The Supreme Court on Friday agreed to hear a cross-appeal filed by Cyrus Mistry, ousted chairman of Tata Sons, saying the decision of the National Company Law Appellate Tribunal (NCLAT) in December last year did not secure the interests of his company and minority Tata Group shareholder, Shapoorji Pallonji Group, from prejudicial conduct in the future.
A Bench of Justices A.S. Bopanna and Hrishikesh Roy issued a formal notice to Tata Sons on this appeal and ordered the case to be listed after four weeks.
The appeal has been tagged with the main appeals filed by Tata against the NCLAT verdict of December 18 last year, reinstating Mr. Mistry as chairman of Tata Sons, who is represented by senior advocate C.A.Sundaram.
In February, the apex court had stayed the NCLAT verdict and issued formal notice to Cyrus Investments Pvt. Ltd. and others on the appeals separately filed by Tata Sons Pvt. Ltd. and its chairman emeritus Ratan Tata. On Friday, the court tagged Mr. Mistry’s cross-plea with the Tata appeals.
Mr. Mistry said through the NCLAT reinstated him as chairman, the tribunal failed to deliver complete justice in his case by granting him representation on the Tata Board only for the remainder of his tenure. Mr. Mistry said the tribunal’s decision would prove ineffectual to protect Shapoorji Pallonji (SP) Group from the hostility of the majority shareholders. Proportionate representation for him would have been a vital relief and put an end to ‘acts of oppression’ by majority shareholders.
The appeal said the tribunal wrongly concluded that it did not have the power to strike down the articles of a company.
In his appeal, Mr. Mistry said the relationship between the Tata Group and the SP Group was run on the “principle of quasi-partnership”. It was a relationship of many decades and built on trust. The appeal said SP Group had been “a guardian of the Tata Group for over six decades”. The SP Group is the single largest non-Tata shareholder with 18.37% equity in Tata Sons.
Noting that Mr. Mistry was unanimously accepted by the Board as chairman of Tata Sons, the appeal said there was an “inextricable nexus between his appointment and his role as a significant shareholder. “He [Mistry] was the first non-Tata chairman in 90 years. Prior to his appointment, Tata Group had just five chairmen with Cyrus Mistry being the sixth, underscoring the importance attached to the office and role played by the chairman in shaping the legacy and future of the Tata Group,” the appeal said.
It said the SP Group had bailed out the Tata Group in many a crunch situation, including when it extended significant credit limits, and even took over some debts during the building of a Nano plant in Gujarat in 2009.
The appeal said Mr. Mistry was removed by a Board which had capitulated to the majority shareholders. It was like a “pre-agreed script”.
Chief Justice Bobde, who headed the Bench in February, had orally remarked that prima facie NCLAT may have committed an “adjudication error” by ordering the re-instatement of Mr. Mistry.
The court had 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. Mr. Mistry is a scion of the Shapoorji Pallonji Group.
Tata Sons had argued in its appeal in February that 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 had expired in March 2017. The NCLAT decision to restore him to his “original position” for the “rest of his tenure” was contrary to company law, a recipe for disaster and sets a dangerous precedent in law, the Tatas had argued.
