The Bombay high court, in an interim order on Friday, directed Tata Sons to keep one seat of an independent director “vacant until further orders” in each of its three companies where industrialist Nusli Wadia currently serves as an independent director.
The directions came in the backdrop of the dispute between Wadia and Tata Sons, following a special notice issued by the latter seeking Wadia’s ouster as the independent director from three of its entities—Tata Chemicals, Tata Motors and Tata Steel. Each of these three companies is scheduled to conduct extraordinary general meetings (EGM) later this month, to vote on the requisition seeking Wadia’s removal.
Earlier this month, four minority shareholders of these three companies had moved the Bombay high court against the special notice on Wadia’s removal.
These shareholders, Janak Mathuradas, Yogesh Mathuradas, Chanda Mathuradas and Pramila Mathuradas, had challenged a rule in the Companies Act that allows promoters to vote on a resolution seeking removal of independent directors. They had sought among other things, that the SEBI and the Union government be directed to amend the Act and restrain the companies from removing Wadia.
Wadia himself filed a defamation suit against Tata Sons on Thursday. On Friday, the shareholders sought, by way of an interim relief, that either the voting in the EGMs be restricted, or that the results of the poll be kept in a sealed envelope before the court until the matter is decided finally.
While justice SJ Kathawalla refused to interfere with the EGMs, he ruled that Tata Sons will have to keep a seat vacant in each of these companies so that if the companies decide on Wadia’s removal, and if the court ultimately decides that such removal was unauthorised, Wadia can be reinstated as independent director.
The directions came after the shareholders as well as Wadia himself, through their respective counsels, NH Seervai and Janak Dwarkadas argued that the notice seeking Wadia’s removal was malicious, caused prejudice to the interest of other minority shareholders, and that the sole aim of the move was to make the other independent directors “toe the line”.
Wadia argued that he was being “singled out and targeted” only because he had publicly voiced his support for ousted chairperson of Tata Sons, Cyrus Mistry. He said that Tata Sons feared that he was “galvanising” other directors to support Mistry.
He added that he had “never worked against the investors’ interest” and that Tata Sons had chosen to target the wrong person and that he wouldn’t leave without putting up a fight.
He said that the SEBI and the court must interfere to ensure that the interests of the independent directors and minority shareholders are “not subverted by the overweening promoters of the group”.
Dwarkadas said that after the notice, Wadia had written to SEBI but the latter had failed to respond.
SEBI, however, argued that it could “not act on a case to case basis and instead, it was examining if the Act needed to be amended and would make a suggestion to the legislature accordingly”.
Tata Sons, meanwhile, argued through its counsel and former Union minister P Chidambaram that the group was well within its powers to seek Wadia’s removal since the Company’s Act provided for such an action if the “conduct of an independent director changes”.
He went on to say that since the “general body of the company had the sole power to appoint an independent director, it alone had the powers to remove him or her as well.” “And this,” Chidambaram said was “corporate democracy.”
Chidambram also told the court that if the EGMs decided on Wadia’s removal, Tata Sons had no “immediate plans to find a replacement”.
HC has now asked Tata Sons to file a reply by January 15 next year, the minority shareholders to file a rejoinder by January 25, and has scheduled the matter for final hearing on February 6 next year.