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Cyrus Mistry case will become precedent in oppression disputes: Experts

On Monday, the NCLT Mumbai bench rejected Mistry's petitions

Dev Chatterjee  |  Mumbai 

cyrus mistry
Cyrus Mistry

The Mistry family’s investment firms failed to make a case of “oppression” of minority shareholders and mismanagement of at the National Company Law Tribunal (NCLT) and the order would now become a precedent for similar disputes in corporate India, said corporate lawyers.

“The order has made sure that the majority shareholders have an absolute control over the company’s affairs and minority shareholders will have to prove that the conduct of majority shareholders was oppressive and illegal. “The word ‘oppression’ is difficult to prove in a court of law and unless there are some illegal activities by board, it will be difficult to prove such allegations,” said H P Ranina, a Mumbai-based lawyer.

On Monday, the Mumbai bench rejected the petitions filed by the two Mistry investment firms, Cyrus Investments and Sterling Investment, which own 18.5 per cent stake in The Mistry firms had alleged that Tata Sons had oppressed minority shareholders – the two Mistry firms - and sought restoration of a board seat to them. The petitions were moved after was removed as executive chairman of Tata Sons on October 24, 2016.

In the petition, the two firms alleged that Mistry was removed after he undertook clean-up operations of various legacy hotspots which resulted in huge losses to the Tata group, and had challenged the manner of his removal. The issues included the costly acquisition of Corus Steel and investment in the Nano car project.

Ranina said just because a view has been taken by the majority shareholders which is different from the view of minority shareholders then it need not be classified as “oppression” of minority shareholders. “Mistry should take legal opinion from former Supreme Court judges whether this case would pass the judicial scrutiny in the higher courts before proceeding further,” he advised.

Other lawyers said making allegations is one thing but proving it in a court of law was difficult. “The decisions on legacy issues taken by the previous Tata Sons management led by impacted all shareholders of Tata Sons and not only the minority shareholders alone. Mistry has to prove that the decisions taken by Tata Sons were against the interests of minority shareholders and that benefited only the majority shareholders – the Tata Trusts,” said R S Loona, managing partner of Alliance Law. The order today showed that Mistry had failed to prove that, said he.

Lawyers and corporate governance experts said the case set a precedent and made it difficult for the minority shareholders of Indian to prove “oppression” by the majority shareholders. "In case there is a dispute in future, the majority will prevail," said Ranina.

Experts also said the matter could now go to the National Company Law Appellate Tribunal and then to the Supreme Court and thus become a test case for shareholders’ rights. Recently, the minority shareholders of Fortis removed the independent directors of the company as it was found that they were unable to stop diversion of funds from the company.

“This (NCLT order on Mistry petition) has to be challenged in the higher courts as it involves the rights of the minority shareholders. The NCLT has not looked at the law but looked at the facts of this case. Do minority shareholders have a right to object to the decisions of the majority shareholders or not which impacts them directly?” asked Anil Singhvi, chairman of Ican Investment Advisory. “In the vs Tata Sons case, the executive chairman of the board who owns 18.5 per cent stake in Tata Sons was removed by directors who do not own a single share. The Act and even the Constitution of India are quite clear that minorities do have the rights and they should be respected,” he added.

“The Supreme Court may have to rise to the occasion once again in this case and re-affirm the rights of minority shareholders,” said he.

First Published: Tue, July 10 2018. 03:24 IST