NCLT JUDGMENT- 17/04/2017
B.S.V. PRAKASH KUMAR
(JUDICIAL MEMBER)
V.NALLASENAPATHY
(TECHNICAL MEMBER)
NCLAT JUDGMENT- 18/12/2019
S. J. MUKHOPADHYAY(CHAIRPERSON)
BANSI LAL BHAT (JUDICIAL MEMBER)
SUPREME COURT ORDER- 10/01/20
HON’BLE THE CHIEF JUSTICE
HON’BLE MR. JUSTICE
B. R. GAVAI
HON’BLE MR. JUSTICE
SURYA KANT
IMPORTANT DATES-
1. October 24, 2016- Removal of Cyrus Mistry
2. December 20, 2016- Petition filed to NCLT, Mumbai by Mistry
Investment Firms
3. April 17, 2017- NCLT sets aside the plea over
maintainability
4. September 21, 2017- NCLAT allows the pleas passing waiving
over maintainability issue
5. October 6, 2017- Case dismissed by NCLT
6. August 3, 2018- Mistry Investment firms’ approach NCLAT
7. December 18, 2019- NCLAT restores Mistry, sets aside NCLT
order
8. January 3, 2020- Tata’s approach SC against NCLAT order
9. January 10, 2019- SC stayed judgment passed by NCLAT
KEY OBSERVATIONS
1. MAINTAINABILITY OF PETITION FILED BY MISTRY INVESTMENT FIRMS UNDER SECTION 241-242
NCLT-
“The Petitioner Counsel submits that the Petitioners since have 18.37%
equity Shareholding having a present market value of more than one lac crore
rupees with a substantial interest in the company, since they have 18.37%
equity in the company, if equity alone is taken into consideration, they are
far in excess of 10% in the shareholding and l/10th of the number
also.” (PARA 20)
“If really, any such grievance were there to these petitioners,
obviously it would become a ground for waiver and their point of substantial
equity in the company would help them out, but their equity shareholding of
18.37% in the company on its own cannot become a ground for waiver.” (PARA 50)
“Therefore, we are of the view that the case seeking waiver must be for
seeking shareholder action in relation to their economic interest, two there
must be a case likely to succeed. On the top of it, the reasons for granting
waiver shall be supported by fairly strong and compelling reasons. As to other
points of public interest and company interest, we don't believe the issues
manifested in the petition are fit for grant of waiver plea. If any violations
are noticed to other Acts, there are other forums for it, if anybody is so bent
upon to seek action on such violations, such as the issue raised in this case
in relation to violation of SEBI regulations, they can complain to those
forums, not before NCLT especially under section 241.” (PARA 52)
NCLAT-
“On challenge, this Appellate Tribunal by its judgment dated
21st September, 2017 taking into consideration the exceptional
circumstances including the fact that out of Rs. 6,00,000 crores of total
investment in ‘Tata Sons Limited’, the Appellants- ‘Cyrus Investments Private
Limited & Anr.’ had invested approximately Rs.1,00,000 crore held that it
was a fit case for waiver and remitted petition under Sections 241-242 to the
Tribunal for decision on merit.” (PARA 4)
Observation-
· Section 241 provides that any member of the company can make an application for seeking relief to the NCLT in case of ‘Oppression and Mismanagement’. Section 244 prescribes the shareholder qualifications required to make an application under the Section 241. Section 244 clearly states that a company having a share capital, then at least one-hundred members or members constituting one-tenth of the total members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, subject to the condition that the applicant has or have paid all calls and other sums due on his shares, can make an application in the NCLT alleging ‘Oppression and Mismanagement’. If a company does not have a share capital, then at least one-fifth of the total members are required to make an application under the Section.
· Section 244 however further provides that the NCLT has the power to waive all or any of the requirement specified in the Section so as to enable the members to make an application taking into consideration the circumstances and necessities of the case.
· Further, Section 43 of the Act specifies that preference shares would be inclusive of the issued share capital and as contended by the Respondents, the Petitioners hold 18.37% of equity share capital, however this percentage will decrease and will be below 10% if preference holdings are taken into consideration.
· The NCLT in its judgment looking into the required Sections as provided in the Act, held the view that even though the Petitioners hold 18.37% equity shareholding in the Company, that cannot in itself become a ground for waiver under Section 244. The tribunal also stated that there ought to be strong reasons provided by the company seeking waiver, however the present petition by Cyrus Investment firms does not give any such reasons. When the petition talks about public interest, the tribunal held the view that there are other forums that can look into the matter.
· However, NCLAT in its judgment dated 21st September 2017, cleared the path of maintainability stating that since the Petitioner groups have about 1,00,000 Crore investment in Tata Sons, and since there were serious allegations against the Respondents, the waiver under 244 was passed by the Appellate Tribunal.
