Mr Khurshid, class action suits should also target govt

Company affairs minister Salman Khurshid spoke last week about creating an enabling law for investors to file class action suits against companies that work against their interests.

He also talked about measures to restrict the number of directorships anyone can hold so that independent directors are able to focus more on protecting minority shareholders.

These are noble sentiments. But one wonders what will come out of it, for, in the same breath, Khurshid also talked about using the Company Law Board for deciding penalties in class action suits. Perhaps, the newspaper reports were not accurate, but the minister needs to know that existing arms of government do not have the credibility they need to instill confidence in the system.

The idea of facilitating class action suits is, however, on the ball. Class action suits are used liberally by US investors and consumers to demand justice and better governance from corporate entities, even though the idea has been abused by so-called “ambulance chasers” — lawyers who fight for free but take a lion’s share of the pickings if they win a suit. India does not need ambulance-chasers, but it certainly needs the ability to fight class action suits.

If Khurshid wants to improve governance, he needs to extend the idea beyond investors.

In India, we need a law to help people demand better governance, and the classes that need to be empowered are not only investors, but also consumers, disadvantaged groups (women, dalits, the physically challenged) and taxpayers. Not to speak of ordinary citizens. All of us need remedies for bad governance.

Let’s take these four classes and examine how they could seek justice from the relevant organisations or authorities. First, investors. Khurshid assumes that only investors in private listed companies need protection. Not true. Every company needs to be brought under the ambit of class action suits, and especially government companies.

I have often pointed out that listed public sector companies are repeatedly looted by the majority shareholder (the government) on the basis of voting power. If Satyam’s promoters can be pilloried for defrauding shareholders, why not the overlords of government companies? How is Satyam’s robbery any different from that of, say, ONGC, where the government has arbitrarily decided that ONGC should donate its profits to some other company because the government does not have the guts to raise petroleum prices? ONGC is paying for its promoter’s political interests, and thus should be sued for misgovernance. Look closer, and investors in almost all government
companies will find something or the other to sue the majority shareholder for.

Second, it is not true that only listed companies are looting shareholders. Even unlisted companies do the same. Here the public sector fares worse than the private sector. When unlisted private sector companies loot minority shareholders, their actions affect only a handful of fortunes. But when unlisted government companies are poorly governed, they indirectly defraud millions of shareholders. Every unlisted public sector company is owned by one billion-and-odd Indians. So, when a BSNL or Coal India is denuded of cash by ministers or mafia lords with the aid of a corrupt bureaucracy, it is national wealth being eroded. Every taxpayer, who has directly funded Coal India, or every citizen, for whose benefit we have a nationalised coal sector, has thus a right to sue unlisted public sector companies that aren’t doing their jobs.

Next, consumers. We need class action suits against companies that put out shoddy products. Using consumer courts is not the answer. Their processes are unduly long, and by forcing consumers to come with small, individual complaints, they actually help companies get away with murder. Only the extremely intrepid can afford to spend time and money appearing in consumer courts to enforce justice. Here, too, government needs to be targeted. Every citizen is a consumer of government service, whether it is for police protection or receipt of NREGA benefits. When these services are not provided or provided deficiently, we have a right to sue.

When it comes to disadvantaged groups, where the question is often one of discrimination, we have special laws to protect them. But these laws don’t work. When justice has to be sought one person at a time, the sheer process of the law is enough to deny justice to many due to systemic delays. Class action is the way out.

Khurshid is on the right track. He must convince his ministerial colleagues, especially law minister Veerappa Moily, that class action suits are not just about private companies, but the whole of government.