Tata Sons on Monday sacked its executive chairman Cyrus Mistry and handed over interim charge to Ratan Tata. Most business leaders, lawyers and analysts BloombergQuint spoke with declined to comment on this development but described it as shocking.
What won’t be shocking is if the Shapoorji Pallonji group decides to contest this decision by the Tata Sons board.
The Pallonji group owns 18.38 percent in Tata Sons, while Tata Trusts and Tata group companies own the rest, as per the company’s 2014-15 annual report.
Pallonji Group Vs Tata Sons
As a significant shareholder in Tata Sons, does the Shapoorji Pallonji Group have a shareholder agreement of any sort with the company? No such agreement is available in the public domain, but if it exists and it lays down the manner in which decisions will be taken, or people will be appointed, then the breach of those provisions may give the Shapoorji Pallonji Group grounds for a challenge, said Kartik Ganapathy, a partner at legal firm IndusLaw in an email interview to Bloomberg Quint.
The Shapoorji Pallonji group’s 18 percent ownership, Kartik explained, is significant only because it could enable a claim of oppression or mismanagement under company law. The claim could be that the ‘company’s affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company,’ he added.
The challenge, if there is one, may be on the grounds of the dismissal being one of a series of actions indicating oppression or mismanagement.Kartik Ganapathy, Partner, IndusLaw
Cyrus Mistry Vs Tata Sons
The other battle may be started by Cyrus Mistry himself, said JN Gupta, founder of proxy advisory firm SES in a telephonic interview. The terms of Cyrus Mistry’s appointment as chairman will become crucial.
If the board had appointed him, then they have every right to remove him. But if provisions of the agreement, if any, between him and Tata Sons have been breached, there may arise a claim against the dismissal.JN Gupta, Founder, SES
Prem Rajani, managing partner at law firm Rajani Associates added that if Cyrus Mistry has been removed as a chairman but continues to be a director on the board of the company, there is no provision in the Companies Act, 2013 that gives him the right to challenge this decision, unless the Articles allow otherwise.
If he is also being sought to be removed as a director (which seems rather unlikely), then he may (in his capacity as the director, not even invoking his right as a 18% shareholder through his family company) seek to question his removal as a director.Prem Rajani, Managing Partner, Rajani Associates
Cyrus Mistry is also the chairman on board of group companies like Tata Steel, Tata Motors, Tata Chemicals. These boards, said JN Gupta, will have to independently decide and to remove Cyrus Mistry and get their shareholders to approve the decision.