Tata-Mistry dispute will test the rights of minority shareholders: Lawyers

The dispute between Tata group and its ex-chairman Cyrus Mistry in the Supreme Court (SC) will test the rights of minority shareholders and set a precedent for other companies, say corporate lawyers.

Before the apex court decides on the merits of the case, lawyers said, the Tata group and the Mistry family-run Shapoorji Pallonji (SP) Group now have the last chance to settle their differences out of court. “Both groups should try to settle the issue. While Tata Sons should offer a board seat to the Mistry family, which they held since 1980, the SP Group may look at selling Tata Sons shares in the long run as the group is facing liquidity issues,”said HP Ranina, a noted SC lawyer. The SC on Friday agreed to hear a plea filed by the SP Group challenging the National Company Law Appellate Tribunal’s (NCLAT's) December order. In its petition, the SP Group has sought a seat on Tata Sons board and removal of veto power granted to the directors of Tata Trusts. The SP Group also sought similar veto powers for the minority shareholders like them in Tata Sons. Reversing the 2018 order of the National Company Law Tribunal (NCLT) Mumbai, the NCLAT had held the decision to remove Mistry as Tata Sons chairman was illegal and he should be reinstated.

Though the NCLAT order was initially hailed as a victory for them, the Mistry family appealed against the verdict as the reinstatement of Cyrus Mistry as the chairman of Tata Sons and director of the listed Tata firms (from which he was removed by the shareholders in 2016) for the ‘rest of the tenure’ was symbolic at best.

 

It was also a relief that legally, lawyers said, appeared to be on tenuous ground. The other NCLAT direction that henceforth the SP Group should be consulted for all future appointment of directors to the Board of Tata Sons would simply create a deadlock in Tata Sons. It did not give to the Mistry family, as a matter of right, the ability to appoint their own person on the board. If they get it, it will give the Mistrys sufficient foot in the door to build on and negotiate for much more in the future.  Mistry group's plea for representation on Tata Sons board in proportion of their 18.5 per cent shareholding in Tata Sons was not granted by the NCLAT; nor were the provisions in the Tata Sons Articles of Association, which the Mistry camp had called ‘oppressive’, struck down by the NCLAT. The SP Group’s appeal to the apex court now seeks these reliefs (see box).

The appeal by the Mistry family was delayed as the NCLAT judgment was delivered on the last working day of the Supreme Court before it closed for the winter recess and the Tatas could not immediately appeal against the judgment.
 

Once the apex court re-opened, the bench, led by Chief Justice of India SA Bobde, stayed the NCLAT order on January 24. The bench indicated that it saw ‘basic errors’ in the NCLAT’s order and was going to stay its operation. Despite vociferous opposition by the Mistry camp’s lawyers, the NCLAT judgment was stayed in its entirety.

Mistry had also indicated soon after the NCLAT order that he is not interested in the chairmanship of Tata Sons, but wanted a board seat in Tata Sons as the family had been holding the seat since June 1980. The initial reactions about the correctness of the NCLAT’s order that came from the SC bench would have not been very encouraging for the Mistry camp, say sources.

The Mistry family now has two options: either choose to reply to the Tatas’ appeal and defend the NCLAT’s verdict, or they could come out with a case of their own and try to get what they wish to get, which has been rejected twice — first by the NCLT and then by the NCLAT.

The SC is their last hope.