Corporate Legal Battle: TATA vs MISTRY ( PART 1)

BRIEF BACKGROUND OF THE CASE

Tata conglomerate is India’s largest business group running businesses in seven sectors in more than eighty countries. Tata Sons is the holding company of the Tata Group. Tata Sons is an unlisted company. Around 66 % of its shares are owned by the various Tata trusts, most importantly Sir Dorabji Tata Trust (27.97%) and Sir Ratan Tata Trust (23.56%). 

The next major chunk of 18% is controlled by Shapoorji Pallonji Group, whose heir apparent is Cyrus Mistry. (“Mistry”). Cyrus Pallonji Mistry  is an Irish businessman of Indian origin . He was the chairman of Tata Group, an Indian business conglomerate, from 2012 to 2016.[He was the sixth chairman of the group, and only the second (after Nowroji Saklatwala) to not bear the surname Tata. In mid-2012, Cyrus Mistrywas chosen by a selection panel to head the Tata Group and took charge in December the same year. 

In 2016, the Board removed Cyrus Mistry from and the Board constituted a Selection Committee comprising Mr. Ratan N. Tata, Mr. Venu Srinivasan, Mr. Amit Chandra, Mr. Ronen Sen and Lord Kumar Bhattacharyya, as per the provisions in the Articles of Association of Tata Sons, to choose a new Chairman within four month.

 

 

STAKES OF TATA SONS 

Cyrus Mistry, son of pallonji Mistry who is the owner of the shapoorji pallonji group and one of the biggest stakeholder in the Tata Group .

He was appointed to the top position in 2012

Shareholder	No. of Shares	Shareholding percentage (%)
Shapoorji Pallonji Mistry	108	0.26723
Sterling investment Corp Shapoorji PAllonji Group	37120	9.18489
Cyrus Investment ( Shapoorji Pallonji Group)	37120	9.18489
Ratan Tata	3368	0.83337
Sir Dorabji Tata Trust	113067	27.97705
Sir Ratan Tata Trust	95211	23.558

COMPLAINT BY CYRUS MISTRY BEFORE HON’BLE NATIONAL COMPANY LAW TRIBUNAL 

The acts of oppression and mismanagement complaint against Tata Sons revolved around 

1. alleged abuse of the Articles of Association, particularly Articles 121, 121A, 86, 104B and 118, to enable the trusts and its nominee Directors to exercise control over the Board of Directors; 
2. alleged illegal removal of Cyrus Mistry as Executive Chairman without any notice and an all out attempt to remove him from the Directorship of all the operating companies of the Tata group; 
3. alleged dubious transactions in relation to Tata Teleservices Limited, alongwith one Mr. C. Sivasankaran; 
4.  Ratan Tata allegedly treating Tata Sons as a proprietorship concern with all others acting as puppets, resulting in the Board of Directors failing the test of fairness and probity 
5. acquisition of Corus Group PLC of UK at an inflated price and then jeopardising the talks for its merger with ThyssenKrupp 
6. Nano car project becoming a disaster with losses accumulating year after year and the conflict of interest that Ratan Tata had in the supply of Nano gliders to a company where he had stakes; 
7. providing corporate guarantee to IL & FS Trust Company for the loan sanctioned by Standard Chartered Bank to Sterling 
8. making Kalimati Investments Ltd, a subsidiary of Tata Steel to provide an inter corporate bridge loan to Sterling; 
9. the dealings with NTT DoCoMo and Sterling resulting in an arbitration award for a staggering amount; 
10. leaking information to Siva of Sterling that resulted in Siva issuing legal notices to Tata Teleservices and Tata Sons
11. Ratan Tata making a personal gain for himself through the sale of a flat owned by a Tata group company to Mehli Mistry; 
12. companies controlled by Mehli Mistry receiving favours due to the personal relationship that Ratan Tata had with him; and 
13. fraudulent transactions in the deal with Air Asia which led to financing of terrorism.

 

REPLY OF RATAN TATA TO THE ALLEGATIONS

Tata Sons filed a reply to the company petition contending interalia: 

