‘Reinstatement by NCLAT “too big a pill” for perhaps even Cyrus Mistry to swallow’; Here’s why Supreme Court upheld Cyrus Mistry’s removal as Chairman by the Tata Sons

Supreme Court: In a long awaited verdict in the Tata-Mistry Row, the 3-judge bench of SA Bobde, CJ and AS Bopanna and V. Ramasubramanian, JJ has upheld the removal of Cyrus Mistry as Chairman by the Tata Sons and has also answered all questions in favour of Tata Sons. The Court said that NCLAT has, by reinstating Mistry without any pleading or prayer, has forced upon the appellant an Executive Chairman, who now is unable to support his own reinstatement.” 

The Court said,

“The relief of reinstatement granted by the Tribunal, was too big a pill even for the complainant companies, and perhaps Cyrus Mistry, to swallow.”

The dispute

From 25.06.1980 to 15.12.2004 Shri Pallonji S. Mistry, the father of Cyrus Pallonji Mistry was a Non-Executive Director on the Board of Tata Sons. On 10.08.2006 Cyrus Mistry was appointed as a Non¬Executive Director on the Board and by a Resolution of the Board of Directors of Tata Sons dated 16.03.2012, Mistry was appointed as Executive Deputy Chairman for a period of five years from 01.04.2012 to 31.03.2017, subject however to the approval of the shareholders at a General Meeting.

He was then redesignated as the Executive Chairman with effect from 29.12.2012, even while designating Ratan Tata as Chairman Emeritus.

On 24.10.2016, the Board of Directors of Tata Sons replaced Mistry with Ratan Tata as the interim NonExecutive Chairman. It is relevant to note that Mistry was replaced only from the post of Executive Chairman and it was left to his choice to continue or not, as Non¬Executive Director of Tata Sons.

As a follow up, certain things happened and by separate Resolutions passed at the meetings of the shareholders of Tata Industries Limited, Tata Consultancy Service  Limited and  Tata Teleservices Limited, Mistry was removed from Directorship of those companies.

Mistry then resigned from the Directorship of a few other operating companies such as the Indian Hotels Company Limited, Tata Steel Limited, Tata Motors Limited, Tata Chemicals Limited and Tata Power Company Limited, after coming to know of the impending resolutions to remove him from Directorship.

Thereafter, 2 companies by name, Cyrus Investments Private Limited and Sterling Investment Corporation Private Limited, in which CPM holds a controlling interest, filed a company petition before the National Company Law Tribunal under Sections 241 and 242 read with 244 of the Companies Act, 2013, on the grounds of unfair prejudice, oppression and mismanagement.

NCLT on Mistry’s removal

  • The removal of CPM as Executive Chairman of Tata Sons on 24.10.2016 and his removal as   Director on 06.02.2017, were on account of trust deficit and there was no question of a Selection Committee going into the issue of his removal. n
  • There was no material to hold that CPM was removed on account of purported legacy issues. CPM created a situation where he is not accountable either to the majority shareholders or to the Trust nominee Directors and hence his removal.
  • The letter dated 25.10.2016 issued by CPM could not have been leaked to the media by anyone other than CPM and hence his removal from Directorship on 06.02.2017 became inevitable.

NCLAT on Mistry’s removal

  • Ratan Tata was determined to remove Mistry even prior to the meeting of the board and the majority shareholders of Tata Trust knew that there was a requirement of advance notice before the removal.
  • There is nothing on the record to suggest that the Board of Directors or any of the trusts, namely— Sir Dorabji Tata Trust or the Sir Ratan Tata Trust at any time expressed displeasure about the performance of Mistry.
  • The record suggests that the removal of CPM had nothing to do with any lack of performance. On the other hand, the material on record shows that the Company under the leadership of Mistry performed well which was praised by the ‘Nomination and Remuneration Committee’ a Statutory Committee under Section 178, on 28th June, 2016 i.e. just few months before he was removed.

Supreme Court on NCLT and NCLAT’s approach

NCLT dealt with every one of the allegations of oppression and mismanagement and recorded reasoned findings. But NCLAT, despite being a final court of facts, did not deal with the allegations one by one nor did the NCLAT render any opinion on the correctness or otherwise of 64 the findings recorded by NCLT. Instead, the NCLAT summarised in one paragraph, its conclusion on some of the allegations, without any kind of reasoning.

“The allegations relating to (i) over priced and bleeding Corus acquisition (ii) doomed Nano car project (iii) undue favours to Siva and Sterling (iv) loan by Kalimati to Siva (v) sale of flat to Mehli Mistry (vi) the unjust enrichment of the companies controlled by Mehli Mistry (vii) the Aviation industry misadventures (viii) losses due to purchase of the shares of Tata Motors etc., were not individually dealt with by NCLAT, though NCLT had addressed each one of these issues and recorded findings in favour of Tata Sons. Therefore, there is no escape from the conclusion that NCLAT did  not expressly overturn the findings of facts recorded by NCLT, on these  allegations.”

Supreme Court on NCLAT’s decision to reinstate Mistry

Sections 241 and 242 of the Companies Act, 2013 do not specifically confer the power of reinstatement, nor is there any scope for holding that such a power to reinstate can be implied or inferred from any of the powers specifically conferred.

The following words at the end of sub¬section (1) of 242 “the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit” cannot be interpreted a conferring on the Tribunal any implied power of directing reinstatement of a director or other officer of the company who has been removed from such office.

“These words can only be interpreted to mean as conferring the power to make such order as the Tribunal thinks fit, where the power to make such an order is not specifically conferred but is found necessary to remove any doubts and give effect to an order for which the power is specifically conferred.”

Hence, the architecture of Sections 241 and 242 does not permit the Tribunal to read into the Sections, a power to make an order (for reinstatement) which is barred by law vide Section 14 of the Specific Relief Act, 1963 with or without the amendment in 2018.

Further, NCLAT appears to have granted the relief of reinstatement gratis without any foundation in pleadings, without any prayer and without any basis in law, thereby forcing upon the appellant an Executive Chairman, who now is unable to support his own reinstatement.

Not just this, but NCLAT has gone to the extent of reinstating Mistry not only on the Board of Tata Sons, but also on the Board of Tata group companies, without they being parties, without there being any complaint against those companies under section 241 and without there being any prayer against them. These companies have followed the procedure prescribed by Statute and the Articles and they have validly passed resolutions for his removal.

For instance, TCS granted an opportunity to CPM and held a general meeting in which 93.11% of the shareholders, including public institutions who hold 57.46% of shares supported the resolution. In any case CPM’s tenure itself was to come to an end on 16.06.2017 but NCLAT passed the impugned order reinstating him “for the rest of the tenure”.

“Now by virtue of the impugned order, CPM will have to be reinstated even on the Board of companies from which he has resigned. This is why even the complainant companies have found it extremely difficult to support the order.”

Interestingly, one of the grounds of challenge to the order of NCLAT, raised by SP group in their appeal is that the Tribunal ought not to have granted the relief of reinstatement. Mistry has himself stated clearly that he had no intent to once again taken charge of Executive Chairman and Director of the Tata Group companies.

[Tata Consultancy Services Ltd. v. Cyrus Investments Private Ltd., 2021 SCC OnLine SC 272, decided on 26.03.2021]

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