Cyrus Mistry actions hurt Tata group interests, Tata Sons tells SC

In restoring Cyrus Mistry, NCLAT failed to consider the implications of the order, Tata Sons said in their appeal

Tata Sons, the holding company of the Tata group, on Thursday moved the Supreme Court (SC) with an appeal to quash the National Company Law Appellate Tribunal (NCLAT) order that had restored Cyrus Mistry as Tata Sons executive chairman after holding the appointment of the current chairman, N Chandrasekaran, “illegal”.
 
The SC is expected to hear the petition next week, when it reopens after vacation.
 
In its plea, Tata Sons said even the Mistry investment companies had not sought Chandrasekaran’s removal as chairman and yet the NCLAT declared his appointment “illegal”, causing a disruption in the group’s functioning.
 
It said the conclusion of the NCLAT that there was “oppressive” and/or “prejudicial” interdiction in the affairs of Tata Sons and other Tata-operating companies by group patriarch Ratan Tata and N A Soonawala, then Tata Trusts trustee, was specious and completely contrary to the record.
 
India’s biggest corporate feud started after Mistry was sacked by the Tata Sons board in October 2016, citing “incompetence”. Subsequently, Mistry family’s investment companies, which hold an 18.5 per cent stake in Tata Sons, moved the National Company Law Tribunal (NCLT), Mumbai, appealing against his dismissal, but lost the case. Later, the Mistry companies moved the NCLAT, which on December 18 last year ordered Tata Sons to reinstate Mistry as executive chairman.
 
Seeking an urgent hearing from the apex court, Tata Sons said the NCLAT order needed to be set aside as Mistry’s actions as a director of Tata Sons were causing grave threat to the integrity of the Tata Sons board, apart from causing prejudice to Tata Sons’ interests.
 
Several actions taken by Mistry after his removal from the Tata group hurt its interests, Tata Sons said. “This was clearly borne out from the extensive oral and written arguments rendered on behalf of Tata Sons before the NCLAT, pointing out that a purportedly confidential email addressed by Cyrus Mistry to Tata Sons’ board of directors was leaked, and confidential board minutes were put in public domain at the instance of Mistry and he had unilaterally, and in a wholly unauthorised manner, corresponded with the income-tax authorities (holding himself out to be a principal officer of Tata Sons) and submitted documents of Tata Sons to the income-tax authorities.”
 
Due to the leaked e-mail, the stock exchanges and other regulators also sought details from Tata companies, and the Tata group had to issue a press statement. “Unfortunately, the NCLAT judgment construes the press statement in an entirely bizarre fashion. It relies on the press statement to show that the decision to replace Mistry had a ‘global effect’, without making it clear as to what this purported ‘global effect’ had to do with the legality of the decision to replace Mistry as executive chairman,” the petition said.
 
The NCLAT judgment, the Tata group said, had been passed without appreciating the well-settled position that "no reasons were required to be recorded for Mistry’s replacement or removal as chairman or director. At any rate, such reasons were not justiciable in the present proceedings," the petition said. 
 
The Tata petition said a good review by the nomination and remuneration committee (NRC) of Tata Sons of Cyrus Mistry just before his removal in October 2016 overlooked the fact that the NRC was not representative of the view of the entire Tata Sons board, as the NRC only consisted of three directors. Mistry had argued in courts that in spite of a good report by the NRC, the Tata Sons board had removed him at the instance of Tata Trusts trustees. Tata Trusts own 66 per cent in Tata Sons and had three representatives on the board of Tata Sons and have veto power, according to Tata Sons' articles of association.
 

On Tata Trust trustees who played an important role in removing Mistry, Tata Sons said the NCLAT judgment attributed the so-called loss in Tata companies to the Trusts’ nominated directors (on the ground that they enjoy affirmative voting right) and cast blame on them for allowing companies to function in a manner which caused loss. "The Trusts’ nominated directors were never in charge of the affairs of Tata companies. The management of Tata Sons vested with Mistry, who was also the chairman of Tata companies. There is no material or evidence on record to suggest that Mistry wanted to cut the losses in the Tata companies and the same was thwarted by the Trusts nominated directors by using the affirmative vote or otherwise,” Tata Sons said. 
 
The petition said the NCLAT failed to look at the issue of expiry of tenure – although it appears to have recognised that it lacked the jurisdiction to issue a direction extending tenures. "The judgment also omits to consider the settled legal position that in the case of tenure appointments, the appointment stands concluded upon completion of the respective tenure. In the present case, Mistry’s tenure as executive chairman stood expired on March 31, 2017, and thus, the same cannot be restored,” it said.
 
Besides, Tata Sons said the NCLAT order to term the conversion of its status from a public company to a private company as “illegal” was not correct. Tata Sons said the judgment of the NCLAT was contrary to an earlier judgment of the Supreme Court in the case of Darius Rutton Kavasmaneck vs Gharda Chemicals, which settles the issue.
 
"In an unprecedented move, the NCLAT judgment has converted Tata Sons, undisputedly a ‘private company’ within the meaning of Section 2(68) of the 2013 Act, to a public company in total and flagrant defiance of the provisions of the 2013 Act. Atop this, the NCLAT has travelled outside its jurisdiction by holding the Registrar of Companies’ act of revising Tata Sons’ certificate of incorporation as being ‘prejudicial’ to Tata Sons - a concept unknown to the settled legal principles under Section 241 and 242 of the 2013 Act. The judgment is in violation of the law laid down by the SC in the Gharda Chemicals case," Tata sons said.
 
“If Tata Sons is accepted to be a ‘private company’, then the articles of such company which were in play at the time Cyrus Mistry was appointed are beyond any challenge. The suggestion that any of the terms of the Articles are either extreme or could lead to potential prejudice or that exercising powers contained in the plain language of the Articles is in any manner contrary to any principle of Company Law, is a serious error of law in the NCLAT judgment. It is obvious that the error in coming to the conclusion that Tata Sons continued to be a ‘public company’ has clearly influenced the NCLAT in coming to a number of conclusions which areas of enquiry would perhaps have been beyond its realm in the case of a ‘private company’,” it said.