Tata vs. Mistry: Case Before Supreme Court
Introduction
Tata is one of the largest conglomerate in India, being established in 1968 and with its business expanded in almost every sector from Hotel Chains to Automobiles. TATA group was at its height being led by its executive chairman, Cyrus Mistry.
Background of the Case
Case before National Company Law Tribunal
What is “Oppression”?
Article 75 of Articles of Association
Section 241 Companies Act
Section 242 Companies Act
Case before National Company Law Appellate Tribunal
Case before Supreme Court
Conclusion
Background of the Case
Due to disrupt between the Tata group and Cyrus Mistry, he was removed as the executive chairman of the Tata sons Ltd. on 24th October, 2016. The reason given by TATA group was that majority of the company’s shareholders and their board of directors had lost faith in Cyrus Mistry as its chairman, and therefore, due to the circumstances prevailing, he was removed from this post.
Thereafter, N ChandraShekaran, the former chairman and managing director of TATA Consultancy Services, was named as the new executive chairman of the TATA Sons Ltd. Immediately after his removal from the position of executive chairman, Cyrus Mistry filed a complaint with the National Company Law Tribunal (NCLT), Mumbai alleging persecution of minority shareholder rights. With that it was also allege on behalf of Cyrus Mistry that TATA group had operational mismanagement under Sections 241, 242 and 244 of the Companies Act, 2013.
Case before National Company Law Tribunal
Shapoorji Pallonji Group had alleged before the National Company Law Tribunal that Cyrus Mistry was forced out of his position as the executive chairman of the TATA group due to oppression by TATA sons’ promoters.
What is “Oppression”?
Under Section 241 of the Companies Act, Oppression refers to conducting the affairs of the company in a manner prejudicial or oppressive to public interest, interests of the company or its members.
It was further alleged that minority of the shareholders were being oppressed under the garb of Article 75 of TATA sons’ Articles of Association.
Article 75 of Articles of Association
This article empowers TATA sons’ to urge any shareholder to sell his shareholdings to current shareholders or to outsiders chosen by the board of directors, provided that such direction is by passing a special resolution.
Another important question raised by SP Group before National Company Law Tribunal was the decision of TATA trust to go private, which is against Sections 241 and 242 of Companies Act.
Thus, these were the main questions raised by SP Group. National Company Law Tribunal dismissed the first contention of SP group holding that dismissing an employee does not fall within the ambit of Section 241 of the Companies Act and therefore, SP contention of oppression by TATA group is without any base. NCLT further observed that removal of Cyrus Mistry from chairmanship of TATA group was due to release of confidential information by him and therefore, TATA sons act does not come under the ambit of oppression.
On the second issue, NCLT observed that Article 75 of the AOA of TATA group existed long before SP group became subscribers of TATA group and that when SP group subscribed to TATA group shares, they were fully aware about the same. It further observed that in order to show prejudice to minority shareholders, a new article or change of an article must be written, which was not the situation in the case before it. Therefore, NCLT dismissed the second contention of SP group as well.
On the third and last contention of SP group, NCLT rejected the claim of SP group that conversion of TATA group falls under the ambit of Section 241 and 242 of Companies Act.
NCLT, therefore, dismissed the complaint of SP group holding that TATA trust and Ratan Tata were the majority shareholder and that will never do a self-destructive act.
Section 241 Companies Act
This Section provides relief to the members of the company from oppression of other majority members and shareholders etc.
Under this Section, any member of the company has a right to file a complaint in the form of an application before the national company law tribunal, if he feels that the affairs of the company are being conducted in an oppressive manner, which is not only harmful to such person but also to general public at large.
Furthermore, this Section also empowers central Government to file an application before the tribunal if it feels that the affairs of the company are being conducted in an oppressive manner.
Section 242 Companies Act
Once the member of the company has filed the application, this Section grants the power to the tribunal to either reject or accept the application. If the tribunal is of the view that the matters of the company are being conducted unfairly and oppressively, and it deems fit to pass an order of winding up, tribunal may pass order to that affect.
Section 244 Companies Act
While it is important to stop the practices of the company being conducted unfairly, not everyone can file the application under Section 241. Section 244 provides the eligibility criteria for the people who can file an application before the tribunal under Section 241.
Case before National Company Law Appellate Tribunal
Shapoorji Pallonji group preferred appeal against the order of National Company Law Tribunal on the same grounds that were raised before the NCLT.
National Company Law Appellate Tribunal observed that there were evidence of bias and oppression by the majority shareholders against the minority shareholders. Therefore, NCLAT held the reinstatement of Cyrus Mistry to the post of executive chairman of TATA Sons’ alongwith reinstating him to the post of director in other TATA companies. NCLAT further observed that TATA group flourished under the chairmanship of Cyrus Mistry and therefore, poor performance cannot be the ground for his removal and therefore ordered his reinstatement.
NCLAT further refrained TATA sons from using Article 75 against the SP group. It further observed that TATA Sons’ decision to hastily convert from public to private company was against the principles of natural justice as they had not followed the procedure laid down under Section 14 of the Companies Act, and thus, ordered the registrar of companies to rectify the order passed, thereby making TATA Sons as private concern.
NCLAT further held that there exist quasi-partnership between SP group and TATA Sons and further held that adverse judgments were the result of the decisions of majority of board of directors, which were the TATA Trust.
Case before Supreme Court
TATA group preferred an appeal against the order of NCLAT reinstating Cyrus Mistry as executive chairman of TATA Sons before Supreme Court. A bench led by the then CJI S A Bobde ordered in favour of TATA group and against SP group. Supreme Court observed that unless the removal of executive chairman is the direct result of oppressive and mismanagement by the board of directors at large, which might be directly or indirectly affecting the interest of the company and public at large, such removal does not come under the purview of Section 241 of the Companies Act, 2016.
Supreme Court further observed that Section 241 and 242 of the Companies Act does not grant the power to NCLAT to reinstate Cyrus Mistry as the executive chairman of TATA Sons’ as these Sections does not expressly grant the power of reinstatement.
Supreme Court therefore, overturned the decision of NCLAT reinstating Cyrus Mistry as the executive chairman and reinstated the order of NCLT dismissing the contentions of SP group.
Conclusion
Concluding from the Supreme Court order, it can be perceived that the context of removal of executive chairmanship does not come under the purview of Section 241 of the Companies Act. This Section can only be invoked if the decision of removal is found to be oppressive and discriminatory on the face of it. Supreme Court further conclude that Section 241 and 242 does not grant the power of reinstatement of the executive chairman.