The Supreme Court finally gave its judgment on the unpleasant tussle between the Tata Group and the Mistry Group for the control of Tata Sons Company. The dispute erupted between the two groups after the removal of Cyrus Mistry as the Executive Chairman of the Tata Sons in October 2016. Later, general bodies of some of the Tata Group companies removed him from their Board of Directors. For Mistry, the rough deal did not end there. He was forced to resign from the Boards of some other Tata Group companies, as extraordinary general meetings for expelling him from those Boards were being planned. Aggrieved by these events, the Mistry Group had first approached the National Company Law Tribunal (NCLT) who dismissed their petition. On appeal, however, the National Company Law Appellate Tribunal (NCLAT) ordered the reinstatement of Mr. Mistry. What culminated in the present Supreme Court judgment are different appeals against this order of the NCLAT.
In the judgment running into more than 280 pages, the Supreme Court finally settled the issue in favour of the Tata Group. Notwithstanding the merit of either side’s arguments, the decision has once again exposed the limited protection our corporate law offers to minority shareholders. The remedy the Mistry Group had against the alleged wrongful expulsion of Cyrus Mistry was to approach the NCLT. The Companies Act, 2013 bestows power on the NCLT to grant relief to shareholders if the affairs of the company are being run in a manner prejudicial or oppressive to them. Though the Companies Act provides for relief to shareholders, the very high barrier the Act has created for getting any relief would make things unduly hard for minority shareholders. The judgment of the Supreme Court will show that the Mistry Group’s fate was not any different.
Under the Companies Act, 2013 it is not just sufficient for a shareholder to show that the company’s affairs are being conducted in a manner prejudicial or oppressive to her. The shareholder, to get relief, must establish that the oppression or prejudice is so grave that it is just and equitable to wind up the company. If the grounds fall short of warranting a winding-up order, the NCLT will not have jurisdiction to grant relief to the shareholders for oppression. In short Mistry Group embarked upon a task to establish that there existed grounds to wind up the venerated Tata Sons Company. At the very outset itself, it was inconceivable that the mere expulsion of Cyrus Mistry was a grave enough ground justifying winding up of the company itself, though there can be divergent views as to whether Mistry Group received fair treatment. The Court even cites the fact that a large share of the dividend of Tata Sons would go to two charitable trusts as one of the reasons for concluding that there is no ground justifying winding up.
The Court has found – and rightly so – that mere removal of a director or executive chairman cannot be termed as a ground for winding up a company. Naturally, in absence of grounds that would justify winding up, no relief for oppression and mismanagement can be granted. Even if the removal of a director is not as per the law unless it is shown to be oppressive or prejudicial to the shareholders’ relief cannot be granted. Since Mr. Mistry was not “representing” any shareholder in the Board, his dismissal would not amount to an act that is prejudicial or oppressive to minority shareholders. Further, chairman and director are posts that call for special personal qualification. Law does not permit to reinstate anybody who was removed from such a post requiring personal qualification.
The outcome of the case can hardly come as a surprise, given the unreasonably high burden of proof that the law casts on the shareholder to get relief for oppression and prejudice. But on some counts, the court seems to have been uncharitable to the Mistry Group, though it may not have changed the eventual outcome of the case. The Supreme Court’s refusal to address on merit some of the allegations against Tata Group and Ratan Tata seems to be too technical. The Court avoided answering these allegations observing that NCLT has already found those issues in favour of the Tata Group, and the NCLAT did not specifically reverse those findings. On the other hand, the charges against Cyrus Mistry’s Group were easily accepted. One of the charges against Cyrus Mistry was that he leaked a confidential e-mail to the media. The NCLT presumed that Cyrus Mistry would have leaked it, and the Supreme Court accepted the NCLT’s finding. The Court noted that NCLAT while deciding the appeal against the NCLT’s order did not overrule NCLT’s finding. Another charge against Mistry which the Court seems to have endorsed was that he disclosed certain information to the Income Tax Department. The Court could have taken more care to explain how disclosing certain information to the Income Tax Department would be objectionable in absence of evidence to show that the disclosed information was false. Instead, the Court felt that Mistry was setting “his own house on fire”. Another conduct the Court disapproves of on the part of Cyrus Mistry is that he made allegations against the board which appointed him. On this point also the Court has not offered any sound reasoning for treating an allegation against a board per se as problematic merely because the person making the allegation was appointed by the same board.
The Supreme Court also declined the Mistry Group’s suggestion that they may be allowed to exit Tata Sons at a fair value of their shares. The Court felt that this relief was sought too late. However, what difference seeking the relief earlier would have had is doubtful, given that the Court has found that there is no oppression or prejudice.
There is compelling evidence that greater protection and enforcement of minority shareholders’ rights leads to forging a good market. The protection will reassure the members of the public to participate in the market. Making it difficult for minority shareholders to enforce their rights is likely to yield an opposite outcome. In short, the judgment serves to highlight how hard it is for minority shareholders to get any meaningful relief for oppression, prejudice, or mismanagement of their company.
† Manager (Law), Indian Oil Corporation Ltd., e-mail: firstname.lastname@example.org.
Ratan Tata’s Image Source: Deccan Herald
Cyrus Mistry’s Image Source: Patrika