Author: Koda Syam Sundar, Damodaram Sanjivayya National Law University
Introduction
The corporate legal battle between Tata Sons Private Limited led by Mr. Ratan Tata, and the Shapoorji Pallonji Group attracted worldwide consideration and developed as a noteworthy administering on issues related to oppression and mismanagement under the Companies Act, 2013. It was the first came into the spotlight when it made its way to the National Company Law Tribunal (NCLT) in Mumbai in November 2017. This case pulled in a part of consideration universally not as it were since it included two major aggregates but moreover due to its potential to development in Indian corporate law and legal philosophy. It turned out to be the primary case managing with shareholder persecution and fumble beneath the Companies Act, 2013, to reach the Supreme Court of India.
Facts of the case:
Cyrus Mistry was appointed as the Chairman of Tata Sons in 2012, after Ratan Tata. In 2016, Mistry was unexpectedly expelled from his position as Chairman.. The removal of Mr. Cyrus Mistry, the executive chairman of tata sons private limited, went with by his evacuation from the position of chief parts in other noticeable companies inside the Tata group. On March 16, 2012, Mr. Cyrus Mistry was appointed as the executive deputy chairman of Tata sons for a period of five years, pending shareholder approval Taking after the shareholders underwriting in a common assembly, Mr. Mistry’s arrangement was affirmed. In this way, on December 29, 2012, he was repositioned to serve as the official chairman of the company from 2012 to 2016. In the beginning, things went well between the two, Mr. Ratan Tata supported the candidature of Mr. Mistry’s as chairman.
However, their relationship contrasts in overtime due to differences in administration styles. Without further ado from there on, shareholders of TIL, TCS, and TSL voted to evacuate Mr. Mistry as a director. Mistry questioned the circumstances of his removal, contesting the decision’s arbitrariness. Mr. Chandrasekaran was named as chief official officer and overseeing executive of TCS and chairman of tata sons, marking a transition in leadership.
Issues of the case:
Mr. Mistry’s removal as Executive Chairman and subsequently as director of the company was mismanagement, oppression, and unfair prejudice or not?
The manufacturing of the Tata Nano, a failed project carried out by Tata Motors at the time of Ratan Tata who own interests of him but not in the interest of the company?
The change of Tata Sons from a public company to a private company was also challenged by Mr. Mistry?
Arguments of the Petitioner:
Cyrus Investments alleged that Tata Sons engaged in oppressive and prejudicial conduct towards minority shareholders. The petitioner claimed that Tata Sons misused certain articles of its association to consolidate power and undermine the rights of minority shareholders. Cyrus Investments argued that the removal of Cyrus Mistry as Executive Chairman was illegal and violated principles of corporate governance. The petitioner alleged that Tata Sons engaged in certain dubious transactions that were detrimental to the interests of the company and its minority shareholders. Cyrus Investments claimed that Tata Sons lacked transparency in its dealings and failed to provide adequate information to minority shareholders.
Arguments of the Respondent:
Tata Sons argued that the removal of Cyrus Mistry was a decision made by the Board of Directors within its discretionary powers, in the best interests of the company. The respondents asserted that the Board had lost confidence in Cyrus Mistry’s leadership due to his alleged poor performance and strategic failures. Tata Sons claimed that several strategic initiatives undertaken under Mistry’s leadership, such as the Nano project and the Corus acquisition, had failed to deliver the expected results. The respondents raised concerns about Mistry’s adherence to corporate governance principles and his alleged disregard for the Board’s authority. The respondents maintained that the removal of Mistry was carried out in accordance with the company’s Articles of Association and applicable laws. . Tata Sons alleged that Cyrus Investments had engaged in a negative media campaign to tarnish the reputation of the Tata Group.
