NCLAT restores Cyrus Mistry’s chairmanship of Tata Sons
The National Company Law Appellate Tribunal, or NCLAT, has ruled that Cyrus Mistry’s dismissal as executive chairman of Tata Sons Ltd by the board of that company on October 24, 2016 was illegal in a comprehensive, surprising, and sweeping ruling that Tata Sons is almost certain to challenge in the Supreme Court when it reconvenes after the New Year holidays (Wednesday was the court’s last working day this year).
In its ruling, NCLAT also deemed the Tata Sons transition from a public company to a private company illegal, making it easier for the Mistry family, the single largest shareholder in the holding company of India’s oldest and best-known conglomerate, to sell part of all of its 18.4% stake should it wish to. And it restored Mistry’s directorships in other companies of the Tata group.
The tribunal has stayed the restoration of Mistry’s chairmanship for four weeks, to facilitate an appeal, but not some of the other key decisions.
“Today’s judgment is not a personal victory for me, but a victory for the principles of good governance and minority shareholder rights,” Cyrus Mistry said in a statement. Interestingly, Mistry had not specifically asked NCLAT to restore his chairmanship and it isn’t clear whether he will press for it after four weeks (provided the Supreme Court does not stay it while hearing the Tata Sons appeal). “It is a vindication of my stand.”
“It is not clear as to how the NCLAT order seeks to over-rule the decisions taken by the shareholders of Tata Sons and listed Tata operating companies at validly constituted shareholder meetings. The NCLAT order appears to even go beyond the specific reliefs sought by the appellant,” Tata Sons group general counsel Shuva Mandal said in a statement. He added that Tata Sons “strongly believes in the strength of its case and will take appropriate legal recourse”.
And while the four-week breather doesn’t change anything immediately for current Tata group chairman N Chandrasekaran, the NCLAT order does throw a cloud over his appointment.
The NCLAT order said that it does not want to stay its entire judgement, but that in the interests of “smooth functioning” of Tata Sons it would “suspend the part of the judgment so far as it relates to the replacement of the present Executive Chairman and reinstatement of Cyrus Pallonji Mistry as Executive Chairman”.
In his statement, Mistry said: “I believe it is now time that all of us work together for sustainable growth and development of the Tata group, an institution that we all cherish.”
The legal battle was circuitous. In early 2017, the National Company Law Tribunal dismissed two Mistry family firms’ case (they are the shareholders in Tata Sons) against Tata Sons over Mistry’s dismissal and alleging “oppression” of minority shareholders and “mismanagement” on the grounds that the two did not meet the requirement to file such a case.
The firms approached NCLAT which, in September 2017, said it could waive the requirement and that the companies could pursue the case, which then went back to NCLT.
In July 2018, NCLT ruled that there was no merit in the Mistry firms’ case. Soon after, an appeal was filed in NCLAT, which finished its hearing in July and reserved its judgement. This was finally delivered on Wednesday.
The Mistry firms argued before NCLAT that the agenda of board meetings of Tata Sons had to be cleared ahead of the meetings by the nominee directors of the Tata Trusts (which control Tata Sons) and that an item could be introduced on the agenda only if these nominee directors voted in favour of it. They also pointed to the restriction on sale of shares, and said this affected the rights of minority shareholders (such as themselves).
On Wednesday, shares of most listed Tata group companies fell after the order was pronounced.