NCLAT expunges disparaging remarks against Cyrus Mistry from NCLT order, reinstates him as Executive Chairman of Tata Sons

While setting aside the NCLT order upholding the removal of Cyrus Mistry as the Executive Chairman of Tata Sons, the NCLAT has remarked that the Tribunal was not required to highlight the products of Tata Sons, appreciate its activities or make disparaging remarks against Mistry before deciding the case on merit.

The NCLAT has opined that the observations made by NCLT against Cyrus Mistry and others were undesirable, inappropriate and avoidable.

Referring to as many as eleven NCLT observations such as “Here, personal emotions or personal egos will not have any place to attribute it as a grievance under Section 241“, the NCLAT observed that such remarks cast an impact on the reputation of Mistry and were wholly unsubstantiated by any document on record.

The  NCLAT thus expunged these remarks made against Mistry and others and said,

“..such observations or appreciation in favour of one or other party creates a wrong impression in the mind of the other party.”

The directions form part of the 172-page judgment pronounced by a two-judge bench of Chairperson, Justice SJ Mukhopadhyaya and Member (Judicial) Bansi Lal, allowing Mistry’s appeal against the NCLT order.

After being sacked from the Board, Cyrus Mistry had moved NCLT against Tata Sons, Ratan Tata, and several others under Sections 241 and 244 of the Companies Act, 2013 alleging oppression and mismanagement.

On July 9, 2018, the NCLT dismissed the petition, ruling that the Board of Directors was competent to remove Mistry from the post of Executive Chairman and that Tata Sons could not be prevented from becoming a private company.

After the case was dismissed by NCLT, Mistry moved an appeal before the NCLAT.

It was broadly argued that the NCLT failed to protect the rights and status of Mistry and his Shapoorji Pallonji Group as a minority shareholder in Tata Sons in light of the Sections 241-242 of the new Companies Act of 2013.

Citing the conversion of Tata Sons from a public to a private company and ouster of Mistry from the Chairmanship, it was argued that the Board was subjugated to the interest of the Trustees and thus pressed the views of the majority.

Tata Sons, as well as other respondents including Ratan Tata, rejected the allegations of oppression and mismanagement and argued that Mistry’s removal was as per the Articles of Association of the company. It was submitted that Mistry’s grievance was directorial in nature and would therefore not attract the law of oppression and mismanagement.

It was submitted that the proposal to seek a change of guard at Tata Sons was initiated by the majority shareholders on account of Mistry’s failure to deliver on the promises that he had made at the time of his selection and not on account of some personal ill will or animosity.

With regard to the conversion of Tata Sons from  a ‘Public Limited Company’ to a ‘Private Limited Company’, it was submitted that the conversion was made by the Registrar of Companies in view of the definition of ‘Private Company’ under Section 2(68) of the Companies Act, 2013 and for bringing such a change, no application under Section 14 had to be filed.

To arrive at its decision, the NCLAT analysed Sections 241 & 242 of the Companies Act, 2013.

It noted,

“It is true that the word ‘unfairly prejudicial’ has not been used in Section 241. Unfairness may arise or may not arise from what the parties have agreed upon, but in the context of Indian Law, it is only to be seen whether the power exercised by majority in circumstances to which the minority can reasonably say that it is ‘prejudicial’ or ‘oppressive’ to their interest or interest of any member or interest of the Company or public interest.”

It added that the Indian Law did not recognise the term ‘legitimate expectations’ to hold any act prejudicial or oppressive.

Therefore, in order to determine if there was oppression and mismanagement at Tata Sons, NCLAT perused its AoA with respect to General Meetings, Nomination of Directors, veto vote to nominated Directors of Tata Trusts etc as well as documentary evidence of correspondence between Mistry and Ratan N Tata and others.

NCLAT also took into account the proceedings of the Board of Directors in October 2016, a Press Statement issued by Tata Sons which was published in the Newspaper in November 2016 and other email exchanges with regard to the Tata Group Companies.

