The National Company Law Appellate Tribunal (NCLAT) direction restraining Tata Group patriarch Ratan Tata and other Tata Trusts nominees from taking any decision in advance about Tata Sons affairs is nebulous and stifles the rights of Tata Sons shareholders, the Tata Group holding firm said in its petition to the Supreme Court.
The NCLAT order requires majority decision of the board of directors or in the annual general meeting which, the Tata Sons petition said, will result in the disenfranchisement of majority shareholders and cripple corporate democracy.
The Tata Trusts holds 66 per cent stake in Tata Sons — the holding company of Tata Group companies — and Ratan Tata is the chairman of the Trusts. Tata, along with other Trusts nominees, played an important role to remove Cyrus Mistry as Tata Sons chairman. This led to a three-year-old feud between Mistry and Ratan Tata.
The Tata petition says that Article 118 of Tata Sons — which provides for selection of the chairman — has been given a go-bye by the NCLAT order without even giving a reason on how it is illegal.
In the case of Tata Sons (since Tata Trusts holds approximately 66 per cent of the share capital, but is not involved in the day-to-day management), Article 121 was inserted in the articles of association to protect the interests of majority shareholders.
“There was nothing per se offensive, illegitimate or immoral about the existence of the affirmative vote and incidentally, even the impugned judgment does not hold so. Yet, the NCLAT judgment is full of adverse observations about the fact that the Trusts-nominated directors had an affirmative right over matters to be resolved in a board meeting of Tata Sons,” says the Tata Sons petition.
“In other words, the NCLAT judgment has rewritten the articles of association of Tata Sons, where the majority shareholders are subject to minority-capsizing the fundamental rule of corporate democracy,” adds the petition.
Tata Sons said the rights not provided under the articles of association — which is a contract between the shareholders — have been conferred upon the Mistry investment firms and in the same breath, taken away from Tata Trusts by the NCLAT, which is legally not permissible.
“This is despite the fact that the Mistry firms hold around 2 per cent of share capital of Tata Sons (and around 18.37 per cent of equity share capital of Tata Sons),” it said.
The NCLAT seems to have been influenced by a factually wrong finding that the Mistry firms invested around Rs 1 trillion in Tata Sons. The Mistry firms have acquired majority of their shareholding through bonus issue and rights issues and had invested only Rs 69 crore as initial capital of Tata Sons.