Updated: December 19, 2019 4:49:50 am
IN A complete reversal of a July 2017 tribunal order, the National Company Law Appellate Tribunal (NCLAT) Wednesday restored Cyrus Pallonji Mistry as the Executive Chairman of Tata Sons and director in the Tata Group for the rest of his tenure. Mistry was removed by the Tata Sons board on October 24, 2016.
NCLAT has, however, stayed the executive part of judgment for a period of four weeks upon the request of senior advocate Abhishek Manu Singhvi, who appeared for Tata Sons.
This gives the Tata Group time to challenge the NCLAT decision before the Supreme Court.
Over to Supreme Court
The NCLAT ruling is a complete reversal of the NCLT order which had gone in Ratan Tata’s favour. The Group gets four weeks to challenge the decision before the Supreme Court where it will most probably ask for a stay. Share prices of Tata companies have fallen. How the verdict affects Tata operations depends on how protracted are the next steps in the legal fight.
In a statement, the Tata Group said it strongly believed in the strength of its case and would take appropriate legal recourse.
The two-member bench, led by NCLAT chairperson Justice S J Mukhopadhaya, held the appointment of Mistry’s replacement — N Chandrasekaran (who has not been named in the judgment) — as illegal.
In a strongly worded 172-page judgment, it also set aside the Tata Group’s move to turn itself into a private company from a public limited company, terming it “illegal”.
The appellate tribunal said that the day-to-day affairs at Tata Group had been or were still being conducted in a way that was, and remains, “prejudicial” and “oppressive” to other shareholders of Tata Sons, including Mistry.
It was, hence, a case fit for passing of “winding-up order” against the company, the NCLAT said.
Over two years ago, in July 2017, the Mumbai bench of National Company Law Tribunal (NCLT) had observed that the petitioners (Mistry’s companies) had “tried to steamroller all these business decisions” upon Ratan Tata as “mismanagement of the affairs causing prejudice to the company, so as to bully” Tata.
This, it said, was because of “the heart burn” following Mistry’s removal as the Executive Chairman of Tata Sons.
Reacting to NCLAT‘s order, share prices of Tata Sons group companies took a beating. Tata Motors fell over 3 per cent to close at Rs 174.70, Tata Global Beverages fell over 4 per cent to close at Rs 311.80 and Indian Hotels Co. Ltd lost nearly 2.5 per cent to close at Rs 145.60. This was even as the 30-share Sensex settled 206.40 points, or 0.50 per cent, up at its all-time closing high of 41,558.57.
While NCLAT stayed the operationalisation of the executive part judgement for four weeks, it said the rest of the judgment and directions such as reinstating Mistry as the director of the overall group companies and the director of three of the subsidiaries must be complied forthwith.
Responding to the order, the Tata Group said it was not clear how the NCLAT order sought to overrule the decisions taken by shareholders of Tata Sons and listed Tata operating companies at validly constituted shareholder meetings. “The NCLAT order appears to even go beyond the specific reliefs sought by the appellant,” said a statement issued by Shuva Mandal, Group General Counsel, Tata Sons.
“Tata Sons assures its various stakeholders that it not only has always operated in a fair and equitable manner but also acted in accordance with the law and will continue to do so,” it said.
For any future appointments of Executive Chairman, independent director or directors, the Tata Group must consult the Shapoorji Pallonji group and appoint only such person or persons on which both the groups have trust, “which will be in the interest of the Company and create healthy atmosphere removing the mistrust between the two groups, already developed and has caused global effect”, the NCLAT said.
The NCLAT judgment also observed that since the Tata Sons’ board decisions were prejudicial and oppressive, the company, its board of directors and shareholders, who had not, since the inception of group, exercised their powers under Section 75 of the Companies Act, will not exercise their powers under the Act against Mistry or other minority shareholders.
Mistry called the judgment a personal victory as well as a win for the principles of good governance and minority shareholder rights, and said it was a “vindication” of his stand when the Tata group removed him first as Chairman and then as a director in the company. “For the Tata group to prosper as an institution, it is important that the management of individual companies, their boards, the management of Tata Sons, the board of Tata Sons and the shareholders of Tata Sons, all work harmoniously,” Mistry said in a statement.
In its judgment, the NCLAT also censured the Mumbai bench of the NCLT for comments against Mistry and other appellants and said that the adjudicating authority’s observations were “undesirable and based on extraneously sourced material not on record.” And that these could affect the reputation of the appellants and Cyrus Pallonji Mistry in pending proceedings, if any, and in their business. “These remarks are not only disparaging but also wholly unsubstantiated by any document on record,” the NCLAT said.
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