After pursuing the record, NCLAT stated that it appeared that the removal of Mistry had nothing to do with any lack of performance. It concluded that the overall facts and circumstances suggested the presence of prejudice. Some of the specific events pointed out by NCLAT include –

• The affirmative voting power of the nominated Directors of the Tata Trusts over majority decision of the Board
• The fact that Tata Sons suffered loss because of ‘prejudicial’ decisions taken by the Board of Directors
• The action in making a change from ‘Public Company’ to ‘Private Company’
• The manner in which Mistry was suddenly and hastily removed without any reason and in absence of any discussion in the Board’s meeting held in October 2016
• The subsequent removal of Mistry as Director(s) of different Tata Companies.

The NCLAT concluded that such instances formed “a consecutive chain of events with cumulative effect” which justified a clear case of ‘prejudicial’ and ‘oppressive’ action by contesting Respondents, including Ratan N Tata, Nitin Nohria, NA Soonawala and others.

The NCLAT also held that there was no provision under the Companies Act, 2013 for the automatic conversion of a ‘Public Company’ to ‘Private Company’ or a ‘Private Company’ to ‘Public Company’.

For alteration of articles including alteration of the Company from a ‘Private Company’ to a ‘Public Company’ or ‘Public Company’ to ‘Private Company’, a company has to follow the steps contemplated under Section 14 of the Companies Act, 2013.

Noting that even till date, no such application under Section 14 has been filed before the Tribunal for its conversion into a Private Company, the NCLAT further held that Tata Sons could not be treated or converted as a Private Company.

In view of the findings, the following directions were passed:

• Cyrus Mistry was restored to his original position as Executive Chairman of Tata Sons and consequently as Director of the Tata Companies for the rest of the tenure.
• The person who was appointed as Executive Chairman in place of Mistry and his consequential appointment was declared illegal.
• Ratan N Tata and the nominee of Tata Trusts shall desist from taking any decision in advance which requires the majority decision of the Board of Directors or in the Annual General Meeting.
• The decision of the Registrar of Companies changing Tata Sons from Public Company to Private Company was set aside.

In order to ensure the smooth functioning of the Company, the NCLAT suspended the part of the judgment which reinstated Mistry as Executive Chairman of Tata Sons for a period of four weeks.

Cyrus Investments was represented by Senior Advocates CA Sundaram, Arun Kathpalia, KG Raghavan with Advocates Somashekhar Sundresan, Manik Dogra, Rohan Jaitley, Rohini Musa, Abhishek Venkatraman, Sonal Jaitley Bakshi, Jaiyesh Bakhshi, Apurva Diwanji, Ravi Tyagi, Shubhanshu Gupta, Sanya Kapoor, Rini Badoni, Akshay Doctor, Devashish, Parag Sawant, Gunjan Shah. 

Cyrus Mistry was represented by Senior Advocate Janak Dwarkadas with Advocates Sharan Jagtiani, Akshay Makhija, Kriti Awasthi. 

Tata Sons was represented Senior Advocates Dr AM Singhvi, Rajiv Nayar with Advocates from Karanjawala & Co Ruby Singh Ahuja, Prateek Seksaria, Tahira Karanjawala, Anupm Prakash, Avishkar Singhvi, Arjun Sharma, Sahil Monga, Utkarsh Maria, L Nidhiram Sharma, Baij Nath Patel.

Ratan Tata was represented by Senior Advocate Harish N Salve with Advocates Dhruv Dewan, Nitesh Jain, Rohan Batra, Reena Choudhary, Yashna Mehta, Nitesh Jain. 

The other Respondents were represented by Senior Advocate  Mohan Parasaran with Advocates Sidharth Sharma, JN Mistry, Zal Andyarujina, Namrata Parikh, Ashwin Kumar D.S., Saswat Pattnaik, Aditya Panda, Kartik Anand, Aditi Dani.

Read the Judgement: