LEGAL SPECS

 

CASE COMMENT

 

Case NameCyrus Investments Pvt. Ltd.& Anr. v. Tata Sons Ltd. &Anr.

Citations                           Company Appeal (AT) No. 254 of 2018

Bench Hon’ble Mr. B.S.V. Prakash Kumar, Member (Judicial) and

Hon’ble Mr. V. Nallasenapathy, Member (Judicial)

Relevant Act                     Companies Act, 2013

 

INTRODUCTION

The removal of Mr. Cyrus Mistry from his post was embarrassing, as never in the history a head was ousted this way. In 2012, Mr. Tata himself appointed Cyrus Mistry as his successor after being the head for 21 years.

Tata group consists of over 100 companies from which 28 are listed , they are indulged in various businesses from manufacturing salt to software company, the revenues ranging to 113 billion $ or Rs. 8,00,000 cr. And having 7,20,00 employees. Shapoorji pallonji which is the company owned by the Cyrus Mistry family is reasonably large and has interest in purifiers and construction sector and has turnover of more than Rs. 28,000 crore. This company is also the biggest shareholder in Tata group with shareholding of 18.4 %. The Mistry family is a large shareholder in the Tata group. A very large portion of the shares in the Tata sons are occupied by the Mistry family. The Mistry family has 18% individual shares in the Tata sons and 66% in the charitable trust of TataSons.

All the companies of the TataGroup are controlled by their holding company, the TataSons, which holds majority shares in these companies and hence controls them. But Tata had better days when they owned and ran iconic properties like the Mumbai Taj Mahal Hotel. TCS which is India’s largest software company is responsible for 75% of the total profit of the companies owned by the TataGroup.

This case was filed on December’20 2016 by two Mistry family backed investment firms namely Cyrus Investment Private Limited and Sterling Investment Corporation Private Limited before NCLT, Mumbai.

 

 

FACTS OF THE CASE

Cyril Mistry joined the board of Shapoorji Pallonji group and he was the biggest shareholder of the TATA and sons in the year 1991 In 1994, he was appointed the director of the company. 80% of the shares of TataSons company was owned by his company.

In 2006, after the retirement of Mr.Mistry’s father , he joined the board of TataSons. Then , in 2011, he was named the deputy chairman and then finally in 2012 because of the retirement of Mr. Ratan Tata Cyrus Mistry was appointed as the chairman of the Tata sons.N. Chandrashekhar who was the CEO of TataConsultancy Ltd. was appointed the new chairman of TataSons in January 2017. The board summoned a meeting on Feb 2017 to remove Cyrus Mistry from his position.

All this leading to the rift between TATA and Cyrus Mistry which came in the front of the world and everybody came to know about the ousting of Mr. Mistry from his position. Also, the removal of Mr. Mistry was not sudden, it was carried out after much deliberation. After the removal of Mistry front his position, Mr. Ratan Tata wrote a letter to the prime minister stating the news of removal of Mr. Mistry. The reason of removal given by Mr tata was that he did not work according to the needs and advice. A petition was filed by Cyrus Mistry in National Company Law Tribunal but it was rejected on the ground that there was no such mis-management as alleged by the petitioner in the TATA Group.

Cyrus Mistry then filed a petition in the national company law tribunal but it was rejected by the tribunal on the grounds that there was no mis-management in the company.The NCLAT on 18 December, 2019 through its order decided to make mr. Mistry the chairman again of the tata sons and gave 4 weeks to the respondent to appeal against this order. But the order of the NCLAT was held to be an error by the supreme court and the court put a stay order on this decision.The Supreme Court ordered to look into the matter in detail. 

On October 24, 2006 the board of TATA Group holding company, TATA sons voted to remove Mistry from the post of the chairman. Former Chairman, Mr. Ratan Tata returned as interim Chairman. In December 2016 two investment companies backed by the Mistry family moved the National Company Law Tribunal alleging Oppression of minority shareholders and mismanagement.

CONTENTIONS OF THE PARTIES

PETITIONERS CONTENTIONS

Cyrus Mistry stated that the nano project was not profitable and it was becoming a burden on the company but Mr.Tata continued it because of some emotional reasons.Mr. Cyrus Mistry also alleged that in the matter of money being invested, there is a lot of fraud that is being committed.But the SEBI took notice of the accusations and it made sure that there are not any fraud committed by the TataSons through their shares

Mr. Mistry also argued in the NCLAT through the affidavit that he was not able to organize things in the company or to work properly with freedom. He stated that Mr.Tata would interfere in his decisions and he also gave the proof through WhatsApp chats.

