Tata-Mistry At NCLT: Is Cyrus Mistry Asking For A Waiver Before A Waiver?
Tata - Mistry: Did the legislature intend to oppress the minority by brute majority? asks Janak Dwarkadas.
“Did the legislature intend to oppress the minority by brute majority?” asked Janak Dwarkadas, senior counsel representing the Mistry family entities in their case of oppression and mismanagement against Tata Sons.
Prompting opposing counsel Abhishek Manu Singhvi, representing Tata Sons, to point out “this provision has existed for the last 59 years. The section hasn't changed. No one has had the wisdom to challenge the vires of this section?”
On Tuesday, as the hearing continued at the National Company Law Tribunal (NCLT), Dwarkadas joined Aryama Sundaram to represent the two companies – Cyrus Investments Private Ltd. and Sterling Investment Corporation Ltd. – that hold the Mistry family owned Shapoorji Pallonji Group's 18.4 percent equity stake in Tata Sons. The two entities have filed a petition alleging mismanagement of Tata Sons under Section 241 and Section 242 of the Companies Act, 2013.
So far the arguments have focused on maintainability of the Mistry petition, with the Tata side led by Singhvi, claiming that Mistry’s shareholding in Tata Sons does not meet the eligibility criteria laid down in law to file such a case.
Here are the highlights of Day 2 of the maintainability arguments:
Aryama Sundaram, counsel for Mistry companies, said:
1. Section 241 and 244 of the Companies Act, 2013 need to be looked at together to determine the eligibility for filling an oppression and mismanagement petition. He cited various decisions of the Supreme Court that emphasise the importance of segregation of classes of members.
2. If the NCLT decides that the petition is not maintainable, the two Mistry companies will be left remediless as the Companies Act, which is a special statute, bars civil court jurisdiction.
3. Recent Supreme Court judgments have upheld the purposive rule for interpretation – one which takes into account the object of the statute. Companies Act, 2013, he said, aims to protect the minority against the brute force of the majority. In a case like this, he asked, where is the question of protecting the minority against oppression and mismanagement if it's held that 80 percent (to fulfill the 10 percent threshold under Section 244) of equity shareholders have to approach the Tribunal to seek a remedy.
4. The Companies Act, 2013 is a new law and the jurisprudence of the Companies Act, 1956 is not applicable. This links back to Monday’s proceedings in which Sundaram stated that there is a departure in the legislative intent under Section 241(1)(b) in as much as that the relevant section under the Companies Act, 1956 only addressed public interest or interest of the company while assessing a claim of oppression and mismanagement. The 2013 Act expands the scope to any class of shareholders, debenture holders and creditors. And so the threshold of 10 percent should be looked at qua that class.
5. Janak Dwarkadas, also arguing on behalf of Mistry family firms, presented a situation before the Tribunal to establish that equity shareholders must be treated as a distended class. He offered an illustration to the tribunal – assume the equity shareholders of a company start oppressing preference shareholders by extending the redemption duration or by undermining the security, will preference shareholders not say that we constitute 10 percent of the class of preference shareholders; if not then they will have no remedy because equity shareholders will never join them in this action. This is the absurdity, Dwarkadas said, the Tribunal must remove.
Abhishek Manu Singhvi argued on behalf of Tata Sons and said:
1. The petitioner's entire argument is designed to overcome the applicability of the Northern Projects judgement. The Bombay High Court, in Northern Projects Ltd. vs Blue Coast Hotels and Resorts Ltd., held that the expression ‘issued share capital’ has a wide connotation, and has deliberately been used by the legislature with a view to include both equity and preference share capital issued by the company.
2. For Section 244 in the 2013 Act, the corresponding Section under the 1956 Act is Section 399. The language of Section 244 and Section 399 is exactly the same except that 'provided that' under Section 399 has been changed to 'subject to' under Section 244. This, Singhvi argued, cannot amount to a change in the law. He further argued that the same language has existed for the past 59 years - for all these years, he questioned why has nobody had the wisdom to challenge the vires of this Section?
3. Singhvi argued that the petitioner, by asking the NCLT to reduce the rigour of Section 244, is conceptually asking for a waiver before a waiver. He said that Section 244 is a mandatory provision and the petitioner is seeking to convert it into a directory one. This, he said, the jurisprudence does not permit.
4. Singhvi pointed to the language of Section 241(1)(a) and said that it deals with oppression cases and does not mention the phrase 'class of members'. He then pointed to Section 241(1)(b) which deals with mismanagement and uses the phrase 'class of members'. Singhvi argued that if the interpretation of the petitioner is upheld, that equity shareholders must be treated as a separate class, then the threshold for oppression cases and mismanagement cases would be different, which cannot be the case.
Both sides will continue their arguments on Monday, February 20.