Directors on the board of a company have a fiduciary duty to the company and all its shareholders collectively and cannot vote in the interest of an individual or a particular group of shareholders, Mistry firms' counsel Aryama Sundaram argued at the NCLT today.
Article 121 and 121A of the Articles of Association of Tata Sons were in question during arguments in oppression and mismanagement case filed by two Mistry group firms against Tata Sons. When read together, these articles say that certain critical matters such as deciding the five-year strategic plan, annual business plan, sale of any shareholding in any Tata company, exercising of voting rights of any Tata company etc can only be decided with the affirmative vote Tata Trusts' nominee directors.
The National Company Law Tribunal began hearing the petition in November after the appellate tribunal granted the two Mistry firms waiver from the 10 percent shareholding requirement to pursue oppression and mismanagement charges. The dispute stems from Mistry's removal as Tata Sons chairman in October 2016 and later as a director.
Also Read: Tata Vs Mistry: What Happened At The NCLT So Far
Granting of such affirmative rights to the majority shareholder in unheard of, Sundaram argued. On the contrary, affirmative vote is granted to minority shareholders in respect of certain issues that directly affect such an investor to ensure that his investment and interests are protected. Going by this rational, Mistry firms should have affirmative voting rights, he added.
He also argued in favour of removing Article 75 from the Articles of Association which gives Tata Sons the power to transfer the shares of a shareholder with the consent of 75 percent of the shareholders. This Article would enable the company to coerce Mistry firms to transfer their shareholding, without their consent, Sundaram said.
Tata Trusts, which owns two-thirds of Tata Sons, had suggested in its arguments that the holding company buy out Shapoorji Pallonji Group's stake. If the Mistry firms interest is not protected by the NCLT then Tata Sons is likely to exercise this option, Sundaram said today. Tata Trusts owns about 66 percent of Tata Sons while 18 percent is controlled by the Shapoorji Pallonji Group.
Both sides have completed the first round of arguments. Mistry firms' rebuttal is likely to be completed over the next two days, after which Tata side will take the stand again.
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