Latent Prejudice and the RPT Trap: NCLAT's JPFL Ruling and What It Means for Minority Shareholders

Written by Ananyashree Jaiswal and Shubhanjali Kushwana. the authors are law students currenlty pursuing BA.LLB from Gujarat National Law University.

Introduction

NCLAT's February 2026 ruling in Jindal Poly Films Limited v. Ankit Jain & Ors. (Company Appeal (AT) No. 47 of 2026) (judgement)  births India's first viable Section 245 class action, validating minority claims over Rs. 2,500 crore undervalued related party transactions (RPT). The interpretation adopted by the NCLAT for reading Section 245(1)(g) and Section 245(1)(h) of the Companies Act, 2013 ( the Act) to include concealed historical fraud may be construed to be a quiet reconstruction of the statutory scheme rather than a mere clarification. Section 245 of the Act was envisaged as a preventive class remedy which was meant to restrain acts that may be ultra vires or conduct prejudicial to the interests of the company, promoter or the depositor. The reclassification by the tribunal of the past misconduct as ongoing prejudice detaches the provision from the prospective anchor and helps transform it into retrospective scrutiny. The piece terms it as ‘latent prejudice doctrine’, which can be described as when latent shareholder harm caused due to earlier conduct becomes actionable once the underlying act is revealed in future. 

The problem lies with the structural disruption created by such an interpretation by the tribunal. The threshold for class action is defined in Section 245(1) and Section 245(3) of the Act read together with the Rule 84 of National Company Law Tribunal Rules, 2016 are not mere procedural requirements but they are calculated means to prevent corporate governance from being hindered by the minority litigation. Allowing shareholders to bypass those set thresholds risks hollowing out the intended purpose. This would result in a jurisprudence that prioritises accountability over the statutory discipline. If this goes unregulated, then this doctrine risks altering Section 245 into an open-ended litigation channel, which would invite retrospective challenges to the settled transaction and unsettle the principle of finality.

Case Chronology

Jindal Poly Films Limited (JPFL) from FY 2013 to 2017 invested INR 263.59 crores in Redeemable Preference Shares (RPS) and INR 440.20 crores in Optionally Convertible Preference Shares (OCPS) of its group company Jindal Powertech, which progressively devalued to zero by FY 2019, followed by NPA declaration and continuous losses.

In FY 2019, JPFL extended support to its group company Jindal Thermal Power Ltd by writing off an INR 83.85 crore loan, along with issuing fresh loans of INR 150 crores and INR 260 crores in FY 2022. Post 2021, One Time Settlements (OTS) revived group companies’ valuations like Jindal Thermal, settled INR 9431 crores debt for INR 2540 crores thus boosting asset valuations. Despite this bonanza, JPFL offloaded its OCPS to SSJ promoter trust and RPS to Jindal Poly Investment for approximately INR 106 crores thus contrasting FTI Consulting’s FMV of approximately INR 2500 crores (post-OTS). The shareholders have alleged calculated undervaluation to evade SEBI’s LODR Regulation 23 (Regulation 23) threshold of materiality mandating disclosure. However, no disclosures occurred until after the petition, and it was termed as an “oversight”. SEBI and ED probes flag exposed transactions prejudicial to the interests of the company and its members. Minority shareholders (4.99% stake) thus invoked Section 245, admitted by NCLT and upheld by NCLAT, affirming Section 245's ambit for concluded prejudicial conduct, good faith and class prejudice.

