Op EdsOP. ED.

The Supreme Court finally gave its judgment[1] 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[2].

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[3] 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: varghesegthekkel@gmail.com.

[1] Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd., 2021 SCC OnLine SC 272 .

[2] Cyrus Investments (P)  Ltd. v. Tata Sons Ltd., 2019 SCC OnLine NCLAT 858 .

[3] Companies Act, 2013


Ratan Tata’s Image Source: Deccan Herald

Cyrus Mistry’s Image Source: Patrika

Case BriefsSupreme Court

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]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A Bench of Justice S.J. Mukhopadhaya, Chairperson, and Justice Bansi Lal Bhat, Member (Judicial), dismissed the interlocutory application preferred by the Registrar of Companies, Mumbai, seeking amendment of the NCLAT’s Judgment dated 18-12-2019 (“earlier judgment”) wherein the removal of Cyrus Mistry from the Chairmanship of Tata Sons was held invalid and conversion of TATA Sons Ltd. from Public Company to Private Company was also held invalid. The Registrar was aggrieved by the observations made at paras 181, 186 and 187 of the earlier judgment.

The Registrar of Companies, Mumbai, while making the order of the change of status of Tata Sons from Public Company to Private Company, relied on Section 43-A(2-A) of the Companies Act of 1956, which was unrepealed t the relevant time. The said provision provides:

“43-A. Private company to become a public company in certain cases.***

(2-A) Where a public company referred to in sub-section (2) becomes a private company on or after the commencement of the Companies (Amendment) Act, 2000, such company shall inform the Registrar that it has become a private company and thereupon the Registrar shall substitute the word `private company’ for the word `public company’ in the name of the company upon the register and shall also make the necessary alterations in the certificate of incorporation issued to the company and in its memorandum of association within four weeks from the date of application made by the company.”

However, noted the NCLAT,sub-section (4) of Section 43-A was not noticed by the Registrar, which says:

“43-A. Private company to become a public company in certain cases.***

“(4) A private company that has become a public company by virtue of this section shall continue to be a public company until it has, with the approval of the Central Government and in accordance with the provisions of this Act, again become a private company.”

Perusing these provisions, the NCLAT explained that Registrar of Companies cannot take advantage of Section 43-A (2-A) on the ground that it has not been repealed because:

“Section 43-A (2A) while empowers a ‘Public Company’ to become a private Company’ on or after commencement of the Companies(Amendment) Act, 2000 by informing the matter to the Registrar for substitution of the word ‘private company’ with the word ‘public company’ in the name of the company upon the register and certificate of incorporation issued to the company and its memorandum of association but under Section 43A (4) such ‘private company’ which has been made public company by virtue of the said provision, will continue to be a public company’ until it has, with the approval of the Central Government and in accordance with the provisions of the said Act, again become a ‘private company’.”

The NCLAT noted that since Tata Sons did not take any approval from the Central Government, as mentioned above, so it shall continue to be a Public Company.

Furthermore, it was not the case of the Registrar that as per Section 14 (alteration of articles) of the Companies Act, 2013, Tata Sons by a special resolution altered its article having the effect of its conversion from a Public Company into a Private Company. It was also not the case of the Registrar that such resolution was produced before it. No approval was taken from the Tribunal (NCLT). It was also noted that Section 18 of the Companies Act, 2013, specifically refers to the conversion of companies already registered.

Thus, there being a specific provision for conversion of companies already registered in terms of Section 18 of the Companies Act, 2013 and alteration of articles in terms of Section 14, the Registrar of Companies could not rely on Section 43-A (2A) of 1956 Act that too without relying on sub-section (4) therein which relates to requirement of approval of the Central government.

Lastly, one of the grievances of the Registrar of Companies was that the observations made in paras 181, 186, 187 of the earlier Judgment cast aspersions on the Registrar of Companies.

On this, the NCLAT found that this was a wrong perception of the Registrar of Companies as no observation had been made against the Registrar of Companies, Mumbai, not anything alleged against him.

