NCLAT ruling on Mistry: Order raises questions on corporate governance

Even as the spat between Ratan Tata and Cyrus Mistry headed for the Supreme Court (SC), the NCLAT verdict on Wednesday raised several questions for corporate governance.

Lawyers expect the Tata group to move the SC as soon as it reopens after the winter vacations. It has four weeks to do so. At the same time, experts said it might lead to a settlement between the warring parties. “The verdict is quite interesting… it remains to be seen how the SC reacts to it,” said Vaibhav Kakkar, partner, L&L Partners. Last month, the SC had overturned a NCLAT order on Essar Steel, clearing the deck for its takeover by global steel giant ArcelorMittal.

The biggest lesson for corporate India is that in matters of the board, transparency is paramount, said experts. “Otherwise, courts could step in,” said Sujit Ghosh, an advocate with the Delhi High Court. According to Shriram Subramanian, founder of corporate governance advisory firm, InGovern, the take-away from the NCLAT order was that board functions should adhere to corporate law.

Resolution on cards?

The NCLAT order has also observed that both parties must take steps to “create a healthy atmosphere to remove the mistrust”. “The NCLAT order will bring both sides to the negotiating table and find a way out of the crisis. I think while Mistry can be re-instated as non-executive chairman the present chairman, N Chandrasekaran, may look after the day-to-day operations of the group,” said H P Ranina, a SC lawyer.

Ratan Tata will have to take a backseat, considering the strictures passed by the NCLAT, he said.

The order may also lead to the re-composition of the Tata Sons board as several board members who were instrumental in removing Mistry may not like to continue once Mistry is back in the saddle, Ranina said.  The Tata Sons board consists of Farida Khambata (who did not vote to remove Mistry), Venu Srinivasan, Ajay Piramal, Bhaskar Bhat and Ralf Speth.

Piramal, Srinivasan and Amit Chandra (who has left the Tata Sons board now) voted in favour of removing Mistry after attending just one meeting.