Tata Sons, the holding company of the salt-to-software conglomerate, is looking at approaching the vacation Bench of the Supreme Court for a stay against the National Company Law Appellate Tribunal (NCLAT) order to reverse the status of the company from private to public limited and reinstating Cyrus Mistry as a director on its board and on three group firms, a person close to the matter told Business Standard.
The NCLAT order on conversion of the company back to public limited and Mistry’s reinstatement as director on some boards was with immediate effect. Keen to get an early stay, the $110-billion Tata group may not like to wait till January 6, 2020, when the country’s top court reopens after the winter break. Tribunals such as the NCLAT have power to punish for contempt under Section 425 of the Companies Act 2013. However, for restoring Mistry as executive chairman of Tata Sons, the Tribunal has granted a four-week window.
The government too is getting active on the latest development in Corporate India. The Ministry of Corporate Affairs (MCA) will examine whether the procedures were followed by Tata Sons and the Mumbai Registrar of Companies (RoC) before the conversion of the company’s status from public to private limited under the leadership of N Chandrasekaran, a senior government official said.
“Implementation has to be after examination. The RoC is simply a registry with no decision making powers…We are going through the order and if we find any facts have been missed out in the order, we will place them before the Tribunal,” another official pointed out.
In theory, the RoC can make the change, after following certain procedures. But, lawyers argued that a reversal in the status of the company would be tough. In September 2017, Tata Sons had secured shareholders’ approval for conversion to a private limited company. At that time, such a conversion, under Section 14 of the Company Law, required approval of the Tribunal before approaching the RoC. The law was changed with effect from November 2, 2018, delegating the powers to the Central government. “The regional director office under MCA can now give this approval instead of the Tribunal,” one of the officials quoted above said.
Cyrus Pallonji Mistry’s counsel had stated that the decision for conversion was taken by the board of directors in a hurried manner with the “help of Registrar of Companies.” NCLAT called the decision of conversion illegal, directing RoC to reverse the conversion.
But, Mohit Saraf, a corporate lawyer, asked ‘’if majority shareholders have exercised their right to convert a public company into private company, how can one validly set aside such a conversion”. He said questioning the shareholders’ intent has no relevance under the Companies Act unless one is alleging fraud or other criminal action.
The legal opinion is indeed divided on this. For instance, some legal experts believe the RoC Mumbai will have to immediately change the status of Tata Sons from a private company to a public company without waiting for any board resolutions from Tata Sons.
“The RoC need not wait for any board resolutions or documentation/communication from Tata Sons. What Tata Sons did was illegal. As soon as the RoC gets the copy of NCLAT order, it will have to change the status into public limited company in its records,” said H P Ranina, a senior lawyer.
Conversion of Tata Sons into a private limited company is believed to have restricted the prospects of minority shareholders like the Mistry family (Shapoorji Pallonji) and others to sell their shares. Shapoorji Pallonji group holds around 18.5 per cent in Tata Sons, while Tata Trusts is the biggest shareholder with a 66 per cent stake.
A Tata Sons spokesperson did not respond to an email seeking their views on the road ahead. A Mistry spokesperson said the group had not received any communication from Tata Sons regarding the conversion into a private company.