Therefore, no ground is made out to amend the Judgment dated 18-12-2019 in the absence of any factual or legal error apparent on the body of the aforesaid Judgment. There is a typographical error at Paragraph 171 wherein un-amended Section 2(68) has wrongly been typed which has been ordered to be corrected. [Cyrus Investments (P) Ltd. v. Tata Sons Ltd., 2020 SCC OnLine NCLAT 1decided on 06-01-2020]

Hot Off The PressNews

As reported by media, NCLAT has restored Cyrus Mistry as the Executive Chairman of Tata Sons and held the appointment of N Chandrasekaran as illegal.

Resolution by Tata Sons board removing Mistry was illegal. The appellate tribunal also set aside the change of Tata Sons from public to private company.

Mistry had approached the appellate tribunal against the decision of NCLT, Mumbai, which had dismissed the challenge to his removal as executive chairman of Tata Sons.

[DETAILED ORDER FOR THE SAME WILL BE UPDATED SOON]

To get an overview of the above story please follow the below links:

No restriction on conversion of Tata Sons to private limited company; was a hybrid company all along: NCLAT

No merit in Cyrus Mistry’s petition against removal as Chairman (TATA Sons): NCLT

Case BriefsHigh Courts

Bombay High Court: A Division Bench of Ranjit More and Bharati H. Dangre, JJ. quashed the order passed by the Additional Chief Metropolitan Magistrate whereby he had issued process against the petitioners including veteran industrials Ratan Tata and Ajay Piramal. The process was issued in the case instituted against them by the billionaire businessman Nusli Wadia for the offence of defamation.

Backdrop

At the relevant time, Ratan Tata was the Interim Chairman of Tata Sons Ltd. and the other petitioners were its Directors. Notably, Tata Sons is a promoter of the three operating companies relevant herein — Tata Chemicals, Tata Motors and Tata Steels — of which Nusli Wadia was an Independent Director. On 24-10-2016, the erstwhile Chairman of Tata Sons, Cyrus Mistry, was removed by the Board of Directors of Tata Sons. Pursuant thereto, the IndependentnDirectors of Tata Chemicals met at the Bombay House whereafter they issued statements affirming their confidence in the erstwhile Chairman, Cyrus Mistry, and his Board. According to Tata Sons, it was Nusli Wadia’s attempt to galvanize the Independent Directors and that he did not conduct himself independently and acted as an interested party. Thereafter, Tata Sons decided to convene Extraordinary General Meeting of the shareholders of Tata Chemicals seeking, inter alia, removal of Nusli Wadia as its Independent Director. A Special Notice was also issued under Section 169(2) read with Section 115 of the Companies Act, 2013 which became the bone of contention between the parties. At the conclusion of the Extraordinary General Meeting, Nusli Wadia was removed from the office of Independent Director.

The Special Notice, the complaint, and the impugned order

According to the petitioners, the narration contained in the Special Notice issued under Section 169(2) read with Section 115, was a statutory requirement before taking action of removal of a Director. The said Notice contained averments that Nusli Wadia was acting in concert with Cyrus Mistry against the interests of Tata Chemicals. Whereas, according to Nusli Wadia, the said Special Notice containing the allegations was per se defamatory and no due diligence was shown by the petitioners by ascertaining whether the allegations were true or false before issuance of the said Notice containing the imputation. Consequent thereto, Nusli Wadia filed a complaint complaining that the petitioners individually and collectively committed an offence of defamation and were responsible for committing the offence under Section 500 (punishment for defamation) read with Section 109 (punishment for abetment) of the Penal Code. On this complaint, the Magistrate passed the impugned order recording a finding that the complainant made out a case against the accused persons and hence, he issued process against the petitioners.