The 241/245 Fault Line and Why NCLAT Drew It Differently

A major contention in the judgment was regarding which statutory remedy minority shareholders can avail and if time can be a deterrent. The key issue is the statutory tension within the Act. Specifically, Sections 241 and 245. Section 241 of the Act reads that a member of the company or the Central Government may itself make an application to the Tribunal for relief when the conduct of the company is prejudicial/ oppressive to the members or if there has been a material change likely to cause prejudice to the interests of the company or its members. It explicitly addresses retrospective acts with usage of words “have been” and “are being conducted” which allows a challenge to conduct that has occurred and continues to affect governance. Section 245 deals with class action suits by members who believe that the company’s management or conduct of its affairs is detrimental to the interests of the company or its members. It uses the phrase “are being conducted in a manner prejudicial”, which shows a prospective or ongoing harm requirement. JPFL’s argument in the appeal, therefore, was based on the strict temporal reading, i.e., the impugned acts were historical since all three impugned transactions were concluded by 2022, hence they should fall outside the purview of Section 245 and can only be tested through the threshold of Section 241. NCLAT rejected this distinction. The tribunal's reasoning relies on the nature of the injury caused, rather than the time of the act. When the corporate misconduct is concealed, the injury caused doesn’t end with the original act. Rather, the prejudice continues to be in operation through the consequences that it bears, including distorted share value, undisclosed related party benefits, and compromised governance. This is the key principle constituting the ‘Doctrine of latent prejudice’. Latent prejudice, in essence, implies concealed past fraud to be treated as producing continuing injury. This allows the class suit remedy to remain available long after the initial wrongdoing. But this also has the effect of blurring out the boundary between the class remedy and retrospective governance challenges.

In the present matter, the OCPS/RPS sale was never actually disclosed to the stock exchanges, and it didn’t qualify SEBI’s materiality threshold. By linking the undisclosed intra-group transactions with continuing shareholder prejudice, the tribunal laid down Section 245 as the complement to SEBI’s disclosure requirements. This move of the tribunal strengthens minority protection in companies where RPT frequently shape corporate decision making. Merging continuing prejudice risks converting Section 245 into a retroactive enforcement mechanism, which has the effect of reopening the completed transactions.

Yet the analytical difficulty remains significant. By merging nondisclosure into continuing prejudice, the tribunal risks converting Section 245 into a retroactive enforcement mechanism, capable of reopening completed transactions long after they were done. The decision weakens the calculated threshold outlined in Section 241, which was intended to prevent minority shareholders from destabilising corporate governance through fragmented litigation. The doctrine may prevent promoters from hiding transactions and ‘ratifying and running’ but it simultaneously expands judicial oversight in a way that may corrode corporate certainty. In the longer run this could lead to a litigation environment where the distinction between preventive shareholder remedies and retrospective corporate disputes become increasingly similar.

Why the 241/245 Choice Is Never Just Procedural

Section 241, as aforementioned, is an individual remedy, whereas section 245 is structural, where section 245(6) holds the company, members, and third parties bound by any order under it. The reputational and market implications naturally bind into this mechanism so much so that JPFL’s share price had fell 31% during the pendency of the petition before the NCLT itself. Therefore, section 245 recourse is one with immediate real costs and not a mere forum choice.

NCLAT upheld the NCLT’s view that “Merely because there is another option available under Section 241- 242 that cannot discredit a case under 245 is met by the Petitioners”. This becomes more significant due to NCLAT’s linkage of section 245 to SEBI’s disclosure framework. The Tribunal held that the violation of Regulation 23 constituted evidence of continuing prejudice; a transaction that bypasses LODR disclosure norms can also trigger a class action suit. For promoter and family-dominated firms where RPTs are structural, this connection is of significant consequence. Connecting non-disclosure with continuing prejudice under section 245 may lead to a retroactive enforcement mechanism capable of reopening past transactions indefinitely.  Thus, the crucial question remains to what extent of concealment is to trigger this doctrine. If passive non-disclosure is enough, then past RPTs have a strong chance of being challenged. It is awaited to be seen whether the latent prejudice is construed as a governance tool or a high litigation risk.

Recommendations

This case exposes 4 structural gaps that require regulatory and legislative consideration: First, MCA can issue guidelines or parliament can amend section 245 to define a ‘look-back period’ for such class actions beyond which the transaction finalised should not be reopened. Second, SEBI can mandate cross-referencing between LODR valuation reports and an independent valuer report for RPT, so undervaluation to avoid the materiality threshold can be discouraged.  Third, a statutory standard for informed ratification with specified minimum disclosure requirements, RP identity, etc., can be laid down before AGM approval against any subsequent challenge under section 245.