As a retail investor have you ever felt helpless taking on a large company, in which you have invested your hard earned money, after finding that the management of the company is acting against your interest?
If yes, your grievances would now be taken care of, as the new Companies Law, passed recently by Parliament, gives small investors a legal recourse in such cases.
The Companies Bill has introduced the concept of class action suit, which enables a group of investors to take a large company to court seeking relief/damage from actions of the company. The concept of class action suit is widely prevalent in the western world.
"If small shareholders are of the opinion that the affairs of the company are being conducted in a manner prejudicial to the interest of the company or its members or depositors, they can file an application before the court seeking damages or other suitable action from or against the company or its director(s) for any fraudulent, unlawful or wrongful act or omission on their part," says Nitin Kini, Partner, KPMG India.
The new law, which makes companies more responsible towards investors, also prohibits them from using the money raised from the public for purpose other than mentioned in the issue prospectus without giving shareholders the exit opportunity.
To change its objects, companies will have to pass a special resolution and offer the dissenting shareholders an opportunity to exit in accordance with the regulations to be specified by the Securities and Exchange Board of India.
In another provision empowering small investors, the new law allows them to elect one director of a listed company. Small investors here would mean one who holds company shares worth not more than Rs 20,000. Apart from this, the board of directors of a company which consists of more than 1,000 shareholders, debenture-holders, deposit-holders and any other security holders at anytime during a financial year must constitute a stakeholders' relationship committee to help resolve investors complaints. The new Companies Bill also provides for gender diversity on boards of companies.
