[ by Kavita Krishnan ]The National Company Law Appellate Tribunal (NCLAT or Appellate Tribunal) bench headed by Justice S. J. Mukhopadhaya has restored Cyrus Mistry as the Executive Chairman of the Tata Group. The NCLAT noted that there was 'prejudicial' behaviour from the Tata Sons board towards the minority shareholders (Shapoorji Pallonji Group (SP Group). It also noted that the manner...
The National Company Law Appellate Tribunal (NCLAT or Appellate Tribunal) bench headed by Justice S. J. Mukhopadhaya has restored Cyrus Mistry as the Executive Chairman of the Tata Group. The NCLAT noted that there was 'prejudicial' behaviour from the Tata Sons board towards the minority shareholders (Shapoorji Pallonji Group (SP Group). It also noted that the manner of removal of Mistry was hasty.
Cyrus Pallonji Mistry was removed suddenly from the post of Executive Chairman of Tata Sons Ltd. on the ground that ‘Tata Trusts’ had lost confidence. No legal opinion was taken by the Board of Directors to determine whether the removal of the ‘Executive Chairman’ in such a hasty manner was in accordance with the Articles. The requisite compliance with Article 118 of the Articles was also given the go-by. No committee was formed for removal of the incumbent Chairman as required under Article 118.
The minority group of shareholders/SP Group moved an application under Sections 241-242 of the Companies Act, 2013 alleging prejudicial and oppressional acts of the majority shareholders (Tata Groups).
The National Company Law Tribunal (NCLT), Mumbai Bench, initially dismissed the petition being not maintainable and also dismissed the petition for waiver.
The decision of the NCLT was challenged in the NCLAT.
The Appellants (SP Group) highlighted various instances alleging ‘prejudicial’ and ‘oppressive’ decisions taken by the Tata Group which were ‘prejudicial’ to the interest of the Company adversely affecting the interest of the members, including the minority members (SP Group). Innumerable examples of emails from Ratan Tata to Cyrus Mistry and vice versa have been shown as documentary evidence to support the prejudicial oppression.
The Appellate Tribunal held that if all major decisions are taken in advance by the ‘Tata Trusts’ and for taking every decision, matters are to be placed before the ‘Tata Trusts’, in such case, independence of the Board of Directors of the Company becomes irrelevant.
Further, the NCLAT held that in view of ‘prejudicial’ and ‘oppressive’ decision taken during last few years, the Company, its Board of Directors and shareholders which has not exercised its power under Article 75 of the Articles of Association since inception, will not exercise its power under Article 75 against Appellants and other minority members.
The NCLAT observed that, “If we accept the stand taken by the Contesting Respondents (Tata Sons) that the removal of Mr. Cyrus Pallonji Mistry is directorial in nature, in the interest of Company, in such case, there was no occasion to issue a ‘Press Statement’ where it is noticed that many across the globe have raised concern in the manner Mr. Cyrus Pallonji Mistry was removed. The Company and its Board also understood that such removal may lead to a sense of uncertainty of ‘Tata Sons Ltd.’ and ‘Group Companies’ and result in winding up.”
The NCLAT further held that the NCLT or the Appellate Tribunal generally has no jurisdiction to hold any of the Articles of a Company as illegal or arbitrary since the terms and conditions are agreed upon by the shareholders. However, if any action is taken even in accordance with law which is ‘prejudicial’ or ‘oppressive’ to any member or members or ‘prejudicial’ to the Company or ‘prejudicial’ to the public interest, the Tribunal may pass appropriate orders in terms of Section 242.
The Appellate Tribunal observed that Cyrus Mistry had been pointing out that some of the ‘Tata Companies’ were suffering loss and if appropriate steps were not taken, it may aggravate in future. However, despite such communications made between the period of 2013 to 2016, the Board of Directors had not taken any decision for the revival or restructuring of Tata Companies which were facing losses.
The NCLAT noted that the suggestions made by Cyrus Mistry for good governance by the Board and to take care of Tata Companies were not taken in its letter and spirit by Mr. Ratan N. Tata of ‘Tata Trusts’ which resulted in no confidence on Cyrus Mistry.
The NCLAT concluded that the Resolution dated 24th October, 2016 passed by the Board of Directors of Company removing Mr. Cyrus Mistry as the Executive Chairman of the Company (‘Tata Sons’) was illegal. Also the NCLAT reinstated Mr. Cyrus Mistry to his original position as Executive Chairman of ‘Tata Sons Limited’ and consequently as Director of the ‘Tata Companies’ for rest of his tenure.
The NCLAT judgment has come down heavily against the attempt to convert Tata Sons into a private limited company in a marked departure of it being a public limited company, even as the matter was sub judice.
The judgment also provides clarity on the private versus public company concept for Tata Sons. It says that sub section (3) of Section 23 shall apply to a change of name under sub section (2) as it applies to a change of name under Section 21 – “a private company which has become a public company by virtue of this section shall continue to be a public company until it has, with the approval of the Central government and in accordance with the provisions of this Act, again become a private company.”
The judgment goes on to say that curiously, Tata Sons remained silent for 13 years and never took any step for conversion in terms of Section 43A (4) of the Companies Act, 1956. Even after the enactment of the Companies Act, 2013, which came into force on April 1, 2014, it had not taken any step under Section 14 for more than three years. Till date, no application has been filed before the Tribunal under Section 14 (2) for its conversion from a public company to a private company.
In absence of any such approval by the Tribunal under Section 14, the NCLAT held that ‘Tata Sons Limited’ cannot be treated or converted as a ‘Private Company’ on the basis of definition under Section 2(68) of the Companies Act, 2013.