Tata Vs Mistry Day 5: Mistry Argues Against Tata Sons’ Conversion Into A Private Company

The fifth day of the hearing of the Tata-Mistry dispute in the Supreme Court saw the Mistry side argue against the role of trustees of the Tata Trusts in the affairs of Tata Sons Ltd. and its conversion into a private limited company.

The Mistry side cited the two instances in support of their allegation of oppression and prejudice against the interests of minority shareholders.

'First Fiduciary Duty Of Directors Is Towards The Company'

The Mistry side argued that the established law for a company makes it clear that its board of directors should exercise independent judgment while they are taking decisions.

C Aryama Sundaram, representing Mistry, argued that irrespective of who has appointed a director to the board, their responsibility lies towards the company and not to a specific shareholder including those who may have appointed them.

"It is my concern that the decisions of a board managed company is best left to the board," he said.

In Tata Sons, the Mistry side argued, the trustees of the Tata Trusts began to take an active part in decision making, which led an impasse and subsequent removal of Mistry as chairman and director, Sundaram said, pointing that just three months before his removal Mistry was given a raise and a standing ovation.

The lawyer for Tata Sons, Senior Advocate Harish Salve, earlier defended the role of the trustees by arguing that there was nothing wrong with prior consultation of certain issues with them and that it helped in the smooth running of the company.

The Mistry side disagreed with the argument, saying that barring a few exceptions, the Articles of Association cannot be interpreted to not allow for prior consultation.

The Chief Justice of India asked the Mistry side that whether a chief minister who consults his party colleagues before a cabinet meeting can be said to have lost his independence? Sundaram replied that he believes the comparison with politics will not apply in this case as the law for politics and corporate law stand on different footing.

'Conversion Of Tata Sons To Private Company Lacked Probity'

The lawyer for the Mistry side also questioned the conversion of Tata Sons from a public limited company to a private company. The conversion was done illegally and lacked probity, Sundaram said.

Tata Sons defended the conversion by arguing that with the introduction of the 2013 Companies Act, the company was anyway by definition a private company.

The Mistry side, however, disagreed and argued such a conversion could only be done with an application under Section 14 of the Companies Act, 2013. In this case, Sundaram argued, the manner of this conversion prejudiced the protected rights of the minority shareholders and of the company.

'Not Seeking Mistry’s Reinstatement As Executive Chairman'

The arguments also delved into the NCLAT’s decision to reinstate Mistry as the executive chairman of Tata Sons. "We had pleaded that the removal of Cyrus Mistry was illegal; however, we had not asked for reinstatement," Sundaram said.

His counsel told the top court that Mistry himself has said that he does not wish to be reinstated as executive chairman and that he is only seeking a representation on the board of the company.

Chief Justice expressed surprise at this direction of the National Company Law Appellate Tribunal. "That continues to be one of the most amazing part of this case," Chief Justice SA Bobde observed. "Something like reinstatement of a company like Tata Sons is granted without being asked."

The case has already seen two rounds of litigation at the National Company Law Tribunal and the NCLAT, with both sides winning one round each. The case then landed up in the Supreme Court in January this year.

On Oct. 29, the Mistry side submitted an affidavit in the top court offering to settle the dispute presenting a plan of separation and suggested a share-swap arrangement in listed entities of Tata Group in lieu of the shares held by them in the unlisted Tata Sons.

The plan of separation proposed by the SP Group included:

• A selective reduction of capital at Tata Sons thereby extinguishing shares held by them.
• In exchange, SP Group be granted shares in listed companies of the group.
• Also, cash consideration or shares for brand value, unlisted assets, etc.

In case, Tata Group didn’t want to part with stocks in a particular listed entity, say for reasons of maintaining a certain shareholding level, according to the separation proposal, SP Group was willing to accept shares of Tata Consultancy Services Ltd. or cash.

Tata Sons on Thursday rejected an offer by billionaire Pallonji Mistry’s conglomerate to swap Mistry family’s stake in the group’s holding company for shares in listed Tata entities.

Accepting the offer would mean spilling the dispute to the other group companies, Tata Sons lawyer, senior advocate Harish Salve, told the Chief Justice of India-headed Supreme Court bench as he resumed arguments in the first half of the third day of hearing on Thursday.

Sundaram concluded his arguments on Tuesday. Senior Advocate Shyam Divan will argue for the Mistry side on Wednesday. For the Tatas, Harish Salve has already argued earlier and the top court has indicated that the hearing may conclude on Thursday.