Is the removal of an Executive Chairman by the board an oppressive act? The answer requires a scrutiny of facts. If the board removes an Executive Chairman from performing his executive duties, it is only the removal of an executive of the company. Hence, it requires no shareholder approval, said a top corporate lawyer of a leading law firm here. While declining to be quoted, the lawyer pointed out that “removal as chairman of the board requires solely a majority show of hands at the board meeting. Notice period may be a requirement of a particular employment contract, the contents of which are unknown,” the lawyer said.
Urgent business“However, Section 173 of the Companies Act allows urgent business to be transacted at a meeting of the board with a notice period of less than seven days if the meeting is also attended by one independent director,” the lawyer pointed out. The Tata Trusts, according to legal circles, seems to have dispensed with the notice requirement while conveying their decision to remove the Chairman.
“Further, the Articles of Association confer affirmative voting rights to the Tata Trusts for appointment and removal of Executive Chairmen of the board. Thus, while technically the boxes may have been check-marked for the removal of the Chairman, the board, if questioned by the Shapporji Pallonji Group in a court room, will have to meet the threshold for equitable and just treatment of its Chairman within the confines of the law governing oppression of shareholders,'” the lawyer said.
Tata Trusts hold significant stake in Tata Sons, a public company. Ipso facto , they are not required to make public disclosures.
“Shielded from scrutiny on how they control all Tata companies, the management of Tata Sons is given ample room to stay away from investors, analysts, activists and shareholders of subsidiaries,” the lawyer said. Significantly, the Chairman of the Tata Sons and Tata Trusts is not the same individual. Not surprisingly, this has given room for commercial tensions.
“Majority will is usually the trademark of corporate democracy and, therefore, legislation has evolved to specifically protect minorities from squeeze-out scenarios. However, it is not unheard of for the majority to be ‘oppressed’ by the minority,'' legal circles pointed out.
The ownership and management usually - while it rests with the majority - are distinct and separate concepts under law. Sections of the Companies Act that deal with it, sections 397/398, rest within the jurisdiction of the Company Law Board (CLB), which has routinely interfered in these matters of oppression with an attempt to bring parity between warring factions. The CLB endeavours to find an ‘equitable’ solution. “Oppression is colourful in its subjectivity and requires inspection by the judiciary to call out a case for oppression,'” the lawyer said.
