SC stays NCLAT order reinstating Mistry as Tata Sons chairman

Former Tata Sons Chairman Cyrus Mistry.

Former Tata Sons Chairman Cyrus Mistry.   | Photo Credit: Prashant Nakwe

Records assurance that Tata will not invoke Article 75.

The Supreme Court on Friday stayed a decision of the National Company Law Appellate Tribunal (NCLAT) to reinstate Cyrus Mistry as chairman of the multi-billion salt to software conglomerate Tata Sons.

A three-judge Bench of Chief Justice of India (CJI) Sharad A. Bobde, Justices B.R. Gavai and Surya Kant issued formal notice to respondents, including Cyrus Investments Pvt. Ltd. and others, on appeals separately filed by Tata Sons Pvt. Ltd. and its chairman emeritus, Ratan Tata, among others, against the December 18 decision of the tribunal.

Chief Justice Bobde orally remarked that prima facie the NCLAT may have committed an “adjudication error” by ordering the reinstatement of Mr. Mistry.

“There was no such prayer for reinstatement made. This is an error, we feel, which permeates the whole order [of the NCLAT]... The tribunal was granted a prayer that was never made,” the CJI said. The court, however, agreed to hear detailed arguments on the aspect. It recorded in its order an assurance given by the Tata side that they “do not not intend to take any steps with regard to Article 75”.

The Article allows Tata Sons to “compulsorily purchase” shares of any shareholder. The NCLAT had also directed Tata Sons to not invoke Article 75 of the Articles of Association of Tata Sons against the Shapoorji Pallonji group, a minority shareholder. Mr. Mistry is a scion of the group.

The assurance from the Tata side, represented by lawyers led by senior advocate Harish Salve, to not invoke Article 75 was given after senior advocate C.A. Sundaram, for Shapoorji Pallonji, vociferously argued against the stay order. Mr. Sundaram instead sought status quo, saying that as a minority shareholder with shares worth crores, he was “completely in the dark” about what was happening within Tata Sons.

“We will protect you... so far nothing has diluted your shares,” the CJI responded.

 The court posted the appeals after four weeks, saying there was no urgency in the issue.


“You [Mistry] have not been in the saddle for three years... what is the urgency now,” Chief Justice Bobde said.

The Tata Sons’ appeal said the NCLAT decision to bring Mr. Mistry back to the helm was a blow to corporate democracy and rights of the board of directors. Mr. Mistry’s tenure as chairman and director of Tata Sons expired in March 2017. The NCLAT decision to restore him to his “original position” for the “rest of his tenure” is contrary to company law, a recipe for disaster and sets a dangerous precedent in law, it submitted.

The company argued that a majority of the board of directors at Tata Sons had voted for Mr. Mistry’s replacement as chairman on October 24, 2016 after losing confidence in him. He was again removed as the director of Tata Sons on February 6, 2017 following the procedure that applied to corporate appointments.

In his separate appeal, Mr. Tata said the NCLAT verdict had virtually pulled down the governance and corporate structure painstakingly built by the founders of the Indian multinational conglomerate. Mr. Mistry had succeeded Mr. Tata as chairman. In his appeal, Mr. Tata blamed Mr. Mistry for his lack of leadership skills besides exhibiting a reluctance to timely and meaningfully disassociate himself from his family business after he became the chairman of Tata Sons.

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Printable version | Feb 21, 2020 6:07:47 AM |

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