The National Company Law Appellate Tribunal’s (NCLAT) decision in the Mistry vs Tata Sons case is a big victory for Cyrus Mistry.
His plaint about being oppressed has been upheld; the proceedings of the board meeting on October 24, 2016 in so for as it relates to his removal as Executive Chairman of Tata Sons has been held as illegal; he has been restored to his original position as Executive Chairman; the conversion of Tata Sons from a public limited company to a private limited company has been held to be illegal and set aside and most importantly, Tata Sons now cannot invoke a contentious article in its Articles of Association that would have enabled the majority shareholders to force the minority shareholders to sell their shares.
The icing on Mr. Mistry’s cake is that Justice S. J. Mukhopadhaya, Chairperson of the NCLAT, who delivered the judgement, has ticked off the earlier judgment by the National Company Law Tribunal in the case which has personal observations on Mr. Mistry, unrelated to the case.
The comments will now be expunged from the earlier judgment. NCLAT’s decision is, however, bad news for the Tata group which finds itself plunged into uncertainty that may extend over several months, unless if saner counsel prevails on both sides.
But that saner counsel appears a far cry now going by the first response of the Tatas saying that it will take “appropriate legal recourse” which means that this case will now head to the Supreme Court.
That will prolong the uncertainty and shackle the top management of Tata Sons and all the group companies from taking major decisions. The appointment of N. Chandrasekaran as Executive Chairman has been held as illegal which raises the question of what happens to the decisions that he has taken since his appointment?
And what frame of mind will Mr. Chandrasekaran be in going forward when he has to decide on major proposals for the group? If Tata Sons is shrouded in uncertainty what will be the signal for the group companies?
How will investors, especially foreign ones, react to this? There was a sharp markdown in some Tata group shares soon after the NCLAT judgment became public but that could be an initial, kneejerk reaction.
The main part of the judgment — restoration of Mr. Mistry as Executive Chairman — has been stayed for four weeks but the direction to appoint him a director in Tata Sons and three other group companies — Tata Industries, Tata Consultancy Services and Tata Teleservices-- will have to be complied with immediately.
So, will Mr. Mistry return as a director in these companies?
It appears unlikely as Mr. Mistry has always held that this is a fight for principles and governance and not for his position. But these things can never be said with certainty. The best course of action now would be for the two parties to settle their differences out of court and move on. Mr. Mistry has got what he wanted.
The Tatas may have lost but they should now look forward rather than backward. Prolonged uncertainty will affect the functioning of their companies.
Remember, the Tatas, as majority owners of the group, owe a fiduciary responsibility to the other shareholders, many of them common investors in their listed companies.
This should be kept in mind as they discuss the next course of action.