NCLT’S Order:
Mistry filed a petition against Tata sons private limited in NCLT, Mumbai regarding the company’s conversion from a Public Limited Company to a Private Limited Company. However, NCLT, rejected Mistry’s contentions, including his removal as chairman of the company. NCLT moreover clarified that there was nothing off-base on the portion of the company going private from a open restricted company. And also ruled that Mistry’s removal was made on grounds trust deficit in his leadership as chairman and specified that it did not fall under sec 241 of the Act.
NCLAT’S Order:
Not satisfied with the NCLT’s order, Mistry decided to approach the NCLAT in his own capacity. NCLAT accepted Mistry’s petition along with the main petitions filed by the two investment firms, namely Cyrus Investments private limited and Sterling Investment Corporation private limited. NCLAT passed its order in favor of the petitioners and revoked the order passed the NCLT. And the NCLAT also addressed two specific issues: the oppressive nature of certain Articles of the company and the removal of Mr. Mistry as executive chairman.
Appeal to the Supreme Court:
In Jan 2020, Tata Sons approached Supreme Court to set aside the judgement of NCLAT, which is in favor of Mr. Mistry as the chairman of Tata Sons. Under sec 2(68) of Act, 2013, the articles of Tata sons have fulfilled all the necessary requisites. And also clarified that the NCLT or NCLAT did not have the right to intervene in matters pertaining to the dismissal of a person as a chairman of a company in a petition filed under section 241 of Companies Act, 2013.
Abstract
The legal feud between Tata Sons, led by Mr. Ratan Tata, and Cyrus Mistry of Shapoorji Pallonji Group revolved around allegations of shareholder oppression and mismanagement under the Companies Act, 2013. Initiated in 2017, it reached the National Company Law Tribunal, which ruled in favor of Tata Sons, a decision later overturned by the National Company Law Appellate Tribunal. Ultimately, the Supreme Court reinstated the NCLT’s decision, dismissing Mistry’s claims. The case underscored significant aspects of corporate governance in India, especially concerning the roles and duties of directors, shareholder rights, and the intricacies of company law.
Case Laws
In Needle Industries (India) Ltd. and Ors. v. Needle Industries Newey (India) Ltd. and Ors (1981), the court upheld the order to seek redress under section 397 of companies Act of 1956, allegations based solely on grounds such as incompetence, or in a director’s execution are not adequate as they need real and evidentiary bolster and backing.
In Rajahmundry Electric Supply Corpn. Ltd. v. Nageshwara Rao, (1955), Court that in order for the “Just and equitable clause” as provided under Section 242, to be applicable under the legislation, the reasons alleging the lack of confidence in a director’s leadership must be valid and reasonable It was advance watched in this case that minor contradictions or debate relating to the believe shortfall between lion’s share shareholders and minority shareholders of the company are critical for the clause to operate.
Conclusion
The Tata-Mistry debate has played a gigantic part in forming the scene of corporate administration in India, shedding light on the issues of shareholder abuse and fumble beneath the Companies Act, 2013. The present matter which went on for almost five long years in the boardroom of the courtrooms had discussed about the rights of minority shareholders, corporate governance, mismanagement, conversion of a company from public limited to private limited and removal and reinstatement of the chairman of a company.
FAQS
What were the primary allegations made by Cyrus Mistry against Tata Sons?
Cyrus Mistry accused Tata Sons of shareholder oppression and mismanagement. He argued that his removal as Executive Chairman and subsequent dismissal from various directorial roles were unlawful and unlawful.
What are the broader implications of this case for corporate governance?
Governance refers to the set of rules, controls and resolutions put in place and if we talk about corporate governance, it is the rules or polices made for protection of stakeholders. It involves balancing the interests of a company’s stakeholders such as shareholders, management, customers, supplier etc. This case highlighted significant issues in corporate governance, particularly the roles and duties of directors, shareholder right, and the powers vested in company articles.
What was the Supreme Court’s final decision in the case?
The Supreme court overruled the decision of NCLAT’s and dismissing Mistry’s claims. The Court held that the removal of an individual from the position of chairman was not maintainable under Section 24l of Companies Act, 2013, unless it was oppressive or prejudicial.
