NCLT Dismisses Cyrus Mistry’s Plea Against Tata Sons

NCLT rejects petition to reinstate Mistry in Tata Sons board

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

Cyrus Mistry lost the legal battle against Tata Sons Ltd. as the company law tribunal rejected all his allegations and ruled that the parent of India’s largest conglomerate had the right to remove him as its chairman.

The NCLT found no merit in Mistry’s allegations of operational mismanagement and oppression of minority shareholders. The court also found no merit in Mistry’s argument that Ratan Tata and Tata Sons’ trustee NA Soonawala interfered in the governance of Tata Sons, according to the bench headed by Justices BSV Prakash Kumar and V Nallasenapathy, who had heard both the parties for nearly four months between October and February.

Mistry, in a statement, called the ruling “disappointing although not surprising”. It’s in “line with the earlier position expressed by the tribunal,” he said, adding that “an appeal on merits will be pursued.”

Tata Sons, in its statement, said the NCLT order vindicates the position of the company and Tata Trusts. “The judgement has only re-affirmed and vindicated that Tata Sons and its operating companies have always acted in a fair manner and in the best interest of its stakeholders,” the statement quoted Chairman N Chandrasekaran as saying.

Here are the key highlights from the judgement:

  • NCLT rejects petition to reinstate Mistry on Tata Sons’ board
  • NCLT says Mistry openly went against the board, and so against company

“As a basic principle of company law, the board of directors is entitled to take a particular decision whether it is to remove a chairman,” said Rajat Sethi, partner at S&R Associates. The board’s right to oust Mistry as chairman and the shareholder’s right to oust him as a director is “unquestionable”.

Agreed Sanjay Asher, partner at Crawford Bayley. “It is at the end of the day a corporate democracy, both at the board level and at the shareholder level.”

The Tata-Mistry Fight

In December 2016, two firms owned by Cyrus Mistry’s family had filed a case of oppression and mismanagement against Tata Sons and 20 others, including Ratan Tata. The dispute stems from Mistry’s removal as Tata Sons chairman in October 2016 and later as a director. In March 2017, the NCLT had ruled that the Mistry firms are not eligible to pursue the allegations. Section 244 of the Companies Act, 2013 allows a shareholder of a company to bring an oppression and mismanagement case against the firm if it holds not less than one-tenth of the issued share capital.

Mistry’s counsels had argued that the two Mistry entities—Cyrus Investments and Sterling Investments—together hold 18.7 percent of equity shares in Tata Sons and meet the eligibility criteria under Section 244. Tata Sons had contended that the issued share capital includes issued equity capital and issued preference capital; and according to this calculation, the two Mistry companies hold less than 3 percent, rendering them ineligible to file the case. The NCLT had agreed with Tata Sons’ argument in March last year.

On appeal, the Cyrus Mistry firms had secured a partial win at the National Company Law Appellate Tribunal in September. The NCLAT had granted the two Mistry firms a waiver from the 10 percent shareholding requirement to pursue oppression and mismanagement charges against Tata Sons. But the appellate tribunal had pointed out that it cannot deliberate on the merits of an oppression and mismanagement petition while deciding the threshold question of waiver. And so, the NCLT was directed to hear the merits of Mistry’s petition.

NCLAT’s ruling was followed by another key development – the decision by Tata Sons’ board to convert the entity into a private limited company. Mistry’s firms had pointed to this development as another example of oppression of minority shareholders. In their earlier arguments, counsels for the Mistry firms had also raised issues such as continuance of the loss-making Tata Nano project and awarding commercial contracts to Ratan Tata’s close confidants like Mehli Mistry and C Sivasankaran as examples of mismanagement that cost the company several crores and impacted dividends.

Tata Trusts, which acts as promoter to the $103 billion Indian conglomerate with a shareholding of 66 percent, had rebutted the arguments, saying Mistry was party to most of the decisions he had cited. Further, they had argued, that Mistry’s ouster was justified because he, intentionally and in bad faith, had leaked sensitive and confidential information causing loss to Tata Group’s market value. One of the arguments was that Mistry was appointed at the behest of Tata Trusts and his removal cannot be questioned by minority shareholders.