Tata-Mistry Case: Why NCLAT Found Oppression And Mismanagement At Tata Sons
Cyrus Mistry. (Photographer: Dhiraj Singh/Bloomberg)

Tata-Mistry Case: Why NCLAT Found Oppression And Mismanagement At Tata Sons

The National Company Law Appellate Tribunal today ordered the reinstatement of Cyrus Mistry as executive chairman of Tata Sons—a position he was abruptly removed from in October 2016. It also ordered the restoration of Mistry’s directorships in Tata Sons and other Tata group companies which he had been forced off consequent to his dismissal from the group’s holding company.

Ruling on India’s biggest corporate feud of the decade, the NCLAT held Mistry’s dismissal as illegal and found that the affairs of Tata Sons were conducted in a manner prejudicial and oppressive to its minority shareholders, namely Cyrus Mistry and his family companies, as well as to the interests of the company itself and its group firms.

In saying so, the NCLAT has concluded that:

  • Mistry’s removal from Tata Sons’ board had no basis.
  • Abuse of power by directors nominated by Tata Trusts led to losses at Tata Sons’ group companies.

Also read: Cyrus Mistry’s Removal As Chairman Of Tata Sons Board Illegal, NCLAT Says

Mistry’s Removal Was Without Any Basis

There’s nothing on record to suggest that Tata Sons’ board or Tata Trusts had expressed any displeasure over Cyrus Mistry’s performance, the NCLAT has pointed out. In fact, the material on record shows that under Mistry’s leadership, Tata Sons performed well, which was appraised by Nomination and Remuneration Committee a few months before he was removed, the order has said.

For the board meeting of Oct. 24, Tata Trusts had asked its nominee directors to bring the motion for Mistry’s removal but no reasons for seeking the removal have found any mention in the minutes of the meetings. In this meeting, two directors who had voted for Mistry’s removal were part of the appraisal committee which had just four months earlier found no fault with his performance, the NCLAT order has noted.

Further, neither the other board directors nor Mistry were given any intimation that his (Mistry’s) performance was an agenda item at the meeting. The way the Oct. 24 board meeting was conducted, it’s apparent that Rata Tata was determined to remove Mistry prior to the meeting of the board and asked Mistry to step down, the NLCAT has said.

Also read: Tata - Mistry Case: “Victory For Good Governance And Minority Shareholder Rights” - Cyrus Mistry

Losses Attributable To Abuse of Powers By Nominee Directors

After Mistry’s ouster, Tata Sons had issued a media statement explaining the move. Among other things, it had justified Mistry’s removal on grounds that there was no noticeable improvement in the “problem companies” of Tata Group, namely Tata Steel Europe, Tata Teleservices-Docomo and Tata Motors Ltd.’s India operations. In fact, the losses have worsened and debt levels increased, it had said.

The NCLAT has found this media release to be an afterthought. It has pointed to several email correspondences between Mistry, Rata Tata, former trustee NA Soonawala and former nominee director Nitin Nohria to say that Mistry did raise these concerns.

Cyrus Mistry had been pointing out that some of the ‘Tata Companies’ were suffering losses and if appropriate steps were not taken, it may aggravate in future.

In spite of this, the board of directors—which could take decisions only with the affirmative approval of Tata Trusts’ nominee directors—didn’t do anything to rectify the situation.

If there was a failure and loss caused to one or other Tata company which also affected the ‘Tata Sons Limited’, the ‘Tata Trusts’ or the Board of Directors could not be absolved of its responsibility, particularly when the nominee Directors of the Tata Trusts who have affirmative vote to reverse the majority decision.

This being the position, the entire blame for the losses incurred by the company cannot be laid at the doorstep of Cyrus Mistry, the NCLAT has said.

Why the nominated Directors who have affirmative voting right over the majority decision of the Board or in the Annual General Meeting of the shareholders allowed the ‘Tata Companies’ to function in a manner which caused loss, as accepted in the press release dated 10th November, 2016

Tata Trusts were required to be informed of all the matters, in advance, on the ground that it can take any advance decision to counter any action that may jeopardise their dividend flow, the NCLAT has pointed out.

When Mistry raised his voice to ensure good governance, he was ousted as the chairman of Tata Sons, the appellate tribunal has stated. Given the overriding powers Tata Sons’ nominee directors had over decisions at group companies, the losses are attributable to unfair abuse of power by them, the NCLAT has concluded.

Even after removing him as executive chairman of Tata Sons, ‘prejudicial’ action against Mistry did not come to an end as he was subsequently removed as a director from Tata Industries, Tata Consultancy Services Ltd., Tata Teleservices Ltd. and another group company.

Also read: Cyrus Mistry Vs Tata Group: How The Fight Played Out Over Three Years At NCLT, NCLAT

And so, it has directed that:

  • For safeguarding the interests of all stakeholders, Tata Group must consult Shapoorji Pallonji Group for appointing the executive chairman and directors at Tata Sons.
  • Mistry be restored to his original position of executive chairman of Tata Sons. On a request by Tata Sons’ counsel, this direction has been stayed for four weeks.
  • Mistry’s position as director be restored on other Tata Group companies from where he was ousted.
  • Appointment of Natarajan Chandrasekaran as Tata Sons’ executive chairman was illegal.

Also read: Tata Stocks Tumble After NCLAT Restores Cyrus Mistry As Tata Sons Chairman

Tata Sons said in a statement that the NCLAT judgment has granted relief which wasn’t even sought by the Mistry side and “seeks to over-rule the decisions taken by shareholders of Tata Sons and listed Tata operating companies at validly constituted shareholder meetings”.

Cyrus Mistry in his statement termed the judgement a vindication of his “stand taken when the then board of Tata Sons, without warning or reason removed me, first as the executive chairman, and subsequently as a director of Tata Sons”.

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