The multi-billion salt-to-software conglomerate, Tata Sons Private Limited, on Thursday appealed to the Supreme Court saying the December 18 decision of the National Company Law Appellate Tribunal (NCLAT) to re-instate Cyrus Mistry as its Chairman is a blow to corporate democracy and rights of the Board of Directors.
The 180-page appeal said the tribunal crossed its jurisdiction by terming the appointment of incumbent N. Chandrasekaran as illegal while restoring Mr. Mistry as Chairman.
Mr. Mistry’s tenure as Chairman and Director of Tata Sons had 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.
Besides, Mr. Mistry had never sought his reinstatement. The NCLAT had gone beyond its jurisdiction, the appeal by Tata Sons, filed through Karanjawala & Co, said.
‘Against public interest’
To restore Mr. Mistry for his remaining term, without noticing that the term had come to an end is a recipe for disaster, for the reason that it would create unnecessary confusion in the working of companies and lead to more conflict, the appeal said.
The companies are large corporations having many subsidiaries and the Tata Group employs half a million people and contributes substantially to the economy of the country. Any shadow over the management of any of these companies puts public interest in jeopardy, the appeal said.
A majority of the Board of Directors at the Tata Sons 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 applies to corporate appointments. “Instead of bringing to bear an approach that would be consistent with corporate democracy and the right of the shareholders to exercise their votes in the manner they consider appropriate, the NCLAT took upon itself to go into various issues alien to such consideration… NCLAT imported principles from the realm of public law and eschewed relevant principles that apply to corporate democracy, which are based upon the right of the shareholder to cast a vote. No reasons were given on how the process of replacement and removal was wrong and illegal,” the appeal argued.
The NCLAT’s conclusions are based on an error that the Tata Sons continued to be a public company. The areas of the tribunal’s enquiries were clearly beyond its realm.
Besides, the appeal said the NCLAT imposed an “unwarranted and unsolicited consultative process” upon the Tata Group by requiring it to consult minority stakeholder Shapoorji Pallonji Group before appointing anyone as Executive Chairman. Mr. Mistry is a scion of the Shapoorji Pallonji Group.
“The judgment has re-written the Articles of Tata Sons, where the majority shareholders are subject to the minority, capsizing the fundamental rule of corporate democracy,” the appeal said.
Further, it challenged the restraint imposed by NCLAT on Ratan N. Tata and the nominee of the ‘Tata Trusts’ “from taking any decision in advance which requires majority decision of the Board of Directors or in the Annual General Meeting”. It said such a direction was “wholly nebulous and seeks to stifle the exercise of rights of the shareholders and board members, resulting in their disenfranchisement which cripples corporate democracy”.