RESPONDENTS CONTENTIONS

Mr. Mistry was removed through legal procedure as laid down in the company law which was executed by the majority of the office. For the removal a notice has to be served 7 days prior to the meeting giving the appropriate details about the timings and place as per section 173 of the companies act, but if a decision is made by the majority of the directors then it could be waived by the independent director.

It was filed as they did not wanted an ex parte order against the decision of removal of Mr.Mistry.

ISSUES RAISED

There were several issues raised in this case. It is one of the most famous cases in the corporate world. Mr. Cyrus Mistry filed a petition in the National Company Law Tribunal, hereafter referred to as NCLAT under  section 241 and 242 of Companies Act, 2013. Following are the issues that were raised in the case:-

·       He alleged that there was oppression of minority shareholders.

·       Also stated that there was operational mismanagement by Tata Sons. They cited the failure of the Nano Car Project as an example and the losses incurred by that project.

·       That TataSons committed unethical corporate practice by abusing their control over the board of the company.

·       Article 75 of articles of Association of Tata Sons was specifically challenged.

·       Questioned transaction of Rs. 22 crore in Air Asia by Tata Trust.

·       The transaction of Rs. 22 crore by Tata Trust in Air Asia was also questioned

·       The transactions between Tata Groups and sterling group of companies were also questioned.

·       The ousting of Mr. Cyrus Mistry was also challenged and held to be illegal.

 

JUDGMENT

On 24 October 2016, Mr. Cyrus Mistry was the chairman of TATA Sons and on December 24 2016 he was removed from his post.A board meeting was held by the TATA Group. In that meeting, nine directors were present from which 7 voted for the removal of  Mr. Mistry from his post, one director stayed neutral and did not vote and one vote was against the of removal of  Mr. Mistry which he casted himself.

The judgment given by the NCLAT was in the favor of Cyrus Mistry as the tribunal stated that Mr. Mistry has proved that any wrongdoing was not committed by him that could call for his removal from the position and that the dismissal of Mr. Mistry was arbitrary and illegal. After the decision Shapoorji Pallonji group stated that they will not pursue any legal action against Tata Sons.

Even after TATA filed caveat before all Courts, Cyrus Mistry statedthat he will consult a law firm regarding their actions which could be taken ahead of his removal but he was not willing to pursue this matter with legal action against the company.The corporate sector was in shock.Because of the removal of Cyrus Mistry from his post, panic was also rising among the market and the company’s stock went down by 3.16%.

Mr. Mistry mentioned in the letter written by him that he was in shock after his removal from the post of chairman and on top of that allegations were put on him that he is not performing his duties efficiently. But in reality, he stated that the board was not using his abilities to the very best and he was not provided with the opportunities.

All the documents which were provided by Mr. Cyrus Mistry as evidence proved the point that there was certain disturbance and interference with his work at his time in the company.He was not given the opportunity to work according to his will in the company.In every task, in every field that he performed  they always interfered and he was burdened by the pressure. Furthermore, he stated that some of the senior members of the corporation also faced difficulty because they were also disturbed.

He also stated that according to the Article of Association of Tata Sonsthe chairman can be oustedby the member of the board only because of these following conditions:

·       If they are found to have committed a fraud;

·       they are involved in any type of mismanagement;

·       they are found to be disloyal to the corporation;

ButMr.Mistry claimed that he did not commit any of the things mentioned above.

Finally, the National Company Law Appellate Tribunal (NCLAT) gave the decision in the most anticipated case in Indian corporate sector. The Tribunal declared that the removal of Cyrus Mistry from his position was illegal and also stayed the conversion of TATA Sons from public to private company. Also the Tribunalannounced to restore Mr. Cyrus Mistry as the chairman of TATA Sons.

CONCLUSION 

The judgment delivered by the NCLAT was very crucial. This was not just the victory of Mr. Mistry but also a victory for the principles of corporate governance and for the interest of the minority shareholders. But soon the Supreme Court stayed the judgment delivered by the NCLAT stating that the order of the Tribunal had basic errors. As of now the case is pending in the Supreme Court andnow after the demise of Mr. Cyrus Mistry, we can no longer predict the outcome of this battle.