Tata vs Mistry: NCLAT order to reinstate Mistry may pave way for settlement

The National Company Law Appellate Tribunal (NCLAT) verdict on Wednesday to reinstate Cyrus Mistry as chairman of Tata Sons will pave the way for a settlement between the two warring sides, say legal experts. 

The order has also observed that both parties must take steps to “create a healthy atmosphere to remove the mistrust between the two groups.”

“The NCLAT order will bring both sides to the negotiating table and find a way out of the crisis.  I think while Mistry can be re-instated as non-executive chairman the present Chairman of Tata Sons, N Chandrasekaran may look after the day-to-day operations of the group,” said HP Ranina, a Supreme Court lawyer.

Ratan Tata will have to take a backseat, considering the strictures passed by the NCLAT, he said.  

The order may also lead to the re-composition of the Tata Sons board as several board members who were instrumental in removing Mistry may not like to continue once Mistry is back in the saddle, Ranina said. 

As of now, Tata Sons board consists of Amit Chandra, Farida Khambata (who did not vote to remove Mistry), Venu Srinivasan, Ajay Piramal, Bhaskar Bhat and Ralf Speth. Piramal, Srinivasan and Chandra voted in favour of removing Mistry after attending just only one meeting  of Tata Sons, even as the Nomination and Remuneration Committee of Tata Sons giving a good report on Mistry’s performance for the fiscal ending March 2016. Chandra has already left the Tata Sons board.

After Mistry’s ouster, Tata Sons also inducted former Hindustan Unilever head, Harish Manwani and Saurabh Agarwal as directors.

Lawyers said with the order, Chandrasekaran can continue for the next four weeks or till Tata Sons gets a stay from the Supreme Court, but it will be prudent if Tata Sons board and the present chairman do not take any crucial decision till the litigation on this case is over.  “There is legal uncertainty over the entire board. Hence, its decisions can be challenged in future,” said another lawyer.

Legal experts say the order is not clear on what happens to the decisions already taken by Chandrasekaran since he was appointed as Chairman in February 2017.  “If the appointment itself is held illegal then what happens to the decisions taken since then? There should be more clarity on this aspect as there is a lot of confusion within the group,” said a Tata group insider asking not to be quoted.

After Mistry was ousted, the Tata group also changed the legal structure of the holding company by converting itself into a private limited company. This has now been set aside by the NCLAT.  

Besides, Tata Sons also allotted preference shares to Ratan Tata in Tata Sons. When converted, in case of default on interest payments by Tata Sons, Ratan Tata would emerge as the largest shareholder in Tata Sons while both Tata Trusts and the Mistry family will become minority shareholders.

CLICK HERE TO READ FULL TEXT OF THE NCLAT JUDGMENT