Oct 05, 2023

Is the Derivative Action Regime in India a Historical Relic?

Reprinted from Kluwer Business Law Review, volume 44, issue number 5, October 2023, page 180, with permission of Kluwer Law International.


In 1843, the Court of Chancery pronounced its landmark judgment in Foss v. Harbottle ((1843) 67 ER 189) The judgment sparked the evolution of a critical common law remedy, in the form of derivative actions, to protect a company’s interests. Soon courts in other countries, including India, adopted this approach, allowing interested parties to initiate suits on behalf of companies. Over time, most countries, including the United Kingdom, proceeded to codify derivative actions into a statutory remedy. India however continued with the common law route.

Indian civil courts have been entertaining derivative actions, initiated by interested parties on a company’s behalf, for several years now. However, recently an interesting judicial trend has emerged wherein High Courts are restricting the jurisdiction to consider such actions solely to the National Company Law Tribunal (NCPL), a specialized forum established for adjudicating upon company law related matters.

In this article, we discuss the reasons leading to this new trend, the position taken by the High Courts on derivative actions in three recent judgments, the shortcomings of this approach and its impact on the future of corrective actions which may be initiated by third parties on the company’s behalf in India.

Please read the entire article here.





These are the views and opinions of the author(s) and do not necessarily reflect the views of the Firm. This article is intended for general information only and does not constitute legal or other advice and you acknowledge that there is no relationship (implied, legal or fiduciary) between you and the author/AZB. AZB does not claim that the article's content or information is accurate, correct or complete, and disclaims all liability for any loss or damage caused through error or omission.