Is the Derivative Action Regime in India a Historical Relic?

Abstract

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. Big data, business secret, cybersecurity, data right, e-commerce platform, information processing, legal boundary, market competition, network platform, personal privacy