NCLAT order on Cyrus Mistry inconsistent, sets dangerous legal precedent: Tata Sons

The NCLAT judgment, Tata Sons submitted, is detrimental to the interest of Tata Sons and its members for its failure to discuss the reasoning and findings of the judgment of National Company Law Tribunal (NCLT) which had ruled in favour of the firm.
Cyrus Mistry, who took over as Chairperson of Tata Sons, the holding company of Tata group in December 2012 was removed from the post on October 24, 2016.(REUTERS)
Cyrus Mistry, who took over as Chairperson of Tata Sons, the holding company of Tata group in December 2012 was removed from the post on October 24, 2016.(REUTERS)
Updated on Jan 02, 2020 04:44 PM IST
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Hindustan Times, New Delhi | ByMurali Krishnan

The decision by the National Company Law Appellate Tribunal (NCLAT) reinstating Cyrus Mistry as the Chairperson of Tata Sons Limited is completely inconsistent with the annals of corporate law and sets a dangerous legal precedent, Tata Sons Limited claimed in a strongly worded appeal filed before the Supreme Court.

The NCLAT judgment, Tata Sons submitted, is detrimental to the interest of Tata Sons and its members for its failure to discuss the reasoning and findings of the judgment of National Company Law Tribunal (NCLT) which had ruled in favour of the firm.

Lawyers of Tata Sons confirmed that the appeal was filed on Thursday but refused to comment further.

Mistry, who took over as Chairperson of Tata Sons, the holding company of Tata group in December 2012 was removed from the post on October 24, 2016, by the majority of the Board of Directors of Tata Sons all of whom voted in favour of replacement except Mistry himself and another Director who abstained from voting. Subsequently, at an extraordinary general meeting convened on February 6, 2017, the shareholders had voted for removal of Mistry from the board of Tata Sons. N Chandrasekaran had then taken over as Executive Chairman of Tata Sons.

NCLAT had, on December 18 last year, set aside the judgment of NCLT and held that the proceedings of the board meeting of Tata Sons held on October 24, 2016, removing Cyrus Mistry as Chairperson were illegal. It had also quashed the appointment of N Chandrasekaran as Executive Chairman in place of Mistry.

Tata Sons claimed in its petition that the NCLAT granted reliefs which were not prayed for by restoring Cyrus Mistry to his “original position” as the Executive Chairman of Tata Sons and declaring the appointment of Chandrasekaran the incumbent Executive Chairman of Tata Sons as illegal.

Tata Sons pointed out that the tenure of Cyrus Mistry as the Chairman and Director of Tata Sons expired in March 2017 and a direction by the NCLAT to allow Mistry to continue as a functionary beyond the term would be contrary to the articles of association of the company and the established principles of company law.

Though the removal of Mistry, Tata Sons stated, was as per the procedure applicable to corporate appointment and set out in the Companies Act, 2013, NCLAT adopted an approach inconsistent with corporate democracy and the rights of shareholders and gave no reasons as to why Mistry’s removal was illegal.

“It is nobody’s case that such removal violated any law or any contract. The Hon’ble NCLAT has imported principles from the realm of public law and eschewed relevant principles that apply to corporate democracy, which are based upon the right of the shareholder to cast a vote. No reasons were given by the Hon’ble NCLAT on how the process of replacement and removal was wrong and illegal”, the petition states.

Tata Sons also assailed the finding of the NCLAT that Tata Sons continue to be a public company despite the Registrar of Companies approving the change in certificate of incorporation of Tata Sons from public to private company. NCLAT had declared the conversion illegal due to the failure to comply with the procedure prescribed in this regard in Section 14 of the Companies Act. Tata Sons has challenged this finding arguing that after the Companies Act, 2013 came into force, Tata Sons—which was a deemed public company—became a dejure private company by virtue of Section 2(68) of the 2013 Act.

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Sunday, May 29, 2022