The National Company Law Appellate Tribunal today restrained Tata Sons from forcing ousted chairman Cyrus Mistry's family out of the holding firm of the USD 100 billion Tata Group, but refused to stay its conversion to a private company.
The tribunal, in an interim order on Mistry's plea for putting on hold the approval for conversion of Tata Sons' into a private company from a public limited company, admitted his petition against the move and posted the matter for hearing on September 24.
The Mistry family has also challenged the order of the Mumbai-bench of National Company Law Tribunal that upheld ouster of Cyrus as Chairman of Tata Sons in a boardroom coup in 2016.
Besides change to a private company, the Mistry family, which is the largest shareholder in Tata Sons, had in NCLAT challenged the move by the company to restrict shareholders from freely selling their stake and the Article 75 of the articles of association that can be used by the board to force a shareholder to sell out.
"Taking into consideration the facts and that the appeal is pending and if the Appellants (Mistry) are forced to sell their shares which may affect the merits of the appeal, as they will cease to be member(s) of the company (Tata Sons).
"We direct the Respondents (Tata) not take any step in terms of Article 75 for transfer of shares of minority shareholders like Appellants (Mistry) and others during the pendency of the appeal," the tribunal said.
Over change of status of Tata Sons, NCLAT said, "No further interim order is required to be passed at this stage".
Tata Sons has contended that it was always a closely held private entity but was considered a public limited company due to its size under an old legal provision.
The status of the public limited company allowed investors greater flexibility in transferring their shares.
A few years back, the law was altered, allowing Tata Sons' shareholders to approve a change to its legal status last year, overriding objections from Mistry.
"The appeal is admitted for hearing," the tribunal said while directing the petition filed by the investment firms supporting Mistry to be listed on September 24, 2018, for next hearing.
A two-member bench headed by its Chairperson Justice S J Mukhopadhaya has directed Tata Sons and other respondents to file their reply within 10 days.
The Mistry family, which derives almost USD 17 billion of their fortune from the 18.4 per cent stake in Tata Sons, had filed several lawsuits challenging ouster of Cyrus.
During the hearing, Mistry's side had alleged that the appeal against NCLT Mumbai order was filed before NCLAT in the evening of August 6, 2018, and Tata's hurriedly moved before RoC, Mumbai, who passed certificate converting the Company as Tata Sons Pvt Ltd'.
Article 75 has been a part of the articles of association (AOA) of Tata Sons since inception in 1917, which was a private limited company then. However, it was changed into a public limited company in 1965, which is when the Mistry side had invested in Tata Sons.
It deals with the company's power to transfer shares and says that Tata Sons may at any time by special resolution could resolve that any holder of ordinary shares do transfer his ordinary shares.
"Such member would thereupon be deemed to have served the company with a sale-notice in respect of his ordinary shares in accordance with Article 58 hereof, and all the ancillary and consequential provisions of these Articles shall apply with respect to the completion of the sale of the said shares," Article 75 says.
On August 14, NCLAT had reserved order over the interim relief sought by Cyrus Mistry camp.
Mistry had challenged the orders of National Company Law Tribunal (NCLT) which had dismissed his plea challenging his removal as chairman of the company.
In September last year, Tata Sons had received shareholders' nod to convert itself into a private limited company from being a public limited company, limiting in effect Cyrus Mistry family's ability to sell their stake to outsiders.
A public limited company allows shareholders to legally sell their stake to anyone, but a shareholder of a private limited firm cannot sell the shares to external investors.
The Mistry camp had challenged the July 9 order of the Mumbai bench of the NCLT which dismissed their pleas against his removal as Tata Sons chairman, as also the allegations of rampant misconduct on part of Ratan Tata and the company's Board.
A special bench of the tribunal had held that the board of directors at Tata Sons was "competent" to remove the executive chairperson of the company.
NCLT bench members B S V Prakash Kumar and V Nallasenapathy had also said that Mistry was ousted as chairman because the Tata Sons' Board and its majority shareholders had "lost confidence in him".
Under the Companies Act 2013, an order of NCLT can be challenged before the National Company Law Appellate Tribunal (NCLAT). Mistry, who was the sixth chairman of Tata Sons, was ousted from the position in October 2016.
He had taken over as the chairman in 2012 after Ratan Tata announced his retirement.
Two months after his removal, Mistry's family-run firms Cyrus Investments Pvt Ltd and Sterling Investments Corp approached the NCLT as minority shareholders, against Tata Sons, Ratan Tata, and some other board members.
Mistry in his pleas primarily argued that his removal was not in accordance with the Companies Act and that there was rampant mismanagement of affairs across Tata Sons.
He also alleged that Tata Trust chairperson Ratan Tata and trustee N Soonawala interfered with the day-to-day operations of the group companies, they acted as shadow directors, and all of the above caused massive revenue loss for the group.
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