Cyrus Mistry Argues NCLAT Right To Reinstate Him As Tata Sons Chairman
Cyrus Mistry, former chairman of Tata Group, at an event in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Cyrus Mistry Argues NCLAT Right To Reinstate Him As Tata Sons Chairman

The NCLAT was well within its powers to re-instate Cyrus Mistry as the executive chairman of Tata Sons even if the relief was not specifically sought by him, Tata Sons’ former executive chairman has said in his affidavit.

Mistry was removed as executive chairman of Tata Sons in the company’s board meeting on Oct. 24, 2016, which led to the biggest corporate feud of the decade. After two rounds of litigation, the case landed at the Supreme Court in January this year.

Tata Sons had appealed the ruling by the National Company Law Appellate Tribunal before the apex court. The Mistry side has responded to it saying the appellate tribunal’s decision had correctly held Tata Sons’ conduct to be oppressive and one that warranted intervention. It would be incumbent on judicial forums exercising equitable jurisdiction to protect Tata Sons from absence of probity, the Mistry side has said. BloombergQuint has reviewed a copy of this affidavit.

NCLAT Judgment Undermines The Will Of The Board, Says Tata Sons

In its appeal, Tata Sons has said that by reinstating Mistry as executive chairman, the NCLAT judgment had undermined the will of the board of directors and shareholders who had decided to remove him.

After his removal from Tata Sons, Mistry was also subsequently removed from the board of three Tata Group companies. NCLAT had reinstated Mistry on the board of these companies as well. The three Tata companies have also filed their separate appeals challenging the reinstatement. Tata Sons has called this reinstatement a violation of the principles of natural justice arguing that the three companies were not even party to the dispute at the NCLAT.

The Tatas have also challenged the NCLAT’s conclusion on Article 121 of the Articles of Association of the company. Article 121 says certain critical matters such as deciding the five-year strategic plan, annual business plan, sale of any shareholding in any Tata company, exercising of voting rights of any Tata company etc can only be decided with the affirmative vote of Tata Trusts’ nominee directors. The affirmative voting provision is a well-recognised concept in corporate law and the NCLAT misconstrued it as being used to overriding all decisions of the board, Tata Sons has argued before the apex court.

The NCLAT in its ruling had said that while it has no jurisidction to hold any Article to be illegal or arbitrary as they’ve been approved by shareholders, it had criticised the manner in which the power was exercised.

NCLAT Has Wide Powers, Says Cyrus Mistry

Mistry side’s first counter to Tata Sons’ grounds of appeal rests on section 242 of the Companies Act, 2013. This section, Mistry has argued, grants power to the NCLAT to pass any order which it finds necessary to facilitate proper management of the company and it can go beyond the relief sought by the parties in the dispute. Hence, even though Mistry had not explicitly sought reinstatement on the Tata Sons board, the tribunal was within its power to order it.

Mistry sides’ second argument goes back to the stance that he was removed for his attempts to ensure Tata Sons operates as a board-run company. In his petition, Mistry has said the question of the will of board of directors does not arise in situations where the conduct of the majority shareholder has been held to be oppressive, especially in a two-group company.

Provisions in companies law relating to oppression and mismanagement are an exception to board supremacy and the tribunal is well within its powers to put an end to actions of the board which it finds oppressive and illegal, Mistry has told the Supreme Court.

Third, regarding reinstatement in the three group companies, Mistry has said he does not wish to be reinstated on the board of these companies but counters the arguments made by Tata Sons on the issue. Mistry argued that the removal was not sought by the shareholders of these three companies but was done at the behest of Tata Sons - the promoter and substantial shareholder.

Fourth, on Article 121, the Mistry side has stated that grant of such power to the majority shareholder is illegal in a public company as such companies require independent directors to balance the majoritarian tendencies.

The NCLAT ‘’correctly held that the affirmative voting rights were misused by the trustees of Tata Trusts to undermine the Board of Tata Sons and Tata Group companies’’, the Mistry side has told the apex court.

Mistry Seeks Additional Relief

Tata Sons has been unable to overcome the legacy issues which Mistry was trying to address before he was removed and which continue to plague the group, the affidavit has alleged.

The value of investments made by Tata Sons in the portfolio companies since October 2016 has eroded by Rs 40,000 crore. The value of investments made in the listed companies from October 2016 to December 2019 has eroded by 23% whereas the BSE Sensex rose by 27% in the same period. - Cyrus Mistry’s Affidavit

The Mistry side has also filed a cross appeal against portions of NCLAT order seeking additional relief from the top court. It has sought representation on the board of Tata Sons, proportionate to the stake held by him in the company. Mistry, along with his family has 18.4% shareholding in Tata Sons, the second largest shareholder after Tata Trusts.

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