Tata Sons withheld facts on turning private: Mistry firms tell SC

In its affidavit to the Supreme Court (SC), the Mistry firms said several important facts about Tata Sons operating as a public company were withheld by the Tata Sons board to the SC, and therefore, the entire board of Tata Sons must be censured.

“According to law, any litigant who approaches court is bound to produce all documents executed by him and relevant to the litigation. If he withholds a vital document in order to gain advantage, he will be guilty of playing fraud on the court as well as on the opposite party. On account of the sheer falsity of these assertions, this court should not only declare the conversion into a private company to be illegal, but also censure the board of Tata Sons for its conduct,” the Mistry family’s investment firms said in their affidavit to the SC.

The Mistry firms said it is a matter of record that Tata Sons has always been a public limited company and that is equally a matter of record that the word “private” was handwritten into the name of Tata Sons by the Registrar of Companies (RoC) and then uploaded in the middle of the night on August 8, 2018, just before the National Company Law Appellate Tribunal (NCLAT) was to start hearing the appeal against the National Company Law Tribunal Mumbai order.

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The SC will hear the petitions filed by both the Mistry family and Tata Group next month. The fight between Tata Sons and Mistry erupted after Cyrus Mistry, former chairman of Tata Sons, was removed by the Tata Sons board in October 2016, citing sagging financial performance of Tata Group companies, a few months shy of his five-year term ending in March 2017.

Mistry moved the courts, terming his removal ‘illegal’. But within a few months, in August 2017, Tata Sons’ shareholders cleared a proposal to turn into a private company.

In December 2019, while adjudicating on the Tata-Mistry legal battle, the NCLAT had said the manner in which Tata Sons converted itself into a private limited company was illegal. In its appeal to the SC, the Tatas argued they had always carried and displayed the core characteristics of a private limited company.  

The Mistry firms, which hold 18.5 per cent stake in Tata Sons, seek representation on the board of Tata Sons and removal of veto powers to Tata Trusts, which hold 66 per cent stake in Tata Sons — the holding company of Tata Group.

The Mistry firms said Tata Sons had accepted public deposits till September 2002. Tata Sons and its board of directors withheld this material fact from the courts, the shareholders, and the RoC.

According to the prevailing law in December 2000, a private company cannot invite or accept public deposits, in accordance with the Companies Act, 1956. Moreover, according to the Reserve Bank of India guidelines (circular dated January 1, 2002), a private company accepting public deposit is automatically defined ‘a public company’.

According to Mistry firms, Tata Sons in its filings with the RoC under Rule 10 of the Companies Rules (Acceptance of Deposit), 1975, had consciously elected it was a public company (and not a deemed public company or a private company, despite having the option to do so).

TCS did not convene boardmeet to remove Mistry

In its affidavit to the Supreme Court (SC), the Mistry firms said the board of Tata Consultancy Services (TCS), a listed subsidiary of Tata Sons, did not convene a board meeting to remove Cyrus Mistry, but simply relied on a direction from a Tata Sons official to remove him.

Though TCS was not party to the Mistry versus Tata proceedings, but claiming to be aggrieved by the National Company Law Appellate Tribunal (NCLAT) order, the software exporter filed an appeal in the SC.

With this, the board of TCS has now become answerable to the SC for various irregularities, firstly in removing Mistry as chairman of TCS and then as director, said Mistry firms.

In December 2019, while adjudicating on the Tata-Mistry legal battle, the NCLAT reinstated Mistry as a director of TCS. Subsequently, TCS had filed appeal in the SC against this order.

“The manner in which Mistry was removed as chairman of TCS and thereafter as director was contrary to the provisions of the 2013 Act. Despite TCS being an important listed company, the manner in which governance standards were merrily abandoned at the behest of Tata Sons underscores the need for a strong check and balance at Tata Sons,” Mistry firms said in response to TCS’ appeal.