Supreme Court intervenes in Mistry’s Mystery

Author: thinkinglegal | February 5, 2020 - 13:51 | Tags: Corporate Advisory

On 18th December 2019, the National Company Law Appellate Tribunal (“NCLAT”) pronounced its judgment to reinstate Mr. Cyrus Pallonji Mistry as the chairman of Tata Sons Ltd. (“Company”) and reinstate him as the director of Tata Group Companies.

Whether there was abuse of power by Tata Trusts in the matters of Tata Sons Ltd?

It was held by the NCLAT that the trustees of the Company had an affirmative vote on all the matters of the Company as well as the group companies were decided by the affirmative vote of the nominees of Tata Trusts. The Company’s affairs have been conducted in a prejudicial and oppressive manner as there is direct control of Tata Trusts having the affirmative vote in the matters of the Company. The NCLAT considered various examples in this regard.

Whether the removal of Mr. Cyrus Mistry is legal?

Mr. Mistry was removed from the Chairmanship of the Company without giving any prior notice. NCLAT further held that there is nothing on record to show that there was loss of confidence of the Board as prior to the meeting dated 24 October 2016, none of the members had put it on record or even stated anything against the performance of Mr. Mistry. In fact, various independent directors of the Tata Group Companies had appreciated the performance of Mr. Mistry and nomination and remuneration committee had also given positive feedback to Mr. Mistry.

Whether the transition of Tata Sons from Public Company to Private Company is legal?

The NCLAT additionally stated that the Company has not followed the procedure for conversion of the Public Company to a Private Company. In terms of Section 14, of Companies Act, 2013, the Company should have taken an approval from the National Company Law Tribunal for conversion from Public to Private. However, no such application was made and due procedure was not followed and hence the conversion was said to be illegal.

Supreme Court’s Intervention

On January 10, 2020, the Hon’ble Apex Court had stayed the operation of the NCLAT judgment until further orders. In the meanwhile, Mr. Mistry has issued a statement clarifying that he doesn’t want to be the chairman of the Company and the group companies. However, he would want to retain a board seat in the Company.

This post has been contributed by Ms. Vaneesa Agrawal and Ms. Aditi Sanghi.

[DISCLAIMER:  This article is for academic purpose and is solely to provide readers with general information regarding developments in Indian law. The information contained herein does not constitute legal or a professional advice.]