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Tata-Mistry At NCLT: Maintainability Arguments Over, Order Pending

Has Cyrus Mistry succeeded in proving to the NCLT that his case against Tata Sons is maintainable?



Cyrus Mistry, former chairman of Tata Group, attends an event (Photographer: Dhiraj Singh/Bloomberg)
Cyrus Mistry, former chairman of Tata Group, attends an event (Photographer: Dhiraj Singh/Bloomberg)

'A man was going around and around a lamppost looking for something. Another man walks up to him and asks what he is looking for. The first man says he's lost his keys. The second man asks if he lost the keys near the lamppost. The first man points in the dark some distance away and says, I lost them there. The second man asks, so why are you looking for it here? The first one says, because there is light here.'

SN Mukherjee, representing Tata Sons, reminisced about this conversation that once took place in Justice Venkatachaliah’s court. Similarly, he said, the Cyrus Mistry camp is looking for light in other sections of the Companies Act, 2013 since none exists for them in Section 244.

The two sides have been arguing the interpretation of Section 244 to determine the maintainability of the opression and mismanagement case filed by Cyrus Mistry’s family companies, against Tata Sons and Ratan Tata.

The arguments concluded today and the National Company Law Tribunal bench has reserved the order, to be pronounced on March 6, with a further hearing scheduled for March 7.

Also Read: Tata-Mistry At NCLT: Is Cyrus Mistry Asking For A Waiver Before A Waiver?

Here are the highlights of the concluding arguments at the National Company Law Tribunal (NCLT) on Monday...

The Tata Argument

Abhishek Manu Singhvi, counsel for Tata Sons, said:

  • If issued share capital is read as issued equity share capital, it will amount to redrafting of Section 244.
  • The legislature understands the difference between issued share capital and issued equity share capital. If the Tribunal decides to tinker with the definition for one section, it will have a far reaching impact on other sections that specifically distinguish preference shareholders from equity shareholders
  • Accounting Standards will color, determine, override NCLT's interpretation of Section 244 if the petitioner's (Mistry’s) argument is accepted. Singhvi argued that firstly, this cannot be allowed. Secondly, Ind AS (Indian Accounting Standards) is not even applicable here as a government notification says that insurance companies, banking companies and NBFCs shall not be required to apply Ind AS before 2018. And since Tata Sons is an NBFC, Ind AS doesn't apply to it yet. The response was to CA Sundaram's argument that Ind AS treats preference shares as debt and not equity and hence they cannot be included when determining issued share capital.
  • The petitioner's entire petition complains of grievances against him as a director and not as a shareholder. His grievances relate to directorship only, and is hence not maintainable.

The Mistry View

Responding to Singhvi, Aryama Sundaram, counsel for the Mistry family, said:

  • The principle of law, as laid down by the Supreme Court, is that at the first stage, use the literal, grammatical meaning of a section. But if that leads to a situation which is unjust or doesn't further a remedy, then use rules of construction.
  • The case law in Northern Projects and Gwalior Sugars, relied upon by Tata Sons, was to further the remedy. In those cases preference shares were included in issued share capital by the court so that a remedy could be afforded. Inclusion of preference shares was necessary to invoke jurisdiction. Supreme Court allowed this construction to give relief and not to negate a relief.
  • Section 430 has been introduced to oust the jurisdiction of the civil court for matters within NCLT's jurisdiction. When legislative intent is to create a jurisdiction and oust the alerternative jurisdiction and if two interpretations are possible, should the NCLT take one which the legislature intends for it or otherwise?
  • Adding to Sundaram's arguments, Janak Dwarkadas said that both the oppressed and the oppresor are from the same class. The Companies Act, 2013 is a beneficial piece of legislation. The purpose of  the definitions section of the Companies Act, 2013 - which starts off by saying 'Unless the context otherwise requires' - will be defeated if the respondent's (Tata’s) interpretation is accepted. The context, he added, is important to Mistry's case and hence, a literal interpretation of Section 244 would not do justice to the legislative intent.

Decision Day

The NCLT will pronounce its final order on maintainability on March 6. If the Tribunal decides that the oppression and mismanagement petition filed by the two Mistry family companies is maintainable, it will go on to hear the main petition itself on merits.
If the NCLT dismisses the maintainability petition, Mistry's counsels will argue their waiver application. Under the Companies Act, 2013, the NCLT has the discretion to waive the 10 percent shareholding required to file an oppression and mismanagement petition.