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Reset the boardroom

NCLAT ruling on Tata Sons case flags deeper questions of corporate governance that need to be addressed urgently

By: Editorial |
December 20, 2019 2:15:13 am
 Cyrus Mistry, Cyrus Mistry Tata sons, Tata Sons Cyrus Mistry, NCLAT Cyrus Mistry, Express editorial This is an extraordinary development in the history of corporate battles in India.

Three years after being abruptly unseated, Cyrus Mistry appears on course to being reinstated as executive chairman of Tata Sons, the holding company of one of India’s largest business conglomerates, with the National Company Law Appellate Tribunal (NCLAT) ruling on Wednesday that his sacking in October 2016 and the subsequent appointment of N Chandrasekaran was illegal. This is an extraordinary development in the history of corporate battles in India. It could have a destabilising impact on not just the scores of companies in the over $100 billion diversified group but also on markets and investors.

The tribunal has said that the manner in which Mistry was suddenly removed, the absence of any discussion at the board meeting on October 24, 2016, and his subsequent removal as a director in group companies, amounted to prejudicial and oppressive action. It has ordered that Mistry be reinstated as director of four Tata companies, while setting aside the decision to convert the company from a public to a private firm. The tribunal’s verdict will become operational only after four weeks with a window being provided for the Tatas to appeal to the Supreme Court. But irrespective of the final verdict in this case, there are some larger issues which need to be addressed by corporate India.

These questions concern corporate democracy or democratic behaviour in listed corporate firms, be they promoter-driven companies or professionally managed companies and appropriate governance structures including independent boards. It is important in a public corporation to make a clear distinction between decisiveness and arbitrariness. While corporate governance in any country may be shaped by several factors, including the cultural backdrop, it is also about ethical values, integrity standards and following the spirit of the law. At a fraught time when many Indian companies are struggling to manage their balance sheets, one of the grave risks that the latest ruling poses is that of further deepening the distrust of corporates by many investors hurt already by events in many firms over the past few years. That could be a dampener for long-term investment in India and for companies and entrepreneurs looking to bet on projects here. Much will depend on how swiftly the Supreme Court ensures an early closure to this corporate feud, and the behavioural change in India’s boardrooms over the next few years.

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