Discussion

After perusing relevant statutory provisions, the High court was of the view that the impugned statement was to be referred to in the background in which it was made, namely, an act or conduct of the Independent Director who is sought to be removed by the Company who is empowered to remove its Director after following the procedure prescribed under Section 169 of the Companies Act, 2013. The Court was of the opinion that it was not necessary to assess or judge the truthfulness of the allegations. It was stated: “The imputation contained in the Special Notice cannot be viewed independent of the purpose for which it is included in the Special Notice and if the petitioners have adopted a legal course permissible to be adopted under the framework of the statute governing it, we do not think the allegations can be termed as per se defamatory.” It was noted that the statutory scheme itself contemplates that the notice should be accompanied by a brief statement of information and facts that would enable the members to understand the meaning, scope and implication of the items and business to be transacted in the meeting and to take decision thereof. Further, removal of Nusli Wadia was on of the agenda of the notice and it was accompanied by a brief statement why such removal was required — the statement which was impugned as defamatory. The court was of the view that imputations being part of the Special Notice which was statutory in nature, the same could not be termed defamatory.

Held

In view of the discussion mentioned above, it was held that the impugned order passed by the Magistrate was without application of mind and could not be sustained. Resultantly, the impugned order was quashed and the petition was allowed. [Ratan N. Tata v. State of Maharashtra, 2019 SCC OnLine Bom 1324, decided on 22-07-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal (NCLT): The petitioner’s who held over 18% equity shares in Tata Sons Ltd., were propelled to file the company petition against Tata Sons Ltd., Ratan Tata (Chairman Emeritus) and others. The petition arose consequent to the incident on 24-10-2016 wherein the Co.  Board meeting, Cyrus Mistry (Chairman) was removed from his position without giving 15 days notice. The petitioners alleged that the respondents conducted the affairs of the Co. In an oppressive manner which was prejudicial to the interest of the petitioners, the Co., and the public.

As per the petition, the factum of oppressive, arbitrary and prejudicial mismanagement lies in bleeding of Corus acquisition and overpriced take over, doomed Nano car project, Ratan Tata’s relationship with C. Sivasankaran (owner of Sterling Infotech Ltd.), DoCoMo Arbitration, and unjust investment of Ratan Tata at the cost of the Co., aviation industry misadventures, removal of Cyrus Mistry as Chairman of the Co., loss to the Co., in purchase of shares of Tata Motors. It was alleged that over time Tata Trusts directors had become the handmaiden of Ratan Tata and his lieutenant Noshir A. Soonawala (Vice Chairman, Tata Sons Ltd.); they had become a ‘Super Board’. They were alleged to control the Trusts Nominee Directors and thereby suppress the minority shareholders, the petitioners. It was further alleged that respondents acted as per Ratan Tata’s bidding, violating the Articles of Association. A grievance was also made against ‘legacy hotspots’. On the premise of these allegations modification in AoA was prayed for, along with demand to appoint an administrator to look after day-to-day affairs of the Co.; appointment of a retired Supreme Court Judge as non-executive Chairman, direction to the board not to remove Cyrus Mistry from the post of Chairman, restriction on the role of Soonawala, investigation into the affairs of the company, etc.

The Tribunal, in order to decide the petition, took upon an arduous task of visiting the history of Tata’s and the development of their corporations. In its 368-pages judgment, the Tribunal discussed each and every point raised by the petitioners and reached a conclusion that the petition was liable to be dismissed. The findings of the Tribunal are summarized (inter alia) hereinafter:

  • Board of Directors are competent to remove the Executive Chairman, the recommendation of Selection Committee was not required.
  • Removal of Cyrus Mistry was because he leaked company information to the Media, IT authorities, etc.
  • No merit was found on the purported legacy issues.
  • None of the articles of the AoA were oppressive against the petitioners.
  • Majority (shareholders) Rule has not taken a back seat with the introduction of Companies Act 2013. They are never in conflict with each other. Corporate democracy is genesis and corporate governance is species.

Finding no merit in the issues raised by the petitioners, it was held that all the affairs of the company being conducted as per AoA which fully complied with the Companies Act. Further, no merit was found on the role attributed to the Ratan Tata and other Trustees of Tata Trust. Accordingly, basing its decision on the reasons as summarized above, the Tribunal dismissed the appeal. [Cyrus Investments (P) Ltd. v. Tata Sons Ltd., CP No. 82 (MB) of 2016, dated 12-07-2018]