Cyrus Mistry’s removal legal if majority of board members vote against the chairman

Mohandas Pai, chairman of Manipal Global Education said in the last four years none of the chief executives of Tata Group firms have been asked to leave despite making wrong decisions.

By: ENS Economic Bureau | Mumbai | Updated: October 25, 2016 11:58 am
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The sudden removal of Cyrus Mistry as the Chairman of Tata Sons by its board on Monday cannot be termed as illegal, according to proxy advisory firms. “The removal of Mistry with a majority of board members voting against him is not illegal as the chairman is elected by the board and can be elected for every meeting. Under Section 173 of the Companies Act a seven-day notice should be given, however, this notice is waived if at least one independent director is present in the board meeting or if the decision is ratified by majority of directors,” said JN Gupta, managing director of Stakeholders Empowerment Services (SES).

WATCH VIDEO: Cyrus Mistry’s Career Timeline

 

“However, we have not seen the terms of the agreement between the company, it shareholders and Mistry and the legality or illegality could depend on that agreement,” Gupta added.

Meanwhile, the news of Mistry’s shocking removal has taken India Inc by surprise.

READ | Cyrus Mistry: Everything you need to know about the outgoing Tata Sons chairman

“There’s one school of thought that says he (Mistry) should have done much more. There’s another school of thought which is saying he has done too much. I really don’t know what is the thinking in the Tata Sons board, but I thought he was on the right track, at least from whatever I have read about him, from whatever he is doing, I thought he was on the right track,” said Harsh Mariwala, Chairman of Marico. Mariwala said the biggest challenge for the Tata Group will be to find a successor within four months.

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Mohandas Pai, chairman of Manipal Global Education said in the last four years none of the chief executives of Tata Group firms have been asked to leave despite making wrong decisions. “The last time people were asked to go was when Ratan Tata came and he wanted people to retire, let’s be very clear about that. And, the least you can do is have a big table for somebody whom you have picked up, who is your biggest shareholder, who sat on your board for so long, who is your colleague. What is the board doing? How is the board going to assert its independence? You don’t call back (a former chairman). I don’t think it’s done anywhere in the world where you call back a chairman who’s gone, he’s retired and is close to 80 to come back and choose a successor, especially to replace the person that he has chosen,” said Pai.

WATCH VIDEO: Cyrus Mistry Removed As Chairman of Tata Sons: Here’s What Happened

 

Tata Group Past Chairmen

Jamsetji Tata, the first chairman of the Tata Group, was at the helm of the conglomerate since 1868 till his demise in 1904. He could realise only one of his four life goals by establishing the Taj Mahal Hotel in Mumbai, with the rest being achieved by his successors in form of Tata Iron & Steel Company (now Tata Steel Ltd), Indian Institute of Science Bengaluru, and Tata Hydroelectric Power Supply Company (now Tata Power Company Ltd)

Dorabji Tata took over as the 2nd chairman in 1904, and was instrumental in setting up of Tata Power and Tata Steel. He was also responsible for creation of Tata Trust, as well as the Lady Tata Memorial Trust, which did research in leukemia. Dorabji Tata died in 1932, shortly after his wife’s death in 1931, which had prompted him to set up the trust for cancer research.

Nowroji Saklatwala, the nephew of Jamestji Tata, started as an apprentice in one of its mills in 1889, and took over as the group’s first non-Tata chairman in 1932 following Dorabji’s death. During his tenure, Nowroji was responsible for several firsts in terms of labour reforms with the introduction of a profit-sharing scheme with employees, and raising the wages of the lowest-paid workers of temporary employees at the Tata Iron and Steel Company in Jamshedpur. Nowroji passed away in 1938.

JRD Tata, fourth chairman of the Group, took charge in 1938, and is deemed the pioneer of civil aviation in the Indian subcontinent. He entered the group as an unpaid apprentice in December 1925, and in 1929 joined the board of Tata Sons. JRD launched Tata Airlines in 1932, which later became Air India. He remained the chairman of the group till 1991, thus becoming the first Tata Group chairman to relinquish his position while being alive. He passed away in 1993.

Ratan Tata, fifth chairman of the Group, was named JRD Tata’s successor after the latter stepped down in 1991. He joined the group in 1961 on the shop floor of Tata Steel, and in the 21 years of his chairmanship of the Tata Group, revenues and profits of the group grew 40 times and 50 times, respectively. Ratan Tata is also well-known for the launch of India’s first cheap car Nano, as well as for the automotive company’s takeover of British giant Jaguar Land Rover. On turning 75 in 2012, he stepped down as chairman, naming Cyrus Mistry his successor.