‘Majority Is A Rule’, Says The National Company Law Tribunal In Tata-Mistry Case
"The purposive interpretation is to find out the purpose of legislation, but not to invent a purpose for the gain of any individual."
That's the National Company Law Tribunal (NCLT) saying the law is clear, the two Cyrus Mistry firms do not meet the criteria laid down in it to launch an oppression and mismanagement case against Ratan Tata and Tata Sons Ltd.
The two Mistry firms filed such a case against the Tatas in December 2016, but could not proceed with it as the Tatas argued that the criteria to file such a case had not been met.
These criteria are contained in Section 244 of the Companies Act, 2013. This section allows a shareholder of a company to bring an oppression and mismanagement case against the company if it holds not less than one-tenth of the issued share capital.
Mistry’s counsels have argued that the two Mistry entities together hold 18.7 percent of equity shares in Tata Sons and meet the eligibility criteria under section 244. Tata Sons has contended that issued share capital includes issued equity capital and issued preference capital; and according to this calculation, the two Mistry companies hold less than 3 percent of the issued share capital rendering them ineligible to file the case.
The NCLT accepted this Tata Sons interpretation and dismissed the efforts of Mistry's counsel to interpret the the Section such that the case is permitted.
The key reasons NCLT offered in its order are:
- It is incorrect to say that the word ‘member’ used in Section 244 is in relation to members holding equity only because if it was so, the legislature would have clarified in the section itself that members means and includes equity shareholders alone.
- By virtue of their voting rights, equity shareholders can cause economic loss to preference shareholders. It is for this reason that issued share capital must include both equity and preference shareholders.
- The 10 percent threshold was included to weed out frivolous litigation.
- Majority is a rule and this relief to minority is an exception.
While the Mistry side lost the argument to continue the oppression and mismanagement case against the Tatas, the NCLT has allowed it to argue seeking a waiver from the threshold it failed. That hearing began at the NCLT on March 7. The Mistry side has completed its argument seeking a waiver. Tata Sons’ counsel Abhishek Manu Singhvi is scheduled to respond to them on March 17.