Cyrus Mistry’s Removal As Chairman Of Tata Sons Board Illegal, NCLAT Says
In an important victory for Cyrus Mistry, the National Company Law Appellate Tribunal ruled that his dismissal as chairman of Tata Sons Ltd. was illegal.
While restoring him to his original position as executive chairman of the Tata Group’s holding company, the NCLAT held that the resolution by Tata Sons board removing Mistry was illegal. The appellate tribunal also set aside the change of Tata Sons from public to private company.
- NCLAT says removal of Cyrus Mistry from Tata sons illegal.
- NCLAT says Mistry's removal from other Tata firms also illegal.
- NCLAT says Ratan Tata’s actions against Mistry were oppressive.
- NCLAT orders restoring Mistry’s positions in Tata Sons.
- Tata Sons’ change to private company from public also illegal.
- NCLAT says Tata Sons to be reinstated as a public company.
“Today’s judgment is not a personal victory for me, but is a victory for the principles of good governance and minority shareholder rights,” Cyrus Mistry said in a statement.
A Tata Sons statement said it strongly believes in the strength of its case and will take appropriate legal recourse. “It is not clear as to how the NCLAT Order seeks to over-rule the decisions taken by shareholders of Tata Sons and listed Tata operating companies at validly constituted shareholder meetings.”
Soon after the bench announced the decision, lawyers for Tata Sons sought the order to be stayed for four weeks so as to appeal it in the Supreme Court. Today was the last working day for the Supreme Court before the Christmas holidays. The NCLAT has stayed the restoration of Mistry’s chairmanship. Effectively, there will be no immediate change at Tata Sons on account of this tribunal decision.
With a view to ensure smooth functioning of the company, while we are not inclined to suspend the Judgment pronounced today in its totality, but suspend the part of the judgment so far as it relates to replacement of the present ‘Executive Chairman’ and reinstatement of Mr. Cyrus Pallonji Mistry as ‘Executive Chairman’ of ‘Tata Sons Limited’ for a period of four weeks.NCLAT Order
In 2018, Mistry had approached the appellate tribunal against the verdict of Mumbai NCLT, which had dismissed the challenge to his removal as chairman of Tata Sons. The appellate tribunal had reserved its judgment after completion of arguments from both sides in July this year. The NCLAT judgment was pronounced by a two-judge bench headed by Justice SJ Mukhopadhyay.
It came as a “bit of a surprise” said Rajat Sethi, partner at law firm S&R Associates regarding the NCLAT decision versus the NCLT outcome. But this is not the final chapter because “I expect Tata Sons to go to the Supreme Court at the earliest,” Sethi added. “If Cyrus Mistry was removed illegally, then at the final appeal stage, he has to be restored as the executive chairman of Tata Sons, said Sanjay Asher, senior partner at Crawford Bayley & Co.
The Tata-Mistry Fight
In December 2016, two firms owned by Cyrus Mistry’s family had filed a case of oppression and mismanagement against Tata Sons and 20 others, including Ratan Tata. The dispute stems from Mistry’s removal as Tata Sons chairman in October 2016 and later as a director. In March 2017, the NCLT had ruled that the Mistry firms are not eligible to pursue the allegations. Section 244 of the Companies Act, 2013 allows a shareholder of a company to bring an oppression and mismanagement case against the firm if it holds not less than one-tenth of the issued share capital.
Mistry’s counsels had argued that the two Mistry entities—Cyrus Investments and Sterling Investments—together hold 18.7 percent of equity shares in Tata Sons and meet the eligibility criteria under Section 244. Tata Sons had contended that the 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, rendering them ineligible to file the case. The NCLT had agreed with Tata Sons’ argument in March 2017.
On appeal, the Cyrus Mistry firms had secured a partial win at the National Company Law Appellate Tribunal in September. The NCLAT had granted the two Mistry firms a waiver from the 10 percent shareholding requirement to pursue oppression and mismanagement charges against Tata Sons. But the appellate tribunal had pointed out that it cannot deliberate on the merits of an oppression and mismanagement petition while deciding the threshold question of waiver. And so, the NCLT was directed to hear the merits of Mistry’s petition.
In July last year, the NCLT had found no merit in Mistry’s allegations of operational mismanagement and oppression of minority shareholders. It had rejected Mistry’s petition to reinstate him on Tata Sons board. Mistry openly went against the board, and so against company, NCLT had said.