NCLAT dismisses appeal challenging class action petition against Jindal Poly Films

The National Company Law Appellate Tribunal (NCLAT) on Thursday dismissed an appeal challenging the National Company Law Tribunal’s (NCLT) decision admitting a shareholder class action petition against Jindal Poly Films Limited. [Jindal Poly Films v. Ankit Jain]

A coram of Judicial Member Justice (retd) Yogesh Khanna and Technical Member Ajai Das Mehrotra passed the order in the appeal by Jindal Poly Films challenging the NCLT’s recent order admitting a shareholder class action petition and directing issuance of public notice under the class action framework of the Companies Act, 2013.

A copy of the judgment is yet to be made available.

The NCLT, New Delhi had recently held that a shareholder class action is maintainable even in respect of past and concluded transactions. In doing so, it rejected objections raised by Jindal Poly Films that such proceedings are confined to preventive or ongoing acts and cannot be invoked to examine completed transactions.

The Tribunal had observed that there is no statutory restriction preventing shareholders from seeking relief in relation to past transactions and that claims for compensation and damages necessarily imply jurisdiction to examine such conduct.

After forming a prima facie opinion at the threshold stage, the NCLT directed issuance of a public notice on behalf of the Tribunal, including publication on the website of Jindal Poly Films Limited.

The case stemmed from allegations of "gross undervaluation" and "siphoning of funds" to related parties.

The petitioners alleged that the JPFL management sold high-value securities (optionally convertible preference shares and redeemable preference shares) to promoter-linked entities for a fraction of their worth.

According to the petition, these transactions, supported by an independent audit from FTI Consulting, resulted in a staggering loss of over ₹2,500 crore to the company and its public shareholders.

The petition sought nullification of the undervalued share transfers, restitution of the lost thousands of crores back to the company’s coffers and action against the independent valuer for providing allegedly misleading valuation reports that facilitated the transactions.

The primary legal dispute was whether petitioners Ankit Jain, Rina Virendra Jain and Ruchi Jain Hanasoge (holding 4.99 percent stake in JPFL) could use Section 245 to challenge corporate decisions.

JPFL argued that the suit was actually a "derivative action" meant to bypass the stricter requirements of Section 241 (oppression and mismanagement).

The NCLT rejected the company’s objection at the threshold.

The Tribunal further clarified that the relevant consideration is the formation of an opinion by shareholders that the affairs of the company are being conducted in a manner prejudicial to the company or its members.

Jindal challenged this order before the NCLAT.

The shareholders were represented by Senior Advocates Abhinav Vashisht, Arun Kathpalia, with Advocates Vaibhav Kakkar, Senior Partner, Abhishek Swaroop, Partner, Anupam Prakash, Anuj Garg, Manav Sharma from Saraf & Partners.