In a major victory for the $100-billion Tata group and its chairman emeritus Ratan Tata, the National Company Law Tribunal (NCLT) on Monday dismissed all charges made by its former chairman Cyrus Mistry over his ouster from India’s largest conglomerate and its corporate governance standards.
In an oral order, a Mumbai division bench of NCLT, presided over by B.S.V. Prakash Kumar and V. Nallasenapathy, dismissed the petition filed by the Mistry family’s investment firms, saying it found no merit in the case.
The bench said Mistry was removed as chairman of Tata Sons, the group’s holding company, because its shareholders had lost trust in him. The tribunal rejected all of Mistry’s allegations and ruled that the parent of India’s largest conglomerate had the right to remove him as its chairman.
“We have not found any purported merit or issues raised by the minority shareholder in his petition under the Section 241 and 242 of The Companies Act, 2013,” the NCLT bench ruled in a packed courtroom. It also found no merit in Mistry’s argument that Ratan Tata and Tata Sons’ trustee N.A. Soonawala interfered in the governance of Tata Sons.
Mistry, whose family is the single biggest shareholder in Tata group, was named group chairman in November 2011 and took over in December 2012 after the retirement of Ratan Tata.
On 24 October 2016, the board of Tata Sons dismissed him as chairman and said former chairman Ratan Tata would take over as interim chairman. Mistry contended that the articles of association of Tata Sons are biased against the rights of minority shareholders and thereby oppressive, a charge Tata Sons dismissed, saying that Mistry, who had been on its board since 2006, had never raised this until he was fired.
The tribunal also did not find any merit in Mistry’s charge of corporate governance lapses and said that was a collective responsibility.
The Tata group welcomed the ruling, saying it vindicates the position of Tata Trusts and Tata Sons.
“The Tata group has always been committed and will continue to be committed to transparency and good corporate governance of global standards,” said N. Chandrasekaran, chairman of Tata Sons, in a statement. “Tata Sons hopes that finality will be given to the judgement of NCLT, Mumbai by all concerned in the larger interest of companies, the shareholders and the public,” he added.
Ratan Tata said the judgement was a “vindication of the actions that Tata Sons felt obliged to take in October 2016”.
Mistry termed the ruling disappointing.
“We will continue to strive for ensuring good governance and protection of interests of minority shareholders and all stakeholders in Tata Sons from the wilful brute rule of the majority. An appeal on merits will be pursued,” a statement from Mistry’s office said.
Monday’s NCLT judgement concludes one chapter of Mistry’s continuing battle with Tata Sons, which erupted yet again last week when he questioned the rationale behind the sale of Tata Communications to Bharti Airtel Ltd, debt-driven acquisitions by Tata Steel Ltd and its European merger with ThyssenKrupp AG, among others.
Last year, Mistry also opposed a move to convert Tata Sons into a private limited company.
Mistry’s investment firms have the option of challenging the ruling at the National Company Law Appellate Tribunal (NCLAT) and later at the Supreme Court.
“The board enjoys the corporate democracy as well as freedom and if they wish to remove a non-executive chairman, they can do so under the law,” said Sanjay Asher, senior partner at law firm Crawford Bayley & Co., adding the ruling is in line with the set law. “The board has the power to replace its non-executive chairman and the shareholders have the power to appoint or remove a director and no court can take away that power from the shareholder.”
According to Asher, this ruling will allow the group to focus more on the business without worrying about any further adverse impact of the dispute.
Mistry’s investment firms Cyrus Investments Pvt. Ltd and Sterling Investment Corp. Pvt. Ltd had, on 20 December 2016, filed the NCLT petition under Sections 241 and 242 of the Companies Act, which deal with oppression and mismanagement.
The Mistry camp had alleged that his removal as chairman, and subsequently as director, of Tata Sons was a result of oppression by Tata Sons, the company in which Tata Trusts owns 66%.
The second part of the plea focused on alleged mismanagement by the Tata Sons board and Ratan Tata, which caused revenue loss to the group. The Mistry family owns 18.4% stake in Tata Sons, though its holding with voting rights is less than 4%.
According to Mistry’s petition, Tata Sons abused the articles of association and the governance framework to enable Ratan Tata to gain control of the company.
Mistry took over the reins of the salt-to-software giant in December 2012 after Tata demitted office on attaining 75 years.
This article was first published on livemint.com