The Mumbai bench of National Company Law Tribunal (NCLT) on 09/07/2018 rejected a petition filed against Tata Sons by minority shareholders who had alleged that Cyrus Mistry’s sudden removal in 2016 as the chairperson of Tata Group holding company was very oppressive.
Mistry was removed as executive chairman of Tata Sons on October 24 2016 by its board of directors. It led to two of his family-run investment firms dragging the corporate monolith and 22 others including Tata Sons former chairman Ratan Tata, various other Tata trustees and directors that December to the company law tribunal to complain of aggressive oppression and mismanagement.
The NCLT held that Mistry as Chairman was removed because board of directors lost faith. “The Board is competent to remove Mistry. No selection committee was needed,” said judicial member B S V Prakash Kumar as he read out from the verdict.
The pronouncement has come as a very sweet and joyful victory for Tata Sons represented by the main counsel Advocate Abhishek Singhvi who had argued extensively that the whole petition was a “proxy battle” by Mistry who he had likened to a “Trojan horse” while arguing the petition earlier.
The bench held, “Removal of Mistry as director is because of acrimonious behaviour and is justified.” It also said, “Proportional representation not possible as articles do not mandate it.”
“No merit in legacy issues – do not fall within section 241 of the Company’s Act which provides for minority shareholders to move for relief against acts of oppression,” the bench added.
“Ratan Tata and Soonawala’s suggestions cannot trigger the plea for relief under sections 241 and 242 of the Company’s Act. No merit in shadow directors argument,” said NCLT. The tribunal also found that “No merit that articles including article 75 are oppressive against petitioner,” and said. “Just and equitable ground is added to mismanagement and hence petition is dismissed.”
The main reason is that Mistry’s removal in itself is an act of oppression by Tata Sons, the group holding company, “to prevent him from carrying out a clean-up op against the mismanagement.’’ Tata Trusts owns 66 per cent shareholding in Tata Sons. The challenge also centres around five articles of association, including veto rights of majority of Trust nominated directors, of which Mistry’s family feel are oppressive to both, public and their interest as minority shareholders.
The petition before NCLT against Tata Sons is filed by Cyrus Investments and Sterling Investment Corporation. But Tata Sons’ counsel Adv. Abhishek Singhvi called it a “scurillous’’ attack and “Mistry’s proxy litigation.’’
The Mistry family firms owns 18.6 per cent in Tata Sons, making it the second largest shareholder. But voting rights is for holding less than 4 percent. Mistry took over the reins of the horse (Tata Sons) to a $103 billion conglomerate from Ratan Tata, when he turned 70 years old, in December 2012. Five months after his removal as chairman, Tata Sons removed Mistry as its director too.
The investments of the Mistry firms had appreciated from the initial Rs 70 crore when they first became shareholders in 1965, to Rs 58000 crore in March 2016, said Tata Sons. In over 50 years, they had never ever for even once complained of any mismanagement or oppression, much less of any prohibition by Ratan Tata or N A Soonawala, as they did now, argued Tata Sons. The ultimate relief provided under the Companies Act for the challenge now raised is winding up of the company—among India’s largest.
The NCLT while earlier denying Mistry relief, had praised the Tata Group as a “salt to software’’ giant, an “untiring provider’’ and a “household name’’ with a global footprint. After a chequered battle with the matter being sent back to the Mumbai tribunal by its appellate body in Delhi, it was heard since last November by the main bench of BSV Prakash Kumar and V Nallasenapathy, on merits. The bench had concluded a lengthy, animated, seemingly bitter sometimes stormy hearing early February.
Mistry camp’s legal team of counsel C A Sundaram and Janak Dwarkadas launched an all-out legal battle and made long submissions to bring home their five point allegations that the actions of Tata Sons run by majority shareholders, its chairman emeritus Ratan Tata and various other Trustees right from removing Mistry was oppressive to the minority shareholders’ interest along with mismanagement and contrary to provisions of the company law. There was no cause on merits to remove Mistry whose performance was rated high by the company itself, argued his counsels.
Tata Sons’ Counsel Abhishek Singhvi hit back at length too to refute Mistry’s entire case as nothing but an “act of vendetta’’ lacking in any merits by “a Trojan horse’’ relying only on a “ruse’’ to publicly air his displeasure at the loss of his office.’’ Tata Sons had Nitesh Jain of Shardul Amarchand Mangaldas, and host of other senior counsel including Ravi Kadam, Mohan Parasaran, Sudipto Sarkar Mistry for various trustees. Their collective plea was that “Business decisions taken over a decade ago, some even two decades ago, also those which have Mistry’s “express consent” are being raised as “so-called issues and concerns’’ by two of his family owned companies making it apparent that “it is yet another attempt to harm the reputation of Tata Group,’’ with “no credible material to establish any oppression or mismanagement.’’
Singhvi also said the attack on “lack of corporate governance was a bogey.’’ He hailed Ratan Tata as a revered corporate legend and said Tatas are held up as examples on corporate governance for rest of India Inc. It was also argued by Tata group lawyers that a board position with Tata Sons is offered by invitation and cannot be sought as of right based on shareholdings.
Tata Sons argued that the law clearly allows removal of a chairperson and director and Mistry was removed by a majority of 7 out of 9, Mistry being one who didn’t vote for his removal and one had abstained. Singhvi had dived into legal semantics on use of word “ prejudice” from the Companies Act 2013 and said that Mistry failed to prove any.
A key allegation was that the Tata Sons Board had turned into a ‘super board’ was ‘shadow’ directors, and its oppressive articles 121, 121A vested veto powers with majority of the Trust nominated directors which could “prejudice’’ interest of public, minority shareholders and the company itself. The Mistry camp cited as examples of alleged mismanagement, the “Nano project, Corus, discovery and handling of the alleged Air Asia India fraud, NTT Docomo case.’’
Recommended By Colombia, Sundaram had argued that the proposed conversion Tata Sons from public to private was also an oppressive move. Much force was put by Sundaram also into how article 75 in the company memorandum of association would be a significant oppressive tool. The apprehension was that it would be used now as a tool for oppression as it allows the compulsory purchase of shares of any shareholder including Mistry, whose two petitioning companies together hold over 18 percent shares, he said.
Singhvi had said that at all times for over 100 years, irrespective of the changes in Indian law, Tata Sons had always “remained a company exhibiting private characteristics”. The change was now only a technicality under the law, was his response.
After Mistry replied to some letters from the Income Tax department after he was removed from office, without any authority to do so, Tatas counsel Singhvi had submitted that the behaviour amounted to that of a Trojan Horse as costing the Tata group dearly.