High Stake and Long Standing Corporate Legal Battle: TATA vs MISTRY

Table of Contents

Introduction

Tata trust set up in the 20th century was in the spotlight because of Cyrus Mistry. Tata trusts were granted special dispensations by successive governments in terms of both income tax exemption and the right to investments in corporate entities.[1]

When Cyrus Mistry took over, he was the first Tata sons Chairperson in the group’s history not to be made Chairperson of the Sir Dorab Tata Trust. Ratan Tata retains the position of Chairperson of two major trusts and Mistry did not have powers normal Chairperson of the board would have had.[2]

The article of association relating to appointments and removal of future Chairpersons was revised with Nusli Wadia’s guidance so that all the appointments and removals of directors have to be first cleared by the trusts.[3]

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On the other hand in 2002, the companies Act was amended on several occasions, but few seemed to have noticed that the change in section 153A i.e. appointment of public trustee- the central government may by notification in the Official Gazette, appoint a person as a public trustee to discharge the functions and to exercise the rights and powers conferred on him by or under this Act[4]. It was Tata specific change. [5]

In simple words the change made in 2002 allowed Tata Trusts to vote directly on the Tata sons board and not through a government-nominated trustee. The result of which is in present.

NCLAT Ruling

Following the outcome, in 2016, Cyrus Mistry moved to the Mumbai Bench of National Company Law Tribunal challenging his removal from the trust and majority shareholder of Tata Sons, the Tata sons was indulges in the oppression of minority shareholders of the group.

In 2017, NCLAT upheld Mistry removal and stated that “Removal of Cyrus would have become heart-burn not only to Mr. Cyrus but to others holding the shareholding of the petitioners, but it cannot ipso facto become a grievance”[6].

In 2019, NCLAT reinstated to the position of executive chairman of the Tata Sons and Director of the Tata groups of companies for remained tenure.

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The journey in Supreme Court

The questions raised by Cyrus Mistry are[7] –

Whether charitable trusts can be used to control a major business empire, rather than fulfill the philanthropic objectives for which they were formed.
It also mentioned that the removal of Cyrus Mistry as the executive chairman and director was “oppressive” and “prejudicial”.
Article 75 of association was also in the question. The article is related to the right to purchase shares from a minority or a small shareholder at a fair market value.

Cyrus Mistry was under the fear that Tata Group might use article 75 to buy SP group and urged SC to not allow the same.

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What did SC observe?[8]

In the general meeting of the shareholders of ‘Tata Sons Limited’ or the Board of Directors, the majority decision is fully dependent upon the affirmative votes of nominated Directors of ‘Tata Trusts’. The affirmative vote of the Directors nominated by ‘Tata Trusts’ has an overriding effect and renders the majority decision subservient to it. And hence court made it clear that NCLAT had no jurisdiction to hold any of the Articles as illegal or arbitrary, the terms and conditions being agreed upon by shareholders.
The SC in its judgment stated that by all records presented it is not open to the respondents to state or allege that loss in different ‘Tata Companies’ was due to mismanagement of CPM.
In concern raised by Cyrus under Article 75 of association, the court observed that after attacking Article 75 in NCLAT the SP group cannot ask the court to go into the question of fixing fair value compensation for exercising an exit option.
The court noted that in the 2013 companies Act provisions, only protected small shareholders since the SP group was not small but minority shareholders there were no statutory provisions that provided them ‘right to claim proportionate representation on the board of Tata Sons.

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Future of both the parties

Since the post of Executive chairman was just a designation and not to forget Executive chairman is not recognized in the Companies Act, mere removal from the post did not undermine Cyrus Mistry’s responsibilities towards the company, has he was removed as Executive chairman and not as a director, the fiduciary duties towards the company to keep boards matters confidential continues.

Yet, it will be more important to cover the loophole been exposed in the case, All the minority shareholders to have an agreement to that effect as well as the articles of association to capture allocations and divisions of board seats.[9]

-Shreya Patel

(Writer, The Legal State)