Arbitrating a class action?

On June 8, 2026, the Supreme Court closed the doors on India's most significant shareholder class action in 3 paragraphs of consent.

It referred the dispute to arbitration, quashed 2 rulings by the company law tribunal and overlooked a crucial underlying question: can a class action representing 40,000 (approx) shareholders be an arbitrable subject matter, brought on behalf of all by anyone at a roll of dice?

The Jindal Poly Films Ltd v. Monet Securities Pvt Ltd was not an in personam dispute but an in rem dispute. It was filed under Section 245 of the Companies Act, 2013 as a representative suit on behalf of 40,000 (approx) shareholders; sleeping since its inception into the statute until this filing brought it to life. The same life has now ended by consent, not by reasoning.

The suit was brought by shareholders holding under 5% of Jindal Poly Films. They averred acquisition of preference shares in a subsidiary by promoter-linked entities at below fair market value for about ₹105 crore as against a higher fair value. Loans were written off, stakes in another subsidiary were also sold away at below fair market value and loss estimated by an independent valuer put above ₹2,500 crore. This was engineered to circumvent the threshold requirements which mandate minority shareholder approval.

The tribunal's order totalled 61 pages and remains the most developed reading Section 245 has received. It held that Section 245 protects the company (the entity) in addition to protecting its members; reaches transactions already concluded, through the compensation remedy built into the section; and should not be limited by a borrowed US test designed for a different kind of shareholder claim.

The appellate tribunal seconded this through 29 more pages of reasoning. As part of this process, notice to the entire class had already been ordered. None of these measures were able to survive as part of the engagement. They were all set aside unread with a 3-paragraph settlement.

The prima facie absence of an arbitration agreement raises the first objection. To wit, signed consent minutes recorded before a court can fill the shoes of a written agreement to arbitrate binding the signatories under Section 7 of the Arbitration and Conciliation Act, 1996. Next, and more importantly, the question of subject matter arbitrability forms the crux and the same is independent of the question of party consent by design; Indian law treats non-arbitrability as an incurable defect.

Through a conjoint reading of Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. and Vidya Drolia v. Durga Trading Corporation a 4-fold test for determining non-arbitrability emerges, stating that disputes are non-arbitrable when:

1. The cause of action relates to actions in rem that do not pertain to subordinate rights in personam arising from rights in rem;

2. The dispute affects third-party rights with erga omnes effect, requiring centralised adjudication;

3. The subject matter relates to inalienable sovereign and public interest functions of the State; or

4. The dispute is expressly or by necessary implication non-arbitrable under mandatory statute.

Section 245 satisfies at least 3 of these 4 limbs. It is built to bind people who never appear in the proceeding: mandatory notice to each person represented, statutory right to withdraw from the class, consolidation of parallel claims and a resulting order binds not just shareholders but auditors and advisors together.

An arbitral award can't do this. It can bind only parties to the agreement and third parties enabled via Cox and Kings Ltd. v. SAP India Pvt. Ltd, but never an undefined class of 40,000 shareholders and other respondents who never joined the arbitration. A settlement can settle claims between two litigants. However, on its own, it cannot convert a class action claim (that was filed against an entire class) into a private dispute between whoever is remaining after the ink has dried on the settlement agreement.

Mature class action systems do not let a representative case close quietly, because the party carrying the claim is a fiduciary for the class rather than its owner. Every such system builds in a check on that fiduciary before the case can end. Therefore, when a class action settles under Rule 23(e) of the US Federal Rules of Civil Procedure, each member of the class receives formal notice of the proposed settlement and the court must find that the terms of the settlement are fair, reasonable and adequate. The UK's Competition Appeal Tribunal has similar authority to determine whether or not an individual settlement is acceptable. Australian and Canadian courts require their own determinations regarding whether a representative action should be settled.

Section 245 and the procedural rules beneath it contain no equivalent mechanism. That is a real gap in Indian company law, but a gap is an argument for building a safeguard, not a licence to proceed as though none were needed. No notice of the intended settlement was provided to the class of persons established by the tribunal. No court asked if the proposed settlement benefited the shareholders it was meant to serve. Instead of being the first true test case of an Indian shareholder class action, the case ended in the one method class actions are designed to preclude from occurring anywhere: two parties negotiated an exit on behalf of thousands of individuals who were never consulted.

The consent order does not provide an actual legal precedent. However, its unanswered issues will not be waiting for a better lawsuit. Once a Section 245 claim is accepted as such, is it subject to arbitration, based upon all that has been said by Booz Allen and Vidya Drolia regarding representative disputes? Can a party substituted in a case at a later stage waive statutory vested rights of a class? And what becomes of the roughly 40,000 shareholders this action was meant to represent, now that the only two reasoned judgments on their remedy no longer exist?

Section 245 remains on the statute book. Whether it remains usable depends on whether the next bench treats this order as an anomaly, or as a template.

Rishang Singh is an advocate practicing before the High Court of Allahabad.