Vol. 3, Issue 3 (2017)
Investors protection: The derivative action
Author(s): Dr. Gyanendra Kumar Sahu
Abstract: Capital market has emerged as a powerful tool of socio- economic growth in the post globalised world. It has attracted the investors from socio-economic groups, big and small. Historically, the ups and downs in the securities market has always played a significant role in shaping the life and economy of the nation. Thus, investors' confidence in the capital market which is ought to be based on a sound financial system of transparency and efficient system of protection and justice has assumed an important role for any developed / developing economy .To strengthen the securities market and to gain investors' confidence, the past decade witnessed wide ranging legislative interventions. So as to protect investors ' interest in securities, promote development and regulate securities market. Derivative actions are convenient mode of realisation of securities interest and protection thereof has gained currency in western countries like USA and UK. Derivative actions are claims brought by individual shareholders, acting on behalf of a company, against the company’s directors. A shareholder Derivative suit is a lawsuit brought by a shareholder on behalf of a corporation against a third party. Often the third party is an insider of the corporation, such as an executive officer or director. Shareholder derivative suits are unique because under traditional corporate law, management is responsible for bringing and defending the corporation against suit. In Derivative actions the plaintiffs are shareholders who aim to represent the company in corporate claims against directors, controlling shareholders, and other parties when persons who are at the helm of affairs of the corporation fail to take appropriate action and perform their duties. As securities investment is a largely growing feature of Indian economy and society, it is imperative that India shapes its legal framework to make Derivative suit a reality for securing the interest of Indian investors.