Cyrus Mistry and Tata group

Company Appeal (AT) No. 254 of 2018
Cyrus Investments Pvt. Ltd. …. Appellant
Vs.
Tata Sons Ltd. & Ors. …. Respondents
WITH
Company Appeal (AT) No. 268 of 2018
Cyrus Pallonji Mistry …. Appellant
Vs.
Tata Sons Ltd. & Ors. …. Respondents

 

On 10th January 2020, the Supreme Court of India ordered a stay on a National Company law appellate Tribunal (NCLAT) order that reinstated Cyrus Mistry as executive chairman of Tata Sons. In the backdrop of the latest twist in the Cyrus Mistry Vs Tata Sons case, a look at the near 2-year saga that has led to the present situation:

Facts of the case

  1. Tata Sons Limited passed a resolution dated 24 th October 2016 removing Cyrus Pallonji Mistry as the sixth Executive Chairman of the company just a few months ahead of his completion period. Mr. Ratan Tata was appointed as interim Chairman. In December 2017, Mr. N. Chandrasekharan, then TCS head was appointed as Chairman.
  2. Soon thereafter Mistry was also removed as a Director from the board of Tata Sons Limited.
  3. Consequently, Cyrus Investment Private Limited and Sterling Investment Corporation Private Limited (“Shapoorji Pallonji group” or “SP group”) moved an application u/s 241 and 242 of the Companies Act, 2013 alleging oppression and mismanagement by majority shareholders Tata group companies.
  4. The SP group alleged too much interference, insecurity and legacy issues on the part of the Tatas. The Tata group alleged lack / failure of performance as reasons to oust Cyrus Mistry. This seemed to be brewing for at least a year before Mistry’s ouster.
  5. One of the investment firms of the SP group filed a petition u/s 244 of the Companies Act and sought waiver of conditions to be satisfied u/s 244 in order to file petition of oppression and mismanagement u/s 241of the Companies Act. Section 244 prescribes eligibility of shareholders to file petition u/s 241 of the Act – at least one hundred members or members constituting one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company (for companies having share capital )and at least one-fifth of the total number of its members are required to make an application under section 241 of the Act (for companies not having share capital). Tata group alleged that the SP group shareholding was 18.4% after considering their issued equity and issued preference share capital. However, the shareholding will decrease to around 3% if preferential shares are excluded. In March 2017, the NCLT, Mumbai set aside the plea of the SP group stating that they did not meet the 10% criteria. Further in April 2017, the NCLT, Mumbai rejected the waiver request.
  6. Aggrieved by the NCLT, Mumbai order, SP group filed an appeal before the NCLAT, Mumbai to re-look at the maintainability and rejection of waiver provisions u/s 244 of the Act.
  7. In September 2017, the NCLAT, Mumbai dismisses the petition seeking maintainability of petition u/s 241 of the Act on the grounds that SP group does not have more than 10% of total issued equity capital in the Tata sons limited. However, it allows the petition seeking waiver by the Tribunal in filing an oppression and mismanagement case. The NCLAT directs the NCLT, Mumbai to investigate the matter of waiver.
  8. In the meanwhile, efforts were also made to shift the case out of Mumbai to Delhi. Those petitions were dismissed by the Tribunal.
  9. In July 2018 the NCLT, Mumbai dismisses the petition filed by Cyrus Mistry to restore his Executive Chairmanship. The SP group then went on appeal to the NCLAT, Mumbai against the NCLT order dismissing the plea challenging Mistry’s removal as chairman. In August 2019, Mr. Mistry further filed another petition in his personal capacity.
  10. On 18th December 2019, the NCLAT reinstated Cyrus Mistry as the Executive Chairman. It further nullified the Tata Sons conversion from a Public company to a private company under the Companies Act, 2013.

The Tata group filed a petiton before the Supreme Court terming as “dangerous precedent”, the setting aside of the NCLT order by the NCLAT and nullifying the conversion from public company. The Apex court observed and viewed that there was ambiguity in the order of the NCLAT as it directed and provided for relief to the party when no relief was specifically asked for.

The apex court salvo

And so, in January 2020, the SC ordered a stay on the NCLAT decision of reinstating Cyrus Mistry observing that there were lacunae in the order. The SC further held that conversion of the nature of an entity from public company to private company could not be held as an oppressive act especially if due process was complied with under the Companies Act, 2013.

A three Judge bench headed by the Chief Justice of India, S.A Bobde were of the view that the NCLAT “granted a prayer which was not prayed for”. There was no prayer in the petition to reinstate Cyrus Mistry and yet the appellate tribunal went ahead and order his reinstatement. The decision of the NCLAT suffers from “basic errors” and thus needs to be heard in detail. Further Cyrus Mistry had announced that he would not seek reinstatement but was keen on protecting the SP group’s minority shareholding.

While posting the matter for 4 weeks later, the Apex court has issued directions to all concerned parties. India Inc is waiting with bated breath.

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