CYRUS MISTRY INVESTMENTS
PVT LTD. V/S TATA SONS LTD AND ORS.
Introduction
The
Tata Group in itself is a large group with a conglomerate of over 100
companies, Out of which many companies are listed, creating a revenue of around
Rs.8,00,000cr., providing employment to
thousands of people. On the other hand, Cyrus Mistry in itself is a big name in
reference to construction, water purifiers etc. and his company has managed to
earn turnovers approximately amounting to Rs. 28,000cr. They had a huge
shareholding of 18.4% at Tata Groups amounting to them being the largest
individual shareholder in Tata Group.
Facts and Background
After
Cyrus Mistry joined the board of ShapoorjiPallonji group, he was the biggest
stakeholder of TATA & Sons. in the year 1991. Later in the year 1994, he
was appointed as the director of the group. He joined the board of Tata Sons.
in the year 2006. Few years down the line, he was appointed as the deputy
chairman and then the chairman of Tata Sons. after the retirement of Mr.Ratan
Tata in the year 2012. The reason of clash aroused when the board summoned the
removal of Cyrus Mistry from the post as a director in the year 2017. This
clash was spread across worldwide, all the media reporting’s were covering the
news which made everyone aware of the removal of Cyrus from the board. The
reason for removal was stated as his in accordance in working environment.
Timeline:-
1) December,
2012- Mistry was appointed as the Chairman of Tata Sons ltd.
2) October,
2016- Mistry was removed from the post.
3) January,
2017- N Chandrashekharan was appointed as the chairman of Tata Sons ltd.
4) February,
2017- Mistry was removed from the BODs by shareholders vote.
Mistry
filed a suit against them under sections 241, 242 & 243 of the Companies
Act, 2013 before National Company Law Tribunal (NCLT), alleging them of
oppression of minority shareholders and mismanagement of Tata Sons. It was
stated by Mistry that there were scenarios of abuse of powers, removal of
himself as an executive chairman, losses suffered during the production and
supply of Nano, and several such fraudulent activities.
National Company Law Tribunal
(NCLT), Mumbai Verdict
The
NCLT verdict was not in favour of Mistry, the bench dismissed all the charges applied
by Mistry, for matters regarding Nano the NCLT held that allegations were made
without making Tata a party. It also rejected several allegations of
acquisitions and transactions that were made by Mistry. The bench also held
that such allegations of oppression of minority shareholders were meritless.
National Company Law
Appellate Tribunal (NCLAT), Verdict
The
National Company Law Appellate Tribunal (NCLAT), which had decided in favour of
the Cyrus Mistry firms, overturned the NCLT's Mumbai Bench ruling in December
2019. According to the NCLAT, Mistry's ouster as chairman of Tata Sons was
unlawful. The NCLAT also mandated Cyrus Mistry's return to his position as
chairman of Tata Sons and deemed N Chandrasekaran's nomination to the position
of chairman of the over $100 billion companies that produce everything from
salt to software to be "illegal".
Thereafter,
Tata Sons and Ratan Tata filed a petition with the Supreme Court in January
2020, challenging the NCLAT ruling. In its appeal, Tata argued that it had done
nothing wrong when Cyrus Mistry was fired from his position as chairman of Tata
Sons Limited in October 2016. The company further stated that the board had
every right to do so. The NCLAT ruling from December 2019 to reinstate Cyrus
Mistry as the executive chairman of Tata Sons was subsequently stayed by the
Supreme Court in January 2020, providing relief to Tata Group.
SUPREME COURT Verdict
On
March 26, 2021 the SC finally pronounced the judgment on the case. The
judgement was pronounced by a bench of Supreme Court headed by Chief Justice S
A Bobde and comprising Justice V Ramasubramanian and Justice A S Bopanna. The
judgement favoured the Tata Group and SC dismissed the charges of oppression
and mismanagement claimed by Mistry.
According
to the Supreme Court, "the Company Law Tribunal cannot interfere with the
removal of a person as a Chairman of a Company in a petition under Section 241
of the Companies Act, 2013 unless the removal of a person as a Chairman of a
Company is oppressive or mismanaged or done in a prejudicial manner damaging
the interests of the company, its members, or the public at large."
The
court ruled that unless it can be proven that a person's removal as Chairman of
the Company is "oppressive or prejudicial," it is not a subject
matter under Section 241. The court determined that the reinstatement power is
not expressly granted by Sections 241 and 242 of the 2013 Companies Act.
As
a result, the Supreme Court nullified the National Company Law Appellate
Tribunal's (NCLAT) decision of December 18, 2019 to reinstate Cyrus Mistry as
executive chairman of Tata Sons. In addition, the panel stated that there
was never a case to begin with because the sole issue at hand was Cyrus
Mistry's dismissal as chairman of Tata Sons Limited, and the corporations were
inflating their real grievances by citing other prior instances.
Most
legal experts believed that Sri Ratan Tata, who was among the first to applaud
the order, and the Tata Group of Companies would triumph as a result of the
Supreme Court's decision. However, it has also raised a lot of unresolved
issues in the area of corporate governance. Numerous experts also believed that
the Apex Court did not treat the minority shareholders fairly. Additionally,
the Apex Court's pointed observations have raised more questions and
misunderstanding about the applicability of the time-tested corporate
governance rules.
One
observation of the Supreme Court is worth quoting here:
“If
all Directors are required under Section 166(3) to exercise independent
judgment, we do not know why there is a separate provision in Section 149(4)
for every listed public company to have at least one-third(1/3rd of the total number of Directors as
Independent Directors.”
CONCLUSION
It
was a fairly high profile case right away. This case showed the flaws in the
corporate governance structure, as discussed in the paragraphs above while
evaluating the Supreme Court judgement. It did, however, provide a clear
reading of Section 241. The contradicting NCLT and NCLAT orders led to a great
deal of uncertainty and confusion, which the Apex Court endeavoured to clear up
with its ruling. Even if he had a stronger emotional and sympathetic base due
to the way he was removed from office, Mr.Cyrus Mistry's case is weak based on
legal arguments.
The
judgement also provided a brief overview of the authority of the Company Law
Tribunal, holding that, barring circumstances where the removal of a person as
Chairman of a company is "oppressive or prejudicial in nature," the
tribunal cannot intervene in such a petition filed in accordance with Section
241 of the Companies Act, 2013.
The
Supreme Court's decision to separate minority shareholders from small
shareholders has opened up a new discussion about minority shareholder rights.
Going forward, these shareholders will need to make sure that they have a
contract with the company's promoters or majority shareholders that guarantees
them adequate representation on the Board.
The
only conclusion that can be drawn from this is that both parties' reputations
as strong corporate governance houses have taken a significant hit, and a few
new issues about corporate governance principles had arisen which had to be
dealt accordingly.
REFERENCES
1) https://blog.ipleaders.in/tata-sons-v-cyrus-misty-a-case-study-in-corporate-governance/
2) https://blog.ipleaders.in/tata-sons-v-cyrus-mistry-case-analysis/#Supreme_Court_Verdict
3) https://indiankanoon.org/doc/150596924/
4) https://indianlawportal.co.in/cyrus-investments-pvt-ltd-v-tata-sons-ltd-and-ors/
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