National Company Law Tribunal signage at the Mumbai office. (Photographer: Vishal Patel/BloombergQuint)

Why NCLT Dismissed Mistry’s Petitions

The National Company Law Tribunal (NCLT) termed as “proxy litigation” the petition filed by two Cyrus Mistry firms alleging oppression and mismanagement by Tata Sons Ltd.

The Mumbai bench of the NCLT had dismissed the petition and also the Mistry firms’ request for a waiver of the shareholding requirement to bring the suit of oppression and mismanagement against Tata Sons. In its detailed order, the NCLT agreed with many of the arguments made by Tata Sons’ counsel Abhishek Manu Singhvi.

The order referred to the fact that Mistry had been chairman of the board of Tata Sons and many of the alleged instances of mismanagement had occurred while he was in charge. Under these circumstances, the order said, allegations that Mistry’s hand had been forced are questionable.

The tribunal disagreed with the arguments that certain decisions taken at the Tata Group companies, including Tata Motors Ltd. and Tata Steel Ltd., were irregular, and that the group’s Chairman Emeritus Ratan Tata was responsible for them.

Majority rule cannot be obliterated on the ground some business is doing losses. In business, it is not (that) the head of management, in this case Mr. Ratan Tata, will have the magic of Midas touch, that he can turn any and every venture profitable. At least, we don’t think he has any such magic in his hands. One thing is true that Mr. Ratan Tata is instrumental in making Tata Group into $100 billion group.
NCLT Order 

The order made it clear that the waiver was not being granted as the Mistry companies on whom the onus was to satisfy the bench that there was a cause for action, had failed to do so. The bench observed that a waiver could be granted in the gravest of circumstances, such as a supervening national interest and where there was clear proof that economic interest of the petitioner had been affected; both of which, the two companies were unable to prove.

It could not even be said that actions impugned in this case will have impact on public, usually such situation will arise when business of the company affects health of public or economy of the country, but regarding the petition, such issue is not present anywhere in the petition. 
NCLT Order 

Interestingly, the NCLT agreed with the petitioners’ argument that Mistry’s removal as chairman of Tata Sons by the board, and not by the selection committee, was a procedural irregularity. The NCLT termed it a mere formality as the selection committee was made up of a majority of members nominated by the Sir Dorabji and Sir Ratan Tata Trusts.

Reiterating the point that a waiver could be granted only under exceptional circumstances, the NCLT also disagreed with Mistry’s counsel Janak Dwarkadas’ contention that the bench must not go into the merits and must only look at if there was a prima facie cause of action.

Whether we can hear on merits or not is not the point now, the point is the petitioners must establish, that if their case is not considered, the petitioners interest will be affected in such a way, that it cannot be restored by any other forum except this forum.
NCLT Order

The Tribunal had ruled on March 6 that the company petition was not maintainable as the Mistry companies held just over 2 percent of equity and preference shares put together. The Mistry side challenged this order at the National Company Law Appellate Tribunal (NCLAT) on April 19.

"We welcome the NCLT’s order, and it is an endorsement of these values and principles," Tata Sons' Executive Chairman N Chandrasekaran said in an emailed statement. "Tata Sons and the operating companies are focussed on growth to deliver value to our shareholders, and we thank all stakeholders for their continued support.”