The Supreme Court's May 8 decision to send India's first admitted shareholder class action against Jindal Poly Films into arbitration before any hearing on merits has triggered fresh debate over whether companies can privately settle statutory claims brought on behalf of thousands of public investors, even while securities regulator SEBI continues pursuing allegations of shareholder losses.
The original class action, filed by minority shareholder Ankit Jain in 2024, was admitted as a class action - a historic-first in India - in March 2026 by the National Company Law Tribunal. This decision was upheld on appeal by the National Company Law Appellate Tribunal a month later. Following this, a trial began, other minority shareholders joined the class, and SEBI filed an intervention application.
Interestingly, following admission, Ankit Jain sold his shareholding in JPF on public markets to Monet Securities, a Kolkata-based investment firm, which substantially increased shareholding in JPF through a series of transactions from 3.18% to 11.40%. Then Monet substituted itself as the lead petitioner in the class action, with the original petition Ankit Jain exiting the company.
The class action lawsuit alleges that Jindal Poly Films siphoned off over INR 2,500 crore through undervalued transactions involving promoter-linked entities. The class action traces its origins to allegations that a series of related-party transactions, loan write-offs and corporate restructuring exercises caused substantial losses to minority shareholders.
On May 8, Monet Securities and JPF made a joint request to a Supreme Court to refer the dispute to arbitration. A vacation bench comprising Justice Prashant Kumar Mishra and Justice Atul S. Chandurkar accepted the joint plea, dismissing the class action and referring the dispute to arbitration.
Other minority shareholders in the class say they were neither informed nor given notice in the case, despite the class action being accepted by the NCLT and NCLAT.
Can a class action be referred to arbitration?
The case against Jindal Poly Films was widely viewed as a landmark test of Section 245 of the Companies Act, India's little-used class action provision that allows shareholders to collectively challenge oppressive or prejudicial conduct.
Instead of producing the country's first substantive ruling on shareholder class actions, the dispute has ended in a consent referral to arbitration, leaving unresolved whether a representative proceeding involving nearly 40,000 public shareholders can effectively be compromised by agreement between the company and a substituted petitioner.
"We stand to lose an important opportunity to develop Indian jurisprudence on shareholder initiated class actions," said Hardeep Sachdeva, senior partner at AZB & Partners. "Section 245 was conceived as a statutory collective remedy for shareholders, particularly where the alleged misconduct affects a wider class and not merely the contracting parties."
Lawyers say that distinction could prove critical because Section 245 was designed as a representative remedy rather than an ordinary shareholder dispute. Once admitted, the proceeding arguably acquires a broader public character, raising questions over whether one shareholder can settle claims affecting thousands of absent investors without notice or judicial scrutiny.
"The concern is not settlement itself. Settlement is legitimate," said Soumya Singh, co-founding partner at Thistle & Law. "The concern is whether absent shareholders get notice, whether they can object, whether the compromise is fair, and whether the statutory purpose of Section 245 is preserved."
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India's Companies Act prescribes eligibility thresholds and maintainability requirements for shareholder class actions but contains little guidance on how admitted proceedings may be compromised or withdrawn. That silence, lawyers say, has now exposed a significant procedural gap.
"India has a statutory class action mechanism, but it does not yet have a mature settlement architecture protecting absent class members once a representative action is admitted," Singh said.
Alay Razvi, managing partner at Accord Juris, explains that the statutory nature of Section 245 suggests absent shareholders retain independent rights that cannot be extinguished solely through consent between the company and a representative petitioner, making complete private compromise legally contentious.
Supreme Court practitioner Tushar Kumar points out that the larger issue is whether a representative class action belongs to the applicant or to the class itself once it is admitted.
"The cause transcends the individual petitioner and assumes a representative character," said Kumar. "The central question that remains unresolved is whether, after admission, a Section 245 claim belongs to the representative shareholder or to the class as a whole."
What happens to SEBI's case against jindal Poly Films?
The order has also sharpened the distinction between private dispute resolution and public enforcement. While the shareholder claims may now proceed in arbitration, legal experts say the referral has no bearing on SEBI's independent proceedings arising from the same transactions, underscoring that regulatory enforcement and collective shareholder remedies operate on separate legal tracks.
The SEBI intervened last year by filing an affidavit with the NCLT, revealing extensive governance lapses and a value transfer of Rs 760 crore through undisclosed investment write-offs and staggered transactions to promoter-linked entities.
According to SEBI's preliminary probe, Jindal Poly Films covertly funded group entities via loans and preference shares worth Rs 690.27 crore, which were subsequently written off completely, and routed an additional Rs 217 crore to Rs 366 crore in opaque consultancy payments to entities connected to the promoter group.
These regulatory findings strongly validated the class action lawsuit itself, in which minority shareholders have aggressively claimed total damages and compensation exceeding Rs 2,500 crore for systemic asset siphoning and wealth erosion.
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"Arbitration may resolve private disputes between parties, but it cannot oust the jurisdiction of the market regulator or compromise public enforcement objectives," Sachdeva said.
Razvi explains that the arbitration referral does not affect SEBI's statutory powers, which arise independently under securities law.
"SEBI's investigation findings and enforcement jurisdiction remain legally operative regardless of arbitration outcomes," Razvi said. "Arbitration resolves private disputes between consenting parties but cannot privately settle regulatory violations."
The implications could extend well beyond the Jindal Poly dispute. Although the Supreme Court's order was passed on consent and may have limited precedential value, corporate lawyers say it could encourage defendants in future class actions to negotiate settlements with lead or substituted petitioners before substantive questions are adjudicated.
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