Tata Vs Mistry: Out Of The Dust Of The Battles Of Giants ... NothingBloombergQuintOpinion
It was known that Cyrus Mistry had a somewhat weak legal case and a stronger sympathetic, emotional case against the Tata Group. Till he was dismissed, neither Mistry, nor his father who was Tata Sons director before him, had publicly objected to the company’s Articles of Association, the many overseas acquisitions, the deals with Siva, the indulgence of the Nano project, the goings on at Air Asia and Ratan Tata's alleged proximity to Mehli Mistry.
Once summarily dismissed from the leadership post and the board, these suddenly became grounds for Mistry's case of oppression and mismanagement against the company.
That convenience was not lost on the Supreme Court.
Since none of these have been investigated independently, sans one, the truth is unknown.
It’s possible that as 18.4% shareholder in the Tata Group holding company Mistry kept the lid on these to protect his family’s investment. Or that he was happy to go along till he was pushed out. It’s equally possible that there is no substance in any of the allegations – at worst there were some poor business decisions, recognised as such only in hindsight.
Whichever option applies, the court did not delve into these allegations on technical grounds.
That narrowed the oppression case to – Mistry’s dismissal, anti-minority provisions in Tata Sons’ Articles, Tata Trusts’ involvement in decision making at Tata Sons, and whether the appellate tribunal had the powers to order Mistry’s reinstatement, suspension of an Article, etc.
All grounds failed to sustain, unsurprisingly. The legal reasons are well analysed here by Umakanth Varottil. This column does not seek to repeat them.
The court also, fairly some might say, found Mistry’s legal case to be mounted weakly, plagued by contradiction and changes and hence undisciplined, as detailed here.
But there are other aspects of the Supreme Court’s order that are surprising, disturbing even – coming from the highest court in the land. Especially in a case that presented important questions of company law, corporate governance and minority rights.
Why So Snarky?
For instance, the three-judge bench has, in rather snarky ways, criticised Mistry’s behaviour after his sacking, suggesting it strengthened the argument in favour of his termination.
This would have been unremarkable if the court was examining the legal validity of the termination. But, having ruled that termination per se is a matter for labour courts and not grounds for oppression, the court had little reason to opine further. Yet, it does.
“A person who tries to set his own house on fire for not getting what he perceives as legitimately due to him, does not deserve to continue as part of any decision making body (not just the Board of a company),”
The bench refers to Mistry’s ouster as “valid and justifiable” without examining the reasons for it.
It dismisses the positive board evaluation of his performance just months before he was sacked by saying “the accolades” cannot “advance his case”.
It describes the performance evaluation and Mistry’s acceptance of it as a “mutual admiration society” – using it to discount Mistry’s arguments on oppression and mismanagement.
As for Mistry’s allegation that his termination was pre-meditated – the Court says it was “a well-conceived plan”, not “pre-meditated”.
Yes, Mistry was requested to step down before the board meeting took place that day.
Yes, new board members were inducted just a couple of months ago.
Yes, the board had procured a legal opinion before the meeting to sack Mistry.
That cannot make the act a pre-meditated one, the court states.
When examining Mistry’s allegations that bad business decisions were made by Tata Sons (Corus, Nano, Siva etc...), the court rules that failed business decisions cannot be projected as oppression. That’s fair.
Then it takes a nasty dig at Mistry’s appointment as chairman.
“That failed business decisions and the removal of a person from directorship can never be projected as acts oppressive or prejudicial to the interests of the minorities, is too well settled. In fact it may be conceded today by Tata Sons that one important decision that the Board took on 16.03.2012 certainly turned out to be a wrong decision of a life time.” (emphasis added)
Cyrus Mistry was appointed deputy executive chairman of Tata Sons on 16.03.2012.
Oh Tata, My Tata
Meanwhile, on Tata Sons, Ratan Tata and other Tata entities, the court turns a much kinder gaze, admiring even - of how a ‘familial’ group brought on a rank outsider to lead it and how Ratan Tata need not have retired.
“...Tata Sons has a Board packed with many people who are rank outsiders. If the idea was to run Tata Sons purely as a family business, RNT need not have stepped down from the chairmanship. Today nobody wants to step down from any office, except if afflicted by brain stroke or sun stroke.”
The court seems impressed that Tata Sons appointed board committees though it didn’t need to as a private company. It concludes that Tata Sons was “guided by the principle of corporate governance even without the statutory compulsion”.
Many corporate governance experts would consider board committees as the bare minimum that a company like Tata Sons must do. As the holding company of a group worth well over $100 billion, Tata Sons should voluntarily become a public company and subject itself to much higher standards of governance than ordinary companies, some would say.
Not the Supreme Court.
The Fiduciary Duty Puzzle
In fact the court even questions whether Tata Trusts’ nominee directors on Tata Sons’ board should be expected to abide by the duties of directors as laid down in company law. These being - to promote the interests of all shareholders, act in the “best interests of the company” and all stakeholders. As well as to exercise “independent judgment”.
Instead, the court turns the law on its head to ask – if all directors are required to exercise “independent judgment”, then why is there a separate provision for public companies to appoint independent directors as one-third of the board?
Is the provision on independent directors a tacit admission that all directors may not be independent in practice even if they are required to be so in theory, the court queries – thereby muddling the jurisprudence on directorial duties, without substantive discussion, argument or outcome.
The legal views on this interpretation deserve a separate discussion.
As does the court’s commentary that a director nominated by a charitable trust has a “fiduciary duty towards the nameless, faceless beneficiaries of those trusts”. That has the scope to infinitely widen the liabilities such directors face.
And They All Fall Down
Supreme Court judgments decide not only the case at hand but serve as precedent for several thereafter. This judgment answers some questions, yes, but opens up new legal fronts and leaves at least one issue hanging.
What happens to the court’s own status quo order imposed on the pledge of Tata Sons shares by Mistry? That order has neither been explicitly lifted nor reiterated.
As is the case with all such property battles, neither side has come out smelling of roses.
Tata Sons appointed Mistry after a board-run process that pitted him against top international business leaders. Yet, when sacking him all they said was he “overwhelmingly lost the confidence” of the board. Incidentally, he had just months to go before his term ended.
While airing dirty Tata laundry in public Mistry forgot he was once a director of the same company. The allegations reflected on him as well. Playing the David card has failed even for blood brothers.
But the biggest disappointment has been how India’s courts have adjudicated this important case.
The National Company Law Tribunal’s kitschy judgment paid almost floral tribute to the Tata “empire”.
The NCLAT awarded Mistry exaggerated reliefs, that were never even asked for, thereby creating fresh legal issues.
And the Supreme Court, well, let me just end by saying it describes the reconversion of a deemed public company to a private one as “ghar wapsi”.
Justice Chinnappa Reddy said it best in the LIC vs. Escorts case in 1986.
“We recognise that out of the dust of the battles of giants occasionally emerge some new principles, worth the while. That is how the law has been progressing until recently. But not so now.”
Not so now.
Menaka Doshi is Managing Editor at BloombergQuint.