Tata Sons move SC against NCLAT order on Cyrus Mistry
The appeal said that the NCLAT order was completely inconsistent with the annals of corporate law and would set a dangerous legal precedent.
Tata Sons Ltd on Thursday challenged in the Supreme Court a December 18, 2019, order by the National Company Law Appellate Tribunal (NCLAT) reinstating Cyrus Mistry as the executive chairman of Tata Sons Limited and as a director on the boards of other Tata group companies; terming illegal the change of Tata Sons from a public to a private company, and the appointment of N Chandrasekaran as the executive chairman of Tata Sons. The company contended in its petition that while the first relief was never sought for by two family firms of Mistry, the second and third decisions were taken legally.
The appeal, which was expected, added that the NCLAT order was completely inconsistent with the annals of corporate law and would set a dangerous legal precedent. It also pointed out that Mistry’s term as chairman would have anyway ended in March 2017, and surmised that this was probably why the two Mistry firms had not sought for his reinstatement. Through these firms, the Mistry family owns 18.4% of Tata Sons.
The NCLAT judgment, Tata Sons submitted, failed to discuss the reasoning and findings of the judgment of the National Company Law Tribunal (NCLT), which originally ruled in favour of Tata Sons.
Lawyers representing Tata Sons confirmed that the appeal was filed on Thursday but declined further comment. One of Mistry’s lawyers, too, declined comment.
In its ruling, NCLAT said that Cyrus Mistry’s dismissal as executive chairman of Tata Sons Ltd by the board of that company on October 24, 2016, was illegal.
Mistry, who took over as chairman of Tata Sons, the holding company of the Tata group in December 2012, was removed from the post on October 24, 2016, by the majority of the board of directors of the company. Subsequently, at an Extraordinary General Meeting convened on February 6, 2017, the shareholders voted for the removal of Mistry from the board of Tata Sons.
The legal battle that followed Mistry’s dismissal was circuitous. In early 2017, NCLT dismissed a case by two Mistry family firms against Tata Sons over Mistry’s dismissal and the alleged “oppression” of minority shareholders and “mismanagement” on the grounds that the two did not meet the requirements 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 judgment. This was finally delivered on December 18 last year. However, the body stayed some part of the judgment (Mistry’s reinstatement) for four weeks because the Supreme Court is on vacation till January 5.
Tata Sons has said in the petition before the Supreme Court that 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 said that the tenure of Cyrus Mistry as the chairman and director of Tata Sons expired in March 2017 and a direction by NCLAT to allow Mistry to continue as a functionary beyond the term is contrary to the Articles of Association of the company and the established principles of company law. It submitted that such a direction to restore Mistry for his remaining term, without noticing that the term has come to an end, is a “recipe for disaster”, and that it would create unnecessary confusion in the working of companies, leading to more conflict.
Though the removal of Mistry, Tata Sons stated, was as per the procedure applicable to corporate appointment and as set out in the Companies Act, 2013, NCLAT adopted an approach inconsistent with corporate democracy and the rights of shareholders and gave no reasons why Mistry’s removal was declared 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 stated.
Tata Sons also assailed the finding of 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 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 challenged this finding arguing that after the coming into force of the Companies Act, 2013, Tata Sons, which was a deemed public company, became a dejure private company by virtue of Section 2(68) of the 2013 Act.
NCLAT’s ruling 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.
Soon after the NCLAT ruling, Mistry said in a statement: “Today’s judgment is not a personal victory for me, but a victory for the principles of good governance and minority shareholder rights.”
“It is not clear as to how the NCLAT order seeks to overrule 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 at the time. 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.
In its plea before the Supreme Court, Tata Sons submitted that the consultative process imposed upon it by NCLAT, ordering that the Shapoorji Pallonji (Mistry) group be consulted when appointing the executive chairman or directors of Tata Sons amounts to tearing apart the rights of majority shareholders and directors enshrined under the Articles of Association of Tata Sons and the Companies Act, 2013.
“NCLAT has, in one stroke of the pen, pulled down the governance and corporate structure of the Appellant, so painstakingly put together by its founders, in the spirit of trusteeship and responsibility, in the course of the last one century,” the petition stated.
