‘Vindication’ for Ratan Tata after court rejects Cyrus Mistry’s plea against ouster from company
In a major victory for the $100-bilion Tata Group and its chairman emeritus Ratan Tata, the National Company Law Tribunal (NCLT) on Monday dismissed all charges by the group’s former chairman Cyrus Mistry challenging his ouster from Tata Sons, the holding company of India’s largest conglomerate and its corporate governance standards.
In an oral order, a Mumbai division bench of NCLT presided by BSV Prakash Kumar and V Nallasenapathy dismissed the petition filed by the Mistry family’s investment firms, stating it found no merit in the case.
The bench said that Mistry was removed as chairman of Tata Sons because its shareholders had lost trust in him. The tribunal rejected all of Mistry’s allegations and ruled that the parent of India’s largest conglomerate had the right to remove him as its chairman.
“We have not found any purported merit or issues raised by the minority shareholder in his petition under the Section 241 and 242 of The Companies Act, 2013,” the NCLT bench ruled in a packed courtroom. It also found no merit in Mistry’s argument that Ratan Tata and Tata Sons trustee NA Soonawala interfered in the governance of Tata Sons.
Mistry, whose family is the single-biggest corporate shareholder in Tata Sons, was named group chairman in November 2011 and took over in December 2012 after the retirement of Ratan Tata. On October 24, 2016, the board of Tata Sons dismissed him as chairman and made Ratan Tata interim chairman. The Tata Trusts , a collection of philanthropic trusts, own 68% of Tata Sons.
Mistry contended that the articles of association of Tata Sons were biased against the rights of minority shareholders and thereby oppressive, a charge Tata dismissed saying he had been on the company’s board since 2006 and never mentioned this till he was fired.
The tribunal also did not find any merit in Mistry’s charge of corporate governance lapses.
The Tata group welcomed the ruling, saying that it vindicates the position of Tata Trusts and Tata Sons.
“The Tata Group has always been committed and will continue to be committed to transparency and good corporate governance of global standards,” said N Chandrasekaran, chairman of Tata Sons. “Tata Sons hopes that finality will be given to the judgement of NCLT, Mumbai by all concerned in the larger interest of companies, the shareholders and the public,” he added.
Ratan Tata said the judgement was a “vindication of the actions that Tata Sons felt obliged to take in October 2016”.
Mistry termed the ruling disappointing. “We will continue to strive for ensuring good governance and protection of interests of minority shareholders and all stakeholders in Tata Sons from the wilful brute rule of the majority. An appeal on merits will be pursued,” a statement from Mistry’s office said.
Monday’s NCLT judgment concludes one chapter of Mistry’s continuing battle with Tata Sons, which erupted yet again last week, when he questioned the rationale behind the sale of Tata Communications to Bharti Airtel Ltd, debt-driven acquisitions by Tata Steel Ltd and its European merger with ThyssenKrupp AG, among others. Last year, Mistry opposed a move to convert Tata Sons into a private limited company.
Mistry’s investment firms have the option to challenge the ruling at the National Company Law Appellate Tribunal (NCLAT) and later in the Supreme Court.
“The board enjoys corporate democracy as well as freedom and if it wishes to remove an executive chairman, it can do so under the law,” said Sanjay Asher, senior partner at law firm Crawford Bayley & Co, adding the ruling is in line with the law. “The board has the power to replace its non-executive chairman and the shareholders have the power to appoint or remove a director and no court can take away that power.”
Mistry’s investment firms Cyrus Investments Pvt. Ltd and Sterling Investment Corp. Pvt. Ltd had on December 20, 2016 filed the NCLT petition under sections of the Companies Act that deal with oppression and mismanagement. They had alleged that Mistry’s removal as chairman, and subsequently as director of Tata Sons Ltd, was a result of oppression by Tata Sons, in which Tata Trusts owns 68%.
The second part of the plea focused on alleged mismanagement by the Tata Sons board and Ratan Tata causing revenue loss to the group. The Mistry family owns 18.4% stake in Tata Sons, though its holding with voting rights is less than 4%.
According to Mistry’s petition, Tata Sons abused the articles of association and the governance framework to enable Ratan Tata to gain control of the company.
Mistry took over the reins of the salt-to-software giant in December 2012 after Tata demitted office when he turned 75.