TataMistry: NCLT dismisses Mistry’s plea against Tata Sons & Ors

The Mumbai Bench of the NCLT today, through an oral order, dismissed the petition filed by Cyrus Mistry against Tata Sons, Ratan Tata, and several others.

The court while rejecting the petition said that, the Board of Directors are competent to remove the Chairman and that no selection committee is required to remove the Executive Chairman. The court also ruled Tata Sons can’t be prevented from becoming a private company and found no merit in arguments relating to mismanagement in Tata Group companies.

The fight between Cyrus Mistry and team Tata started way back in October 2016 when Mistry, to his shock, was removed as the Chairman of Tata Sons. He then filed a suit under Sections 241 and 244 of the Companies Act, 2013 alleging oppression and mismanagement in Tata Sons.

Under the provisions of the Companies Act, shareholders holding over 10% of the ‘issued share capital’ are allowed to file for oppression and mismanagement. Mistry’s investment companies collectively hold 18.37% of the ‘equity share capital’ in Tata Sons, which actually translates to roughly 2% of the ‘issued share capital’.

Thus, it was a long fight for Mistry before his actual grievances could be heard at the NCLT. After nearly 9 months of litigation with the case bouncing back and forth between the NCLT and NCLAT, a waiver was granted by the NCLAT to Mistry  following which the Mumbai Bench started hearing the case on merits.

The hearing, then lasted for four months, from October 2017 to February 2018.

Allegations?

Firstly, violation and misuse of the Articles of Association (AoA). The very ouster of Mistry from his position as the Chairman was challenged as being tainted with illegality. It was stated that the provisions of the AoA have been “misused to give powers to the majority shareholders to subvert the interests of the minority shareholders and interests of the company”

Secondly, irregularities in dealings with Tata Teleservices. It was argued that Ratan Tata’s relationship with C. Sivasankaran and his companies, provided them ‘ex-gratia favours’ without there being any ‘quid pro quo’ for the shareholders of Tata or any other group company. Accordingly, a forensic audit was into the financial dealings with the parties mentioned was prayed for.

Thirdly, violation of Insider Trading Rules. It was argued that Ratan Tata, Lord Kumar Bhattacharya, and several other Trustees of the Tata Trusts were regularly reviewing the operations of various companies in the Tata Group despite not being directors of any of the companies forming a part of the Tata Group giving them access to price sensitive information.

Fourthly, Mistry alleged that transactions with Mehli Mistry were not on arms length basis, resulting in an unjust enrichment of some entities at the expense of Tata Power. A forensic audit between all financial dealings between Tata Power and Mehli Mistry, was prayed for. It was also prayed that the findings be further referred to the MCA’s Serious Fraud Investigation Office.

Fifthly,  a forensic audit conducted by Deloitte Haskins and Co. had revealed fraudulent transactions to the tune of ₹22 crores entered into by Air Asia India with non-existent parties in India and Singapore. Mistry therefore prayed for another forensic audit to reinvestigate these transactions.

Sixthly, during the course of the hearings, board of Tata Sons sought to convert it into a private company. This was cited as another instance of oppression by Mistry.

Calling the ruling ‘disappointing although not surprising’, Mistry’s office issued a press release saying,

“The ruling is in line with the earlier position expressed by the Tribunal. An appeal on merits will be pursued. Matters like TTSL, Air Asia, recovery of dues from Siva, non-closure of a loss-making Nano, a struggling resolution of Tata Steel Europe, all present serious issues that will be pursued. Not only the facts that were under consideration but also subsequent facts and developments that continue to evidence oppression and mismanagement will be under scrutiny and will be pursued in full earnest. ”

Detailed order is awaited.

Senior Counsel Abhishek Manu Singhvi appeared for TATA Sons assisted by Karanjawala & Co. & Shardul Amarchand Mangaldas.

The Karanjawala team was lead by Senior Partner Ruby Singh Ahuja along with Senior Associates Tahira Karanjawala, Anupm Prakash and Associates Arjun Sharma and Shubham Saigal.

The SAM team comprised of Partners Dhruv Diwan and Nitesh Jain along with assistance from Principle Associate Rohan Batra and Associates Juhi Mathur, Jeet Karia and Adrish.

Senior Counsel CA Sundaram along with Counsel Somasekhar Sundaresan appeared for Cyrus Mistry assisted by Desai and Diwanji with a team lead by Partner Apurva Diwanji.

Senior Counsel S N Mookherjee appeared for Ratan Tata.

Senior Counsel Mohan Parasaran appeared for TATA Trusts.

Read the order: