Cyrus Mistry’s Demands May Have Hurt His Case At The NCLT, Say Experts

Cyrus Mistry, former chairman of Tata Group. (Photographer: Dhiraj Singh/Bloomberg)

A boardroom coup, an army of over 50 lawyers, fervent arguments over the last year and a half, internal management mails becoming public and several rounds of litigation—the Tata-Mistry case will be remembered as one of India's biggest corporate battles.

The National Company Law Tribunal, which described the boardroom brawl as a “fight for upmanship”, was expected to end it and lay down several important precedents—acceptable conduct of majority shareholders against their minority counterparts and the ingredients of an oppression and mismanagement claim. Has the court delivered?

Umakanth Varottil, associate professor at National University of Singapore, and Rajat Sethi, partner at S&R Associates, shared their views on BloombergQuint's weekly law and policy show The Fineprint.

“The burden of proof was on the petitioners. They were required to bring some evidence—resolutions or board minutes—on record to show the minority shareholders had objected to these business decisions when they were being taken,” said Sethi said. “To that extent, the NCLT has formed a correct conclusion.”

But the NCLT order hasn't explained why there were deviations in the way Mistry, as executive chairman, was removed. Why was it brought as “any other matter” in the agenda before the board? Did the directors lose confidence in him overnight and for that reason they couldn't give him a seven-day notice? That has not been dealt with.

Rajat Sethi, Partner, S&R Associates

This lack of reasoning while upholding Mistry's removal is a strong ground for the petitioners to contest the NCLT ruling, Sethi pointed out.

Varottil agreed and said Mistry's demands—changes to Articles of Association, proportionate representation of minority shareholders on Tata Sons board—may have hurt his case. If you look at Section 242 (provisions for power of tribunal) of the Companies Act, 2013, it says the NCLT must end the matter that has been complained of. Though the NCLT can pass a wide range of orders, ultimately the court must end the dispute, Varottil said.

It's possible many of the remedies which have been sought ultimately go into the management issues relating to the company and all of this can perpetuate the problem in the long run. Although the merits of the case have to be looked at before the remedies are considered, but ultimately the two of them go together.

Umakanth Varottil, Associate Professor, National University of Singapore

Unless the remedies are viable and within the spirit of the Companies Act—which is to put matters to an end—the court may not appreciate what's being asked, he said.

The NCLT Verdict

The court upheld Mistry's removal as executive chairman, saying a chairman does not enjoy a free hand and can't assume majority shareholders and the board would be at his “beck and call”.

It held that:

Mistry's ouster can't be perceived as grievance of minority shareholder. He was removed because the board lost confidence in him.
Most of the legacy issues or business decisions—such as the Nano project, Corus and AirAsia—Mistry cited as examples of mismanagement had his blessing as well since he was the executive chairman.
The roles of Ratan Tata and Noshir Soonawala of Tata Trust should be read as advice and not interference if it's not fraught with mala-fides.
The Articles of Association of Tata Sons aren't oppressive and was unanimously approved by the minority shareholders.

It appears the petitioners and Mr Cyrus, because of the heart burn they had for Cyrus being removed as Executive Chairman of the company, they tried to steamroller all these business decisions upon Mr Tata as mismanagement of the affairs causing prejudice to the company, so as to bully the answering respondents by using Section 241 (provisions of oppression and mismanagement) of the Companies Act, 2013, as a device.

NCLT Order

Watch the full interview here: