The Supreme Court on Friday quashes order of National Company Law Appellate Tribunal (NCLAT) which had reinstated Cyrus Mistry as the Chairperson of Tata Sons Limited.
The Appellant, Tata Sons (Private) Limited has come up with two appeals in Civil Appeal challenged a final order passed by the NCLAT holding as illegal, the proceedings of the sixth meeting of the Board of Directors of TATA Sons Limited held in so far as it relates to the removal of Cyrus Pallonji Mistry.
Both Tata Sons and Mistry had challenged a December 18, 2019 order of National Company Law Appellate Tribunal (NCLAT) which had ordered reinstatement of Cyrus Mistry as the Chairperson of Tata Sons Limited.
The Supreme court had on January 10, 2020 stayed the NCLAT order.
The NCLAT, in its December 2019 judgment, had held that the proceedings of the Board meeting of Tata Sons held on October 24, 2016 removing Cyrus Mistry as Chairperson was illegal.
It had also directed that Ratan Tata should not take any decision in advance which requires a majority decision of the Board of Directors of Tata Sons or a majority in the Annual General Meeting.
Mistry took over as Chairman of Tata Sons, in December 2012 and was removed from the post on October 24, 2016 by the majority of the board of directors of the company. Subsequently, at an Extraordinary General Meeting convened on February 6, 2017, the shareholders voted for the removal of Mistry from the board of Tata Sons. Subsequently, N Chandrasekaran took over as Executive Chairman of Tata Sons.
Two Shapoorji Pallonji firms, who are the shareholders in Tata Sons, moved National Company Law Tribunal over Mistry’s removal and alleging “oppression” of minority shareholders and “mismanagement”.
In July 2018, NCLT dismissed the petition in July 2018 against which appeal was filed by Pallonji firms before the NCLAT. The NCLAT proceeded to overturn the NCLT order prompting the current appeals before the Supreme Court.
Tata Sons claimed in its petition that the NCLAT granted reliefs which were not prayed for by restoring Cyrus Mistry to his “original position” as the Executive Chairman of Tata Sons and declaring the appointment of Chandrasekaran the incumbent Executive Chairman of Tata Sons as illegal.
The plea highlighted that the tenure of Cyrus Mistry as the Chairman and Director of Tata Sons expired in March 2017 and a direction by the NCLAT to allow Mistry to continue as a functionary beyond the term would be contrary to the articles of association of the company and the established principles of company law.
Shapoorji Pallonji firms in their cross appeals contended that the NCLAT failed to give certain crucial reliefs to Mistry
It was prayed that the Mistry firms should be entitled to representation in all committees formed by the board of directors of Tata Sons.
Further, they also sought striking down of placing the right of affirmative vote in the hands of select directors of Tata Sons which would enable them to override the view of the entire board.
There were several issues which were raised in the petition.
The following were the questions formulated by the Supreme Court all of which were answered in favour of Tata Sons.
Firstly, whether the formation of opinion by the NCLAT that the company’s affairs have been or are being conducted in a manner prejudicial and oppressive to some members and that the facts justify the winding up of the company on just and equitable grounds is in tune with the well-settled principles and parameters especially in the light of the fact that the findings of the National Company Law Tribunal (NCLT) on facts were not individually and specifically overturned by the NCLAT.
Secondly, whether the reliefs granted and directions issued by the NCLAT including the reinstatement of Cyrus Mistry into the Board of Tata Sons and other Tata Companies are in consonance with the pleadings made, reliefs sought and the powers available under Section 242 of Companies Act.
Thirdly, whether the NCLAT could have in law muted the power of the company under Article 75 of Articles of Association to demand any member to transfer his ordinary shares by simply injuncting the company from exercising such right without setting aside this Article.
Fourthly, whether characterisation of the tribunal of the affirmative voting rights available under Article 121 to the director nominated by the trust in terms of Article 104B as oppressive and prejudicial is justified especially after the challenge to these Articles have been given up expressly and whether the tribunal could have granted a direction to Ratan Tata and the nominee directors virtually nullifying the effect of these Articles.
Fifthly, whether the re-conversion of Tata Sons from a public company to a private company requires necessary approvals under the Companies Act.
The Three Judge Bench of Chief Justice of India, SA Bobde and Justices AS Bopanna and V Ramasubramanian allowed the appeal filed by Tata Sons against the NCLAT judgment and dismissed the appeals filed by Mistry and Shapoorji Pallonji Group.
The court held that the valuation of shares of SP Group depends on the value of stake of Tata Sons in listed equities, unlisted equities, immovable assets etc. and also perhaps the funds raised by SP Group on the security pledge of the shares.
“Therefore, at this stage and in this court, we cannot adjudicate on the fair compensation. We will leave it to the parties to take the article 75 route or any other legally available route in this regard,” the court added.
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