1. that Cyrus Mistry, who was removed from the post of Executive Chairman, after having lost the confidence of 7 out of 9 Directors, has sought to use the complainant companies to besmirch the reputation of Tata Group; 
2.  that even the decisions to which Cyrus Mistry was a party have been questioned in the petition;
3. that Tata Group founded in 1868 is a global enterprise,headquartered in India, comprising over a hundred operating companies, having presence in more than 100 countries across six continents, collectively employing over 6,60,000 people; 
4. that Articles 104Band 121 were introduced through a new version of Articles of Association at the Annual General Meeting of Tata Sons held on 13.09.2000 and Article 121 was subsequently amended byResolution dated 09.04.2014;
5. that though the mail was marked confidential, it was simultaneously leaked to the press;
6. that Cyrus Mistry also breached his fiduciary and contractual duties by disclosing confidential information and documents pertaining toTata Sons to third parties;
7. that the complainant companies have cherry picked certain business decisions to launch a vitriolic attack on the Tata Trusts; 
8. that while the complainant companies have talked about bad business deals, such as Corus acquisition and Nano Project, they have deliberately omitted to talk about Tetley acquisition by Tata Global Beverages Limited, the immensely successful Jaguar Land Rover acquisition by Tata Motors and the phenomenal success of Tata Consultancy Services;
9. that Corus acquisition, the Nano Project, contracts awarded to the business concerns of Mr. Mehli Mistry and the investment by Mr.C. Sivasankaran have surfaced only after the replacement of Mr. Cyrus Mistry as the Executive Chairman; 
10. that Cyrus Mistry has been the Director of Tata Sons since the year 2006 and was also the Executive Chairman from December, 2012 to October, 2016 and was fully aware of how the decisions relating to these projects were taken when they were taken;
11. that courts cannot be called upon to sit in judgment over the commercial decisions of the Board of Directors of companies; and
12. that even commercial misjudgments of the Board of Directors cannot be branded as instances of oppression and mismanagement.

RELIEF SOUGHT BY CYRUS MISTRY FROM HON’BLE NATIONAL COMPANY LAW TRIBUNAL 

1. The necessity of an affirmative vote of the majority of directors nominated by the Trusts, which are majority shareholders, be deleted; 
2. The Petitioners be entitled to proportionate representation on the Board of Directors of Respondent No .1; 
3. The Petitioners be entitled to representation on all committees formed by the Board of Directors of Respondent No.1; and 
4. The Articles of Association be amended accordingly

JUDGEMENT OF HON’BLE NATIONAL COMPANY LAW TRIBUNAL  (2016)

1.  Removal of Mr. Cyrus Mistry as Executive Chairman on 24.10.2016 is because the Board of Directors and Majority of Shareholders, ie., Tata Trusts lost confidence in Mr. Cyrus as Chairman, not because by contemplating that Mr. Cyrus would cause discomfort to Mr. Tata, Mr. Soonawala and other answering Respondents over purported legacy issues. Board of Directors are competent to remove the Executive Chairman; no selection committee recommendation Is required before removing him as Executive Chairman. 
2. Removal of Mr. Cyrus Mistry from the position of Director is because he admittedly sent the company information to Income Tax Authorities; leaked the company information to Media and openly come out against the Board and the Trusts, which hardly augurs well for smooth functioning of the company, and we have not found any merit to believe that his removal as director falls within the ambit of section 241 of Companies Act 2013. 
3. We have not found any merit to hold that proportional representation on Board proportionate to the shareholding of the petitioners is possible so long as Articles do not have such mandate as envisaged under section 163 of Companies Act, 2013. 
4. We have not found any merit in purported legacy issues, such as Siva issue, TISL issue, Nano car issue, Corus issue, Mr. Mehli issue and Air Asia issue to state that those issues fall within the ambit of section 241 and 242 of Companies Act 2013. 
5. We also have not found any merit to say that the company filing application under section 14 of Companies Act 2013 asking this Tribunal to make it from Public to Private falls for consideration under the jurisdiction of section 241 & 242 of Companies Act 2013. 
6. We have also found no merit in saying that Mr. Tata & Mr. Soonawala giving advice and suggestions amounted to interference in administering the affairs of the company, so that to consider their conduct as prejudicial to the interest of the company under section 241 of Companies Act 2013. 
7. We have found no merit in the argument that Mr. Tata and Mr. Soonawala acted as shadow directors superimposing their wish upon the company so that action would be taken under section 241 & 242 of Companies Act 2013. 
8. We have not found any merit in the argument that Articles 75, 1048, 118, 121 of the Articles of Association per se oppressive against the petitioners. 
9. We have not found any merit in the argument that Majority Rule has taken a back seat by introduction of corporate governance in Companies Act, 2013, it is like corporate democracy is genesis, and corporate governance is specific. They are never in conflict with each other; the management is rather more accountable to the shareholders under the present regime. Corporate governance is collective responsibility, not based on assumed free-hand rule which is alien to the concept of collective responsibility endowed upon the Board.
10. We have observed that prejudice remedy has been included in 2013 Act in addition to oppressive remedy already there and also included application of “just and equitable” ground as precondition to pass any relief in mismanagement issues, which was not the case under old Act.

Author: Vinay Sachdev

Editor: Adv. Aditya Bhatt & Adv. Chandni Joshi