documents becomes critical, and companies that fail to comply with production orders face adverse inferences and potential contempt proceedings.

Timeline and Binding Effect of Orders

There is no prescribed statutory timeline for the disposal of Section 245 applications, and in practice proceedings have taken between 12 and 36 months from admission to final order. The most significant procedural feature for defendants is the binding effect: any order passed by the NCLT under Section 245 binds the company and all its members, depositors, and other stakeholders. This means that a single adverse order operates as a judgment against the company applicable to the entire class, without the need for individual enforcement proceedings. The practical effect is that settlement discussions should account for this binding character from the outset.

Strategic Defence Options: Defending Class Actions in India

An effective defence strategy for a Section 245 class action must operate simultaneously across operational, legal, and tactical dimensions. The corporate litigation landscape in 2026 demands that companies move beyond reactive postures and adopt a structured early-case playbook.

Immediate Operational Actions

• Litigation hold. Issue a comprehensive preservation notice to all custodians of potentially relevant documents, emails, board minutes, financial records, internal communications, and electronically stored information (ESI). Ensure that automatic deletion protocols are suspended.
• Board and audit committee briefing. Prepare a privileged memorandum for the board or audit committee summarising the allegations, potential exposure, estimated defence costs, and preliminary settlement parameters.
• D&O insurer notification. Notify D&O insurers within the policy-specified notification window. Failure to notify promptly is a common basis for coverage denial.
• Internal fact-finding. Commission a privileged internal investigation, ideally conducted by external counsel, to establish the factual matrix before the Tribunal process accelerates. Map the chain of decision-making, identify key witnesses, and secure contemporaneous documentary evidence.

Legal Defences: Maintainability, Limitation, and Jurisdiction

The most effective legal defences at the admission stage typically focus on one or more of the following grounds:

• Failure to meet quantitative thresholds. Challenge the applicants’ evidence that the minimum number of members or depositors has been met. Scrutinise the list of represented persons for inaccuracies, duplications, or lapsed memberships.
• Lack of commonality. Argue that the claims do not share a sufficient common question of law or fact to warrant representative treatment, and that individual inquiries would predominate over common issues.
• Limitation and laches. Section 245 does not prescribe a specific limitation period, but general principles of limitation under the Limitation Act, 1963, and the doctrine of laches (unreasonable delay) apply. Where the impugned conduct occurred several years before filing, a limitation defence can be persuasive.
• Arbitration clause. Where the company’s articles of association or a shareholders’ agreement contains an arbitration clause, a stay application under Section 8 of the Arbitration and Conciliation Act, 1996 may be pursued. Industry observers expect the tension between Section 245’s statutory jurisdiction and party-agreed arbitration to produce significant appellate jurisprudence over the next two years.
• Mala fide or vexatious filing. If the application is brought as a tactical weapon in a corporate control dispute rather than a genuine grievance, the Tribunal may dismiss it on grounds of abuse of process.

Tactical Use of Interim Applications and Cross-Claims

Defensive interim applications, such as applications to strike out portions of the claim, to challenge the representative adequacy of the named applicants, or to require security for costs, can be deployed strategically to slow the proceedings and increase the cost burden on applicants. Where the company has its own claims against the applicants or related parties (for example, claims arising from breaches of confidentiality or fiduciary duties), cross-claims or counterclaims can shift the litigation dynamic and create settlement leverage.

When to Litigate vs When to Settle: A Decision Matrix

The decision to defend fully or pursue settlement should be guided by a structured analysis covering at least the following factors:

Settlement, Remediation and Binding Effect: Structuring Compromises

Settling a Section 245 class action requires careful procedural compliance and substantive drafting to ensure the compromise is enforceable, binding on the entire class, and insulated from subsequent challenge.

Settlement Mechanics Before the NCLT

Any settlement must be submitted to and approved by the NCLT, because the Tribunal’s order is what confers binding effect on the entire represented class. The Tribunal will satisfy itself that the settlement is fair, reasonable, and adequate, a test borrowed from common-law class action jurisprudence. The settlement application should be accompanied by a notice to all class members, a summary of the terms, and evidence that the named applicants have authority to compromise on behalf of the class.

Key Clauses to Include in Settlement Agreements

• Full and final release. A comprehensive release clause covering the company, its directors, officers, auditors, and advisers against all claims arising from or connected with the subject matter of the application.
• Confidentiality. Where permissible, confidentiality obligations preventing disclosure of settlement terms, subject to any NCLT order requiring publication.
• Distribution mechanism. A clear and administrable mechanism for distributing any compensation or damages to class members, including timelines, verification procedures, and treatment of unclaimed amounts.
• Regulatory approvals. Where the settlement involves cross-border payments, foreign-exchange remittances, or regulatory consents (for example, under FEMA or RBI circulars), these must be identified and secured before the settlement is submitted for approval.

Cross-Border Safeguards

For multinational companies, settlement structuring must account for the enforceability of Indian settlement orders in other jurisdictions, potential tax implications of compensation payments, and the interaction with parallel proceedings or regulatory investigations abroad.

Directors, Officers and Insurance: D&O Exposure in Class Actions in India

Section 245 creates direct personal exposure for directors and officers, making D&O insurance analysis a critical component of any class action defence strategy.

