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24 June 2021, The Indian Express

Hurdles in class action

Incidents such as the recent ONGC barge disaster underline the absence of effective class action suits in India. Tougher action on neglect and liability is vital to assure safety, prevention measures and minimise incidents of negligence. How can India move in the direction of accountability to make it a better abode for employment and business?

Executive Director, Gateway House

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The families of 71 people who were killed after Cyclone Tauktae battered ONGC’s barge vessels off Bombay High last month have received compensation up to Rs 2 lakh from ONGC, and between Rs 35 lakh and Rs 75 lakh from Afcons, which was assigned the project contract. Three directors of ONGC have been suspended, and NHRC has issued notices to the Petroleum Ministry, ONGC, and the Coast Guard. A surviving engineer has filed a case of criminal negligence against the deceased captain of barge P-305, which sank. Neither ONGC nor Afcons have taken responsibility for the loss of lives.

For over 35 years, India’s laws for negligence and liability have not been strengthened, in order to force safety and prevention measures, and to minimise such incidents. In the ONGC matter, there is little the families can do in terms of personal injury suits, or class action suits. Both these legal options are weak in India, and not considered a worthwhile exercise. However, they are necessary if India is to improve its ease of doing business rankings, especially in disaster prevention and risk of life.

How can such incidents be made preventable, and in the eventuality of damage and death, how can the parties be made responsible, with adequate damages paid? How can India move in the direction of such accountability, which is taken seriously in developed economies, and which makes them better abodes for employment and business?

What are class action suits?

A class action suit is a legal action or claim that allows one or many plaintiffs to file and appear for a group of people with similar interests. Such a group forms a “class”. A class action suit derives from representative litigation, to ensure justice to the ordinary individual against a powerful adversary.

While class action suits have a history dating back to the 18th century, these were formally incorporated into law in the United States in 1938 under the Federal Rules of Civil Procedure. Over the years, class action has become so successful at curbing negligence, that it is now a part of US corporate and consumer laws, environmental litigation, etc.

The ubiquity of representative litigation in the US has given rise to a class of lawyers called “ambulance chasers” — those who solicit for clients at an accident or disaster site, largely for personal injury cases. They get financial compensation for their clients from the perpetrator, a percentage of which they keep. While such soliciting violates professional legal conduct in the US, it has helped hold people and corporations accountable.

The most successful class action suits in the US are the $206 billion settlement made by four American tobacco companies to cover medical costs for smoking-related illnesses; the $20 billion BP Gulf of Mexico oil spill in 2016, which caused environmental damage; and the $7.2 billion settlement made by Visa and MasterCard to retailers who claimed they had overpaid credit and debit card fees to the card companies.

In an incident made into a film, Erin Brockovich, Pacific Gas & Electric was ordered to pay $333 million for knowingly discharging harmful chemicals in surrounding water bodies in California that led to bodily harm.

Is there an Indian equivalent of US class action suits?

The most actionable suit was the Bhopal gas leak from the Union Carbide factory in 1984, where more than 3,700 people died. Three class action suits were filed in the US, which dismissed all claims for environmental clean-up, personal injuries, and medical compensation. In India, the central government filed a case on behalf of the persons who had been injured as a result of the gas leak.

Eventually, Union Carbide was asked to pay $470 million in compensation, one-seventh of the claim asked for. This also ended all civil and criminal complaints. The water is still contaminated, people still haven’t recovered from their injuries, and multiple generations suffer the effects.

During the 2009 Satyam Computers scandal, there was fraud and misrepresentation to the stock exchanges, regulator, and investors. A class action suit was filed, but because India didn’t have an appropriate law, 300,000 Indian investors were deprived of damages while Satyam’s US investors were made whole. The amendment of Section 245 of the Companies Act, as mentioned below, was a consequence of this case.

In 2015, the Government of India filed a case on behalf of consumers in the National Consumer Disputes Redressal Commission against Nestle after the Food Safety and Standards Authority of India found higher than permissible levels of lead in instant noodles. The case is still pending.

India now has legal provisions for filing class action suits, but under four laws:

  • Order 1 Rule 8 of the Civil Procedure Code refers to representative suits, which is the closest to a classic class action suit in a civil context in India. It does not cover criminal proceedings.
  • Section 245 of the Companies Act allows members or depositors of a company to initiate proceedings against the directors of the company in specific instances. There are threshold limits, requiring a minimum number of people or holders of issued share capital before such a suit can proceed. This type of suit is filed in the National Company Law Tribunal. Currently, no class action matters have been filed under this provision.
  • The Competition Act under Section 53(N) allows a group of aggrieved persons to appear at the National Company Law Appellate Tribunal in issues of anti-competitive practices.
  • The Supreme Court has held that in certain complaints under the Consumer Protection Act, they can be considered as class action suits. (Rameshwar Prasad Shrivastava and Ors v Dwarkadhis Project Pvt Ltd and Ors)

Is a class action suit comparable with public interest litigation?

For filing a public interest litigation (Article 32 or Article 226 of the Constitution), the plaintiff need not have a personal interest or claim in the matter. The PIL must serve a matter of public interest. A crucial difference is that unlike a class action suit, a PIL cannot be filed against a private party.

What has deterred the development of a mature body of class action suits in India?

There are several hurdles, which are not necessarily regulatory in nature.

  • Underdeveloped system of torts: Tort law has not developed sufficiently in India for a number of reasons, primarily due to the high cost and time-consuming nature of litigation, especially in cases concerning the law of torts. As civil breaches, litigants find it too expensive and complicated, and therefore do not pursue such cases.
  • Lack of contingency fees: The rules of the Bar Council of India do not allow lawyers to charge contingency fees, i.e., a percentage of the damages claimants receive if they win a case. This disincentivises lawyers from appearing in time-consuming cases that class action suits inevitably are. Revisiting this rule in specific cases may be a good first step in bringing class action suits into the mainstream.
  • Third-party financing mechanisms for litigants: Since litigation costs are high, class action suits can be made easier by allowing external parties to fund or sponsor the cost of litigation. Some states like Maharashtra, Gujarat, Madhya Pradesh, and Karnataka have made changes in the Civil Procedure Code to allow this.

This article was first published in The Indian Express.

Manjeet Kripalani is Executive Director and co-founder, Gateway House.

Kartik Ashta is Researcher for International Law Studies Programme, Gateway House.