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| Banking may escape class action suit provisions of Cos Bill |
| Press Trust of India / New Delhi Sep 06, 2010, 21:20 IST |
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The banking sector is most likely to escape the purview of 'class action suit' provisions under the proposed Companies Bill, under which a group of investors can drag corporates to court claiming damages for "oppression or mismanagement".
A government and Parliamentary Standing Committee on Finance are on the same page on the issue and feel that the RBI's suggestion to exclude banks from the provision in the new Companies Bill has merit.
The RBI had suggested to the committee, scanning the provisions of the Companies Bill, 2009, that the banking firms be kept out of class action suit (CAS) as it "may affect depositors' interest".
Investors could seek redressal from the RBI's Banking Ombudsman Scheme.
"The Ministry of Corporate Affairs have agreed to address the suggestion of the Reserve Bank appropriately with legislative vetting... As agreed, the committee also expects that a proviso be added... Excluding the banking sector from the purview of Class Action Suits," the committee said in its report.
According to Clause 216 of the Bill, which is intended to replace the Companies Act, one or more shareholders or creditors can sue a corporate if they feel that the management is acting against their interest and claim compensation.
However, in case a CAS is found to be fraudulent, the group of applicants could be punished.
The Bill is expected to be moved for passage in the Winter Session of Parliament. It was introduced in August, 2009, and was referred to the Standing Committee.
The CAS is prevalent in the US and several European countries.
About a dozen such suits were filed in the US in the case of the Rs 14,000 crore Satyam fraud. Satyam Computer Services has investors in the US as it is listed on the New York Stock Exchange and the Nasdaq.
The parliamentary panel, headed by senior BJP leader and former Finance Minister Yashwant Sinha, said that except for the banking sector, the CAS should be applicable for all other sectors.
"The committee recommends that this exercise be carried out in right earnest... So as to ensure that the measures of class action works out to be truly beneficial," it said.
Corporate Affairs Minister Salman Khurshid has also aired similar views.
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