Laws of English and English law trounce Irish Mistry at NCLT

In English law, shareholders can try on two remedies: derivative action and unfair prejudice claim

Historically, the Irish have no love lost for the English. The National Company Law Tribunal (NCLT) just gave them one more reason to continue that tradition. 

NCLT members V Nallasenapathy and B S V Prakash Kumar relied on English grammar as much as they relied on English law while deciding the case of Cyrus Mistry, an Irish citizen, against the Tatas. 

Mistry family investment firms, Cyrus Investments and Sterling Investment Corp, had moved the tribunal alleging oppression and mismanagement against Tata Sons, its former chairman Ratan Tata, directors and other key executives. Last week, the tribunal dismissed the petition. 

While the Mistrys have decided to move the appellate tribunal, Tata Sons welcomed the order, saying it was an endorsement of the group’s “high ethical standards and principles of governance”.

The NCLT had to decide on the applicability of three company law sections 241, which deals with prevention of oppression and mismanagement, 242 (powers of tribunal) and 244 (right to apply under section 241).  With senior lawyers like Aryama Sundaram and Somasekar Sundaresan on Mistry’s side and Abhishek Manu Singhvi representing the Tatas, NCLT members went into the semantics of the section 241. The section, among other things, allows any member of a company who complains that its affairs “have been or are being conducted” in a manner oppressive to him to approach the tribunal. 

Discussing the provision’s applicability, the members said, “The acts complained shall be either have been or are being conducted (complaint shall be in relation to the affairs falling within the ambit of present perfect tense or present continuous tense, not otherwise).”

Nallasenapathy and Kumar wrote, “If these two phrases are seen in grammatical sense, we will find three kinds of acts in present perfect tense.”

First, the acts complained of shall be the events that have just been completed at the moment of speaking. Second, a past action still has an effect upon something happening in the present. Third, the acts that have been happening over a period of time but aren’t finished yet. 

“One thing is pertinent to note that oppression must start in the past and still continuing, a situation where petitioning party agreed in the past to some act, and if the implications of such acts have currently become not productive, can it be called oppression or prejudice started in the past and continued till now? To our perception, it can’t be,” they added. They went on to give examples of these three present perfect situations and even explained it with illustrations. 

The order also refers to English law and the manner in which English courts have decided while dealing with the question of waiver from the eligibility clause under section 244. In English law, shareholders can try on two remedies, one derivative action and another unfair prejudice claim. 

The order explained that claims of public interest and company interest were actions that fell under derivative action and were a shown back seat as against members’ interest, especially economic interest. “To avoid frivolous grounds under the cause of derivative actions, English law bifurcated the actions and put almost iron curtain on derivative actions. Lifting that curtain is made difficult by screening it with prima facie test,” the order said. Explaining that they were not blindly going by English law, the members said they were “seeing reason behind it to curtail unnecessary litigation and to let the firms run their business in their usual course. We have adopted this to consider waiver plea”.