The Securities and Exchange Board of India (SEBI) is framing regulations in line with the US class action suit to address public grievances against erring companies, according to the recent notification issued by the board.

This is to restrain companies from duping investors of their assets as the suits of this nature will have a bad reputation on the company, which may have to spend considerable amount of time and money to settle the issue, say experts.

In its notification Investor Protection and Education Fund Regulations, 2009, issued on 19 May SEBI said that the Fund will be utilised for the purpose of protection of investors and promotion of investor education and awareness in accordance with these regulations.

It said the Fund can also be used for aiding investors' associations recognised by the Board to undertake legal proceedings in the interest of investors in securities that are listed or proposed to be listed.

This will enable investor associations to get financial assistance from SEBI's investor protection fund to meet legal expenses to safeguard investors' interests.

However, SEBI has stipulated that, ''the aid shall not exceed 75 per cent of the total expenditure on legal proceedings; and such aid shall not be considered for more than one legal proceeding in a particular matter.

In India class action lawsuits are called public interest litigation, and can be initiated by individuals or groups of individuals.

However, in the US and many western countries, a class action or a representative action is considered as a proper platform to fight the misadventures of huge corporates. This form of collective lawsuit allows consumer organisations to bring claims on behalf of large groups of consumers.

Even if plaintiffs are small shareholders and are generally dispersed, the plaintiffs' lawyers can carry out the job of bringing them together in a class action, for which they charge usually around 35 per cent of the awarded amount, an expert pointed out.

SEBI, however, has not yet announced when it will start the process. It is expected that detailed guidelines on this will be issued by the market regulator shortly.

The move by SEBI is seen as a measure to check the rising number corporate mismanagement in India on the backdrop of multi-million crore Satyam scandal.

The Satyam board last week met with members of Tech Mahindra to discuss a future course of action with regard to the 12 class action suits, which will come up for hearing in June. (See: 12 class action suits against Satyam).

Tech Mahindra is said to be in favour of an out-of-court settlement.

The Satyam board  in February said that Latham & Watkins, lawyers for Satyam for eight years, would continue to support the company in its ongoing dialogue with the US Securities and Exchange Commission (SEC).

Satyam's class action liabilities in the US are believed to be about $80-100 million.