A first: TCI suit against CIL becomes a mass tort claim

By R Jagannathan

India does not have a mass tort law that allows shareholders or consumers to sue companies that work against their interests. But a UK-based hedge fund, The Children’s Investment Fund (TCI), may be prying open a new form of class action suit in its fight against government-owned Coal India Ltd.

If it succeeds, it could open the floodgates for mass investor action against a whole host of public sector companies where the government uses its shareholding majority to oppress minority shareholders. The oil marketing companies and ONGC are a prime example of this. Both are looted by the exchequer in the name of keeping oil prices down.

According to a report in Business Standard, the Calcutta High Court has permitted TCI to make its case “representative of all shareholders.” TCI claims it suffered losses when the government arbitrarily forced Coal India to roll back some price changes in January this year, among other things.

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[caption id=“attachment_496520” align=“alignleft” width=“380”]  Even though Coal India has only 10 percent of non-government shareholding, it still has nearly 700,000 investors, including institutional investors who hold over 7 percent of the shares. Reuters[/caption]

TCI will thus issue advertisements in newspapers explaining the nature of its lawsuit and how all shareholders could join its efforts to sue the government and the Coal India board for disregarding minority shareholder interests through bad corporate governance policies.

Even though Coal India has only 10 percent of non-government shareholding, it still has nearly 700,000 investors, including institutional investors who hold over 7 percent of the shares. TCI holds around 1 percent in Coal India.

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The hedge fund is claiming over Rs 2,12,250 crore in damages on behalf of all shareholders, the figure it claims is the value of losses suffered by the company by pricing coal well below market prices between November 2010 and March 2013.

It is not clear whether the courts will uphold TCI’s claims, since the Coal India IPO prospectus specifically admitted that it does sell coal below market prices, and that the interests of the main shareholder - the government - may be at variance with that of the other shareholders as it could issue directives to Coal India on how to conduct its business.

Nobody is thus giving TCI’s suit much chance of succeeding against the odds, but the fact that the Calcutta High Court has allowed it to battle on behalf of minority shareholders means that the government can’t presume it is home and dry.