NCLAT Order A “Recipe For An Unmitigated Disaster”- Tata Sons To Supreme Court
Signage for Tata Consultancy Services Ltd. is displayed outside the company’s headquarters in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

NCLAT Order A “Recipe For An Unmitigated Disaster”- Tata Sons To Supreme Court

Tata Sons Pvt. Ltd. has moved the Supreme Court against the National Company Law Appellate Tribunal’s judgment to reinstate Cyrus Mistry as executive chairman of Tata Group’s holding company, terming it a “recipe for unmitigated disaster”.

In its judgment on Dec. 18, NCLAT had ruled that Mistry’s dismissal as chairman of Tata Sons was illegal. It had restored Mistry to his original position as executive chairman of the company and set aside the change of Tata Sons from public to private company.

Tata Sons, in its petition to the top court, argued that the NCLAT had no jurisdiction to reinstate Mistry and this wasn’t even sought by him. The removal was done only because there was “an untenable trust deficit” between Tata Trusts and Mistry, the petition said, adding that the judgment is untenable in law and has undermined corporate democracy and rights of the board of directors.

Also Read: Why NCLAT Found Oppression And Mismanagement At Tata Sons

Here are the key arguments that Tata Sons has made in its petition, a copy of which has been reviewed by BloombergQuint.

  • Mistry was removed as director of Tata Sons as per the provisions laid down under Companies Act, 2013. The NCLAT ignored these principles applicable to corporate democracy, which are based upon the right of the shareholder to cast a vote. No reasons were given by the appellate tribunal on how the process of replacement and removal was wrong and illegal.
  • NCLAT’s direction to restore Mistry for his remaining term, without noticing that the term has come to an end, is a recipe for unmitigated disaster. It will create unnecessary confusion in the working of group companies and lead to more conflict. Any shadow over the management of any of these companies puts public interest in jeopardy, and so the decision reinstate Mistry deserves to be set aside.
  • In directing that the Mistry group be consulted for future board appointments at Tata Sons, the NCLAT has torn apart the rights of majority shareholders. The judgment has re-written the Articles of Tata Sons, where the majority shareholders are subject to the minority-capsizing the fundamental rule of corporate democracy. This is legally not permissible.
  • Similarly, by preventing Ratan Tata and nominee director of Tata Trusts from taking advance decisions on issues that require board approval, the NCLAT has stifled the exercise of rights of the shareholders and board members.
  • Tata Sons came to be classified as a ‘Deemed Public Company’ on account of its average annual turnover exceeding the prescribed amount under the old company law. But since its Articles of Association continued to validly retain the core characteristics of a private company, as per the 2013 company law, it had automatically become so. And so, only an intimation to the RoC was required to make a change.

The board of Tata Sons had removed Cyrus Mistry as chairman of the board in October 2016, almost four years after he took over from Ratan Tata. Mistry had first challenged his removal as executive chairman in National Company Law Tribunal, Mumbai which dismissed his appeal in April 2017.

Also Read: NCLAT’s Tata-Mistry Ruling Raises More Questions Than It Answers

However, in a big relief, the NCLAT last month had held the removal to be illegal and reinstated Mistry. The appellate tribunal had stayed the decision to reinstate Mistry as chairman of Tata Sons for four weeks after the holding company requested for the stay to appeal the decision in the Supreme Court.

The top court is on vacation till Jan. 6 and the next date of the hearing hasn’t been updated yet.

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