A day after resigning from the boards of six Tata firms, Cyrus Mistry on Tuesday took a legal route in his fight against Tata Sons by filing a suit with the National Company Law Tribunal (NCLT). Investment firms of Shapoorji Pallonji Group, Cyrus Investments and Sterling Investment Corporation, which own 18.37 per cent stake in Tata Sons, moved NCLT against Tata Sons, its former chairman Ratan Tata, Tata Sons’ directors, Tata Trusts as well as its trustees for alleged oppression and mismanagement by the company.
In response, Tata Sons said it will contest allegations, adding that it viewed “the petition as an unfortunate outcome of the situation arising from Mr Mistry’s complete disregard of the ethos of the Tata Group and Jamsetji Tata.”
The company also said, “Despite Mr Mistry’s recent assertions that it is not a personal issue, it is evident that it always has been for him a personal issue, which reflects his deep animosity towards Mr Ratan Tata.”
On Monday, Mistry had resigned from the boards of six listed Tata group companies, saying he didn’t want to hurt the operating firms by continuing the fight at extraordinary general meetings (EGMs). He had said he would take the debate “to the next level, at the appropriate legal forum”.
Mistry filed the petition under sections 241, 242 and 244 of the Companies Act. The first hearing by NCLT on the petition is slated for Thursday.
The petition sought NCLT to direct Tata Sons and its directors not to remove Mistry as a director from the holding company’s board. It also urged the tribunal to direct Tata Sons not to issue further shares and dilute Mistry family’s interest in the company. Mistry owns 50 per cent of the equity interest in the two Shapoorji Pallonji group firms, while brother Shapoor Mistry owns the other half.
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The petition alleged mismanagement by Tata Sons and its directors towards Mistry’s family’s firms.
It stated as owners of 18.37 per cent stake in Tata Sons, the two Mistry-family firms were “directly affected and aggrieved by the oppression and mismanagement”. It added many such acts were still continuing.
It alleged that Mistry was illegally removed from the position of executive chairman in violation of the Articles of Association and provisions of the Companies Act. The Articles of Association being converted into a regime for enabling control of Tata Sons by Ratan Tata and Tata Trusts trustee N A Soonawala who, as “shadow directors”, were controlling the holding firm as a “super board” with trustee nominated directors being accustomed to acting under the instructions of both.
The petition said Soonawala regularly reviewed operations of various Tata group companies despite not being a director of Tata Sons and “demanding and procuring” commercially sensitive information, including unpublished price-sensitive information, placing Tata Sons in the danger of violation of securities regulations that mandate a need-to-know treatment of such information.
It said illegality continued in the manner of Mistry’s removal ranging from suspicious erasing of audio-video recording of the board meeting of Tata group companies, informing stock exchanges about the change of chairman of listed firms without even passing a circular resolution.
The petition also quoted “serious injury” to the Tata brand caused due to Ratan Tata and Tata Trusts trustees’ conduct on October 24, which seriously jeopardised the goodwill and reputation of Tata Sons’ prime business assets.
“Ratan Tata was running Tata Sons like a proprietorship firm, with all others directors and trustees acting as puppets... The directors have failed in discharging their fiduciary obligations and failed the test of fairness and probity,” said the petition.
Mistry included various issues such as Tata group’s investments in “legacy hotspots” such as “overpriced and bleeding Corus acquisition, doomed Nano car project”. Tata’s relationship with C Sivasankaran, DoCoMo arbitration, and the group’s aviation sector investments were also included in the petition.
Legal experts said Mistry could have taken the decision much earlier. “Certainly, the NCLT is one of the appropriate fora he could have gone to earlier. He will be agitating the issues of corporate governance, which he had publicly made known earlier,” said R S Loona, senior partner of DV Alliance, a Mumbai-based law firm.
“Besides the other allegations made by Mistry especially on insider-trading violation, Mistry would need to share some credible information with Sebi and only then could the regulator take required action,” added Loona.
“Under the Companies Act, a shareholder with over 10 per cent of the shares has the right to file a petition before the NCLT, alleging oppression, seeking appropriate reliefs. One may seek an injunction against holding meetings to take any new decisions except routine matters or change of management, injunction against interim chairman from attending any board meeting, seeking audit by independent agency or direction to Sebi to investigate insider trading,” said Sumit Agrawal, partner, Suvan Law Advisors.
Mistry’s petition to NCLT
- Direct Tata Sons not to remove Mistry as a director
- Direct Tata Sons not to issue further shares diluting Mistry family’s interest
Mistry’s allegations
- Tata Sons mismanagement affecting family firms
- Was illegally removed as chairman
- Ratan Tata and N A Soonawala act as “shadow directors”, controlling the holding firm
- Soonawala regularly reviewed operations of group companies
- Tata running Tata Sons like a proprietorship
- Directors have failed to discharging their fiduciary obligations