The Supreme Court held that the appeal against the NCLAT was to be allowed.
CRUX: Tata Consultancy Services Limited v. Cyrus Investments Pvt. Ltd. & Ors. (26th March, 2021)- The issue that the present case deals with is whether the appeal against the order of the NCLAT to reinstate Cyrus Mistry can be allowed.
DATE OF JUDGMENT: 26th March, 2021.
JUDGES: S.A. Bobde, A.S. Bopanna, V. Ramasubramanian.
- Tata Consultancy Services Limited (Appellant)
- Cyrus Investments Pvt. Ltd. & Ors. (Respondent)
SUMMARY: The following case deals with the issue of whether or not the appeal filed by Tata Sons against the order of the National Company Law Tribunal to reinstate former chairman Cyrus Mistry to his position was maintainable.
- The present case deals with the issue of whether or not the order of the National Company Law Tribunal, which called for a reinstatement of former chairman Cyrus Mistry, can be appealed by Tata Sons group.
- For over 5 decades, the Shapoorji Pallonji trust and Tata Sons have been jointly managing the affairs of the Tata enterprise. Cyrus Mistry was selected as executive chairman after going through a selection process as “executive chairman on merits”. Thereafter, Tata Sons removed him as chairman alleging lack of performance and was asked to transfer his shares.
- A petition was filed against Tata Sons by the Shapoorji Pallonji Group under the provisions of Sec. 241 and 242 of the Companies Act alleging oppression and mismanagement in Tata Sons.
- The National Company Law Tribunal held that the removal of Cyrus Mistry as executive chairman was illegal and that he be reinstated.
- The said NCLAT order was stayed by the Supreme Court in January 2020 whereas the judgment was reserved on 17th December 2020.
- The Supreme Court now held that the actions of Tata Sons did not amount to oppression of minority shareholders or mismanagement.
The following issues were analyzed by the court:
- Whether the order of the NCLAT to reinstate Cyrus Mistry were in line with the provisions of Sec. 242 of the Companies Act.
- Whether the order of the NCLAT had, in law, muted the power of the company to demand any member to transfer his ordinary shares.
ANALYSIS OF THE JUDGMENT
- The counsel for the appellants contended that the entire focus of the NCLAT was only on the justification for the removal of Cyrus Mistry for the post of executive chairman of Tata Sons despite the fact that the positive case of the complainant companies as well as Cyrus Mistry was that they were not seeking Cyrus Mistry’s reinstatement.
- The counsel for the appellant also contended that the NCLAT failed to see that the “just and equitable clause” was triggered in only two situations: (a) wherever there was a functional deadlock and (b) wherever they were corporate quasi-partners in which there was a breakdown of trust and confidence. In the case on hand there was no preexisting partnership between Tata Group and the Shapoorji Pallonji Group. Shapoorji Pallonji Group became shareholders only after 48 years of the incorporation of Tata Sons. Therefore Shapoorji Pallonji Group had no right to management or a right that could emanate from a preexisting relationship of trust and confidence, before the incorporation of the company.
- The counsel for the appellants also contended that the NCLAT lacked jurisdiction to declare it a public company whereas it was a private company under the provisions of Sec. 2(68) of the Companies Act.
- Furthermore, the counsel for the appellants contended that NCLAT’s decision was in contrary to the company’s Articles of Association.
- With regards to the provisions of Sec. 241 and 242 of the Companies Act, the counsel held that the NCLAT failed to explain how the actions of the Board constituted any prejudice or oppression. It was also contended that orders under Sec. 242 of the Act could only be passed if there were facts which show that winding up the company was otherwise necessary, which was not discussed in the NCLAT.
- The counsel for the respondents contended that Tata Sons were to be treated as a two-group company where the relationship between the groups was in the nature of a quasi-partnership, which created equal obligations.
- The counsel for the respondents also contended that Mr. Ratan Tata, former chairman of Tata Sons, exercised an overriding authority on the decisions of the Board of Directors.
- The counsel for the respondents also contended that the removal of Cyrus Mistry as executive chairman was oppression and mismanagement by Tata Sons as per the provisions of Sec. 241 and 242 of the Companies Act.
- The court, on hearing arguments from both the appellant and the respondent, first sought to answer the question of jurisdiction as stated under the provisions of Sec. 423 of the Companies Act as the court was concerned with questions of law arising out of the order of the NCLAT.
- The court, while allowing the appeal made by the appellant, held that it was up-to the parties to resolve the dispute using the provisions of Art. 75 of the Articles of Association.
The issue that the present case deals with is whether the appeal against the order of the NCLAT to reinstate Cyrus Mistry can be allowed. The court held in the negative in the case and allowed for the appeal to be filed.
In Ebrahim v. Westbourne Galleries Ltd., ( 2 WLR 1289), decided by the House of Lords one of the directors who were voted out of office by the other two directors petitioned for an order under Section 210 of the English Companies Act, 1948. The very relief sought by the ousted director was for a direction to the other two persons to purchase his shares in the company or to sell their shares to him on such terms as the Court should think fit. The Court of the first instance held that a case for winding up had been made out as the majority was guilty of abuse of power and a breach of good faith which the partner owed to each other. This case, therefore, pointed out that reference to quasi-partnerships was confusing as the parties had become co-members of a company accepting new obligations in law.
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