Boardroom battle: NCLT dismisses Cyrus Mistry's petition against Tata Sons

NCLT added that the board is competent to remove its chairman and it does not require a selection committee

The Mumbai Bench of the National Company Law Tribunal (NCLT) ruled in favour of Tata Sons, dismissing Cyrus Mistry and his family firms’ petition against the holding company on Monday, marking an end to the first phase of a bitter legal battle that began in December 2016.

The dismissal is a major setback for Mistry as he may find it tougher to prove merit of his case when the battle enters the second phase at the National Company Law Appellate Tribunal (NCLAT) in Delhi, said legal experts.

“We have not found any purported merit or issues raised by the minority shareholder in his petition under the Section 241 and 242 of the Companies Act, 2013,” said the two-member NCLT Bench presided by B S V Prakash Kumar and V Nallasenapathy.

Mistry, through his investment firms Cyrus Investments and Sterling Investment, had filed with the NCLT a petition under Section 241 and Section 242 of the Companies Act, which deal with oppression and mismanagement.

In his petition before the tribunal, Mistry had challenged the manner in which he was removed. The NCLT Bench said that Mistry was ousted as chairman because the Tata Sons’ board and its majority shareholders had “lost confidence in him”. It added, “The board is competent to remove its chairman and it does not require a selection committee.”

READY RECKONER

Court observations

• Tata Sons board is competent enough to remove an executive chairman
   
• No merit in legacy issues as they do not fall under Section 241 of Companies Act 
   
• Mistry was ousted as chairman because the board and its majority shareholders had lost confidence in him
   
• Mistry removed as director as he admittedly sent out company information to the income-tax department, press, and came out in public against the board and the trust
   
• Proportional representation on Tata Sons board not possible as articles do not mandate it
   
• No merit in allegations against Ratan Tata, N A Soonawala being super directors

Option before cyrus Mistry 

Appeal against the order at the National Company Law Appellate Tribunal

The Bench also rejected Mistry’s proposal for proportional representation for his group on Tata Sons board and said that Ratan Tata’s conduct was not prejudicial to the company. 

“We will file a full-blown appeal in all aspects of the matter,” said Mistry’s counsel Somasekhar Sundaresan, adding he was waiting to see the details and nuances of the order. In a separate statement, the office of Mistry said that the ruling was disappointing although not surprising. “We will continue to strive for ensuring good governance and protection of interests of minority shareholders and all stakeholders in Tata Sons from the wilful brute rule of the majority,” it said.  

“The verdict is on expected lines,” said Ramesh Vaidyanathan, managing partner at Advaya Legal, a law firm. “The battle at the NCLAT will be an uphill task for the Mistry camp and will lose some of its steam as it has been a fairly detailed exercise at the NCLT,” he said. The NCLAT may not get into all the details again as the NCLT’s verdict is based on factual aspects that have been considered and negated, he said, pointing out that a lot depends on the fine print and the tone of the order.

The NCLT Bench pronounced the verdict on the issue after long hearings from both sides that lasted for four months (between October 2017 and February 2018). Mistry was removed as the chairman of Tata Sons on October 24, 2016.

In his petition to the tribunal, Mistry had alleged his ouster — first as chairman and then as director, Tata Sons — was illegal and was at the behest of Tata Trusts, the promoter of Tata Sons in which it controls 66 per cent.

Mistry had alleged mismanagement by Tata Sons board and oppression of minority shareholders in his petition. The Shapoorji Pallonji family owns an 18 per cent stake in Tata Sons’ equity capital. He had also alleged corporate governance breakdown and excessive interference by Tata Trusts and abuse of articles of association. He had said Ratan Tata was acting as a “super board”, controlling operations of Tata group companies, and that it was at his behest and influence that Tata Sons board had removed Mistry.

Justice Kumar dismissed all the allegations. “We have not found any merit in the purported legacy issues. Be it C Sivasankaran, Tata Teleservices, Nano car, AirAsia issue or Mehli Mistry issue — all these fall under the ambit of the Companies Act, 2013,” he said, pronouncing his verdict to a packed courtroom on an unusually wet day. “There is also no merit in the allegation by the petitioner that Tata and Noshir Soonawala giving notices and suggestions amounted to them interfering in the affairs of the company,” he added. Mistry had alleged that Tata and Soonawala, both trustees of Tata Trusts, undermined group company boards by demanding a say in key internal matters years after superannuation.

In a statement after the verdict, N Chandrasekaran, executive chairman, Tata Sons, said he welcomed the order of the NCLT. “The judgment has only reaffirmed and vindicated that Tata Sons and its operating companies have always acted in a fair manner and in the best interests of its stakeholders.” The group has always been committed and will continue to be committed to transparency and good corporate governance of global standards, he added.

“The judgment of the NCLT, delivered on Monday morning has been a vindication of the actions that Tata Sons felt obliged to take in October 2016. It is a reinforcement of the principles and forthrightness that prevails in our judicial system, which should make all of us proud of our country and its democracy, said Ratan Tata.

V R Mehta, trustee at Tata Trusts, termed the verdict as a big relief. “The tribunal has accepted all our submissions and rejected all the allegations. In that sense, it is a big relief. It will indeed set a precedent in such cases and for good reasons as whatever allegations he (Mistry) made have no substance to it,” Mehta told Business Standard.