Liability Exposure Map

• Directors. Liable for acts authorising or permitting the conduct complained of. Section 245 specifically permits orders against directors personally, including compensation and damages.
• Officers. Key managerial personnel (KMP) and officers in default may be named as respondents where they participated in or failed to prevent the impugned conduct.
• Company. The company itself is the primary respondent, but any order, including compensation orders, creates a direct financial liability that may affect solvency assessments and creditor rights.

D&O Cover: Common Gaps and Policy Wording Issues

Standard D&O policies in the Indian market typically cover defence costs, damages, and settlements arising from “wrongful acts” committed in the insured’s capacity as a director or officer. However, several common exclusions may reduce or eliminate cover for Section 245 claims:

• Regulatory-proceedings exclusion. Some policies exclude proceedings before tribunals or regulatory bodies. Whether the NCLT is a “regulatory body” for policy purposes remains contested.
• Company-entity cover. Many D&O policies provide “Side C” entity cover only for securities claims. A Section 245 claim that is not strictly a securities claim may fall outside entity cover.
• Prior-acts exclusion. Where the impugned conduct predates the policy inception, prior-acts exclusions may apply unless the policy contains a retroactive date.

Indemnity and Advance Defence Costs

Companies should confirm whether their articles of association or indemnity agreements permit advancement of defence costs to directors during the pendency of proceedings. Under Section 197 and related provisions of the Companies Act, indemnification is permissible but subject to limits, particularly where the director is ultimately found to have acted in bad faith.

Cross-Border Discovery, Interim Measures and Enforcement

For multinational companies, a Section 245 class action in India may have significant cross-border dimensions that require proactive management.

Evidence Gathering Abroad

The NCLT’s evidence-gathering powers are primarily domestic. Where relevant documents or witnesses are located abroad, the company (or applicants) may need to invoke letters rogatory or the Hague Evidence Convention. In practice, voluntary cooperation and coordinated document production through Indian counsel are more efficient than formal cross-border evidence mechanisms.

Freezing and Interim Relief

The NCLT can order asset preservation and freezing relief within India. For assets located abroad, enforcement requires separate proceedings in the relevant jurisdiction, a factor that applicants may use to argue for broader domestic freezing orders covering receivables, bank accounts, and inter-company balances held in India.

Enforcing NCLT Orders in Other Jurisdictions

NCLT orders are not automatically enforceable outside India. Enforcement in foreign jurisdictions generally requires fresh proceedings, either under bilateral treaties (where applicable) or under the enforcing jurisdiction’s rules for recognition of foreign judgments. Companies with assets in multiple jurisdictions should factor this enforcement gap into their settlement and defence strategy. For related procedural considerations in Indian commercial disputes, see this guide on how to file a commercial suit in India.

Case Studies and Practical Templates

Lessons from Early Section 245 Litigation

Early Section 245 filings have provided instructive lessons for corporate defendants. In matters involving large listed companies, the NCLT has signalled a willingness to admit applications where the factual record discloses a pattern of suppressed information or undisclosed related-party transactions, even where the applicants’ shareholding is modest. The practical takeaway for companies is that pre-emptive disclosure and robust corporate governance reduce the factual surface area available to potential class action applicants.

Template: Board Memo on Section 245 Risk

A board memorandum assessing Section 245 exposure should contain, at minimum:

1. A factual summary of the threatened or filed claim.
2. An assessment of the quantitative threshold (is the applicant group likely to meet it?).
3. A merits evaluation, strengths and weaknesses of the company’s position.
4. An estimated cost range for defence through to final hearing.
5. A D&O insurance coverage summary and insurer notification status.
6. Preliminary settlement parameters and authority sought from the board.

Template: Litigation Hold and Initial Legal Response Checklist

• Identify all custodians of potentially relevant documents (board members, KMP, finance, company secretary, auditors).
• Suspend automatic email and data deletion protocols.
• Secure hard-copy board minutes, resolutions, and financial records.
• Engage external litigation counsel and establish privilege protocol.
• Notify D&O insurers and broker.
• Prepare initial response or reply to the NCLT application within the prescribed timeframe.

Conclusion

Class actions in India under Section 245 have transitioned from a largely theoretical risk to a live and growing area of corporate litigation in 2026. For general counsel and boards, the imperative is clear: assess exposure proactively, ensure governance and disclosure frameworks minimise the factual surface area for potential claims, and build a structured early-case playbook that covers litigation holds, D&O notification, internal investigation, and settlement parameters from day one. Companies that treat Section 245 preparedness as a core governance function, rather than a contingency to be addressed only once proceedings are served, will be materially better positioned to defend, resolve, or settle representative actions efficiently and with minimised reputational and financial cost.

Sources

1. Ministry of Corporate Affairs, Companies Act, 2013 (full text and notifications)
2. National Company Law Tribunal (NCLT), official website and orders
3. National Company Law Appellate Tribunal (NCLAT), official website
4. Consumer Protection Act, 2019, Department of Consumer Affairs
5. Competition Commission of India, Competition Act, 2002
6. Supreme Court of India, judgments portal