The Victory Of Tata Sons Over Cyrus Mistry After Half A Decade Long Battle

Key takeaways

  • Introduction- giving a glimpse of Tata Group and Mr. Cyrus Mistry
  • Background of the case, explaining what happened that led to the intervention of the judiciary.
  • Judgment given by NCLAT
  • Supreme Court giving the final verdict in the case

Introduction

There is no one, who is not aware of the rift between the Tata Group and Cyrus Mistry which is been dealt with the help of judicial interference for the past five years. Tata Group was founded by Jamset Ji Tata in 1868. It is a global enterprise, headquartered in India, which comprises thirty companies in ten verticals. The Tata Groups operates in more than a hundred countries around the globe. Tata Sons are the principal investment holding company and it is the promoter of other Tata companies. Mr.Cyrus Pallonji Mistry is an Irish businessman of Indian Origin. He joined Tata Group in 2006. He was the vice-chairman at the Tata Sons for a year in 2011. After that, he became the chairman of Tata Sons from 2012 to 2016. He owns 18.5% shares of Tata Sons, through his company, Cyrus investment private limited.

Circumstances that led to the interference of Judiciary

The relation between both the companies that is Shapoorji Pallonji Group and Tata Conglomerate is not purely business but private as well. Cyrus Mistry has been a part of the board of Tata Sons since 2006. Later, in 2011 he was selected as a deputy chairman and after a year that is in 2012, he was provided with the position of Chairman of Tata Conglomerate. He remained in the position for four years until on 24, March 2016 where through a meeting of the board members he was outvoted and removed as the chairman. The present legal battle has its roots in the company petition filed by the Shapoorji Pallonji Group (SPG) under sections 241 and 242 of the Companies Act, 2013 alleging "prejudicial, oppressional and mismanagement" acts of the majority shareholders in Tata Sons.

A petition was filed at NCLT, Mumbai at that time. These petitions were filed in the wake of Mistry's removal from the post of the chairman of the Tata Sons and the NCLT Mumbai Bench initially dismissed the petition under section 241-241 of Company Act, 2013 as not being maintainable and upheld the appointment of N Chandrasekharan as Chairman. Against the order of the NCLT Mumbai bench, an appeal was filed at NCLAT

Decision of NCLAT

On December 18, 2019, in the matter of, Cyrus Investments Pvt. Ltd. V. Tata Sons Ltd & Ors, (AT) No.254 of 2018, the NCLAT gave certain directions and also pointed the orders that should be followed and held that; (i) the proceedings of the sixth meeting of the board of directors of Tata Sons Ltd. held on 24th of march, 2016 related to removal and other actions taken against Mr. Cyrus Mistry to be declared as illegal and(ii) it also restored Mr. Cyrus Mistry's original position as executive chairman. (iii)Also, the appointment of Mr. N Chandrasekharan was declared illegal. (iv)The NCLAT also observed that the nominees of Tata Trusts' shall desist from taking any decision in advance which requires majority decisions of the board of directors. (v) The tribunal also directed the respondent to execute its powers against minority holders and the appellants. (vi) Also, the decision of the Registrar of the company declaring it from "Public Company" to "Private Company" is declared illegal and set aside.
With its judgment, the NCLAT dismissed the decision given by the NCLT Mumbai Bench.

Final Verdict by Supreme Court

The 5 years on-going battle between the Tata Sons and Mr. Cyrus Mistry and Ors, was finally put to rest by the Supreme Court in its judgment in the case of, Tata Sons Ltd. V. Cyrus Mistry and Others [ LL 2021 SC 184 ] on Friday that is 26th of March, 2021. The bench consisted of Chief Justice SA Bobde, Justice AS Bopanna, and Justice V Ramasubramaniam. In total, seven appeals were filed to the Supreme Court relating to the different sections of the Companies Act, 2013. After the NCLAT judgment given on 18 December 2019, the said NCLAT order was put on stay on 10 January 2020 by the Apex court after the appeal was further filed to the Supreme Court against the order of NCLAT by both sides for their own individual reasons. The Tata Sons were respectively represented by Advocate Harish Salve whereas Cyrus Mistry and others were represented by Senior Advocate CA Sundaram.

While putting their arguments upfront, the appellants called the NCLAT's direction to reinstate Cyrus Mistry as Chairman undermining the principle of corporate democracy, when the majority of the members supported the decision, and if such restoration takes place then there is nothing left as the "corporate democracy." It was also said that NCLAT lacked jurisdiction for such restoration especially when such relief was not even sought.
Appearing from the respondent side that is Cyrus Mistry and others, it was submitted the essence of the legal battle rests on the concept of corporate governance and how the law has evolved from, "corporate majority" to "corporate democracy" to a higher set of values and a higher standard ensuring transparency. According to the respondents, the removal of Cyrus Mistry went against the concept of corporate democracy. Also, because of this, he called the removal procedure as prescribed under the AoA an "express black letter provision"

There were many more further arguments given from both the appellant and respondent side and various questions of law were put forth and were also answered based on which the Honorable Supreme Court gave the following decision;

  • The Honorable Supreme Court set aside the NCLAT order of restoring Cyrus Mistry as executive chairman of the Tata Group.
  • The court also said that all the questions of law are liable to be answered in favor of the appellants' Tata Group and the appeals filed by the Tata Group are liable to be allowed and the SP Group should be dismissed.
  • The court also said that, at this stage, we can adjudicate on fair compensation for Pallonji Group for their shareholding. We leave it open for parties to decide between themselves as under Article 75.

Conclusion

The Honorable Supreme Court by their judgment in the present case has created a precedent for future corporate governance. In the present decision, many factors were clarified by the Supreme Court regarding what approach should be followed by the judiciary while dealing with such cases. It also enunciated and interpreted many of the sections of laws present in the case. The Supreme Court has clarified all the questions of laws and made a clear stance. This judgment is ought to be one of the landmark judgments in corporate governance.

 

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