2. AFFIRMATIVE VOTING RIGHTS TO THE MAJORITY SHAREHOLDERS- THE TRUSTEE NOMINATED DIRECTORS
NCLT-
“…..Whenever any allegation is made, it is the bounden duty of the
respective party to give dates, actions and effect of the actions and also to
say that inspite of their objection such and such actions were carried out by
the Respondents causing prejudice or oppression to them, no such details have
been given in respect of these allegations. It is a cardinal principal that the
person acquiesced to an action cannot subsequently complain about the same. It
is not even mentioned that the respondents herein invoked these Articles with
prejudice to oppress the Petitioners. Unless all these characteristics are
present in the allegation, there cannot be any cause of action made out u/s
241. Therefore, this Bench has not noticed any cause of action for striking out
these amended Articles from the Company's Constitution…….” (PARA 17 (iii)
NCLAT-
“As per Articles of Association (Article 121) the nominated Directors of the ‘Tata Trusts’ have affirmative voting rights over the majority decision. The voting rights of the Company (‘Tata Sons Limited’) at a general meeting of any Tata Companies…………….. is also vested with the Board of Directors (Article 121A (h)). Therefore, for any policy decision of the ‘Tata Companies’, including appointment of representatives of the Company (‘Tata Sons Limited’) under Section 113(1) (a) of the Companies Act, 2013, affirmative vote of the nominated Directors is must (Article 121A r/w Article 121)” (PARA 154)
“Mr. Ratan N. Tata (2nd Respondent) and the nominee of the ‘Tata Trusts’
shall desist from taking any decision in advance which requires majority
decision of the Board of Directors or in the Annual General Meeting”. (PARA 187 ii)
Observation-
· Article 121 of the AOA mandates that important matter of ‘Tata Sons’ can only be decided with the affirmative vote of trust nominee directors in order to be considered as majority. Further, Article 86 talks about how no quorum of the meeting is complete without at least one authorised representative jointly nominated by ‘Sir Dorabji Trust’ and ‘Sir Ratan Tata Trust’. So the nominee directors have full power of the board to conclude any decision, this therefore undermines the role and authority of the board and needs an intervention. The veto therefore that the trustee nominee directors got under this article was absolutely abuse of power. Moreover, if the nominee directors have so much of power then why did they not use it when it was the most required during the times when company was falling short of profits. Also if the majority shareholders have rights over all the decisions, then it is bound to be prejudicial to the rights of the minority shareholders.
· Article 121A(g) of the AOA relates to powers that the nominee director trustees had with respect to shareholding and the decisions in this regard can be taken only by the Board of Directors. Amongst the Board of Directors, these nominated director trustees had the affirmative vote. Henceforth, the shareholding of ‘Tata Trusts’ couldn’t be changed unless of course the trustees themselves decide they want to. So it is quite clear that the ‘Tata Trusts’ will always be the majority shareholders and hence will have the affirmative vote with respect to all the matters.
· The Appellants strongly stand correct as it is obvious that because of Article 121 and 121 A(g), Tata Trusts have abused their powers as majority shareholders by using their affirmative votes in every matter. It is also to be noted that if they feel that the decline in Tata’s growth is due to Mr. Cyrus Mistry, then why did they not introspect into the matters that caused losses themselves and contribute in minimizing them rather than just bashing it on one single individual. Evidently the direct control of ‘Tata Companies’ is with nominated Directors of ‘Tata Trusts’.
· The powers were used by Mr. Ratan Tata
and N.A. Soonawala to that large extent that matters that were already closed
and decided were reopened and looked upon because of the orders that were given
by these trustee nominee directors. People were also told about what should the
meetings be about hence bringing in a lot of intervention in the whole process.
3. REMOVAL OF CYRUS MISTRY FOLLOWED BY
ISSUING OF ‘PRESS STATEMENT’
NCLT-
“…Though it is true that removal has to be done by the recommendation of
the Selection Committee, since the Selection Committee is comprised of majority
members from Sir Dorabji Tata Trust and Sir Ratan Tata Trust, selection
committee recommendation is mere formality. The outcome of this formality will
become one and the same whether it is through Selection Committee or by Board
of Directors with majority from the Trusts. This Bench has already referred
Needle case stating that inflection of an article will become matter if its
non-compliance makes any difference to the proprietary interest of the
petitioners. Since Trust directors are majority on Board, constituting of
selection committee would not make difference to the decision taken by the
Board, because even if committee was formed, there also the members of the
committee would be the persons at the wish of the nominee directors. Therefore,
constitution of committee or no committee will be of no difference. It will
become grievance to the Trusts, if chairman is removed against the wish of
them….” (PARA 17 iv)
“One thing always to be kept in mind is, section 241 is designed to
remedy the grievance of the shareholders and shareholders alone. Therefore,
this allegation saying since he has been removed as Chairman, the Petitioners
are entitled to take it up as cause of action u/s 241 of the Companies Act is
not correct.” (PARA 17 iv)
NCLAT-
However, because of recent actions of ‘Tata Trusts’, its nominee
Directors, and Mr. Ratan N. Tata (2nd Respondent) and Mr. Nitin Nohria
(7th Respondent) taken since the year 2013, as noticed and discussed
above, and sudden and hasty removal of Mr. Cyrus Pallonji Mistry
(11th Respondent) on 24th October, 2016, without any basis, and
without following the normal procedure under Article 118, the minority group
(‘Shapoorji Pallonji Group’) (the Appellants), and others have raised no
confidence and sense of uncertainty which was the reason for the ‘Tata Sons
Ltd.’ to issue a ‘Press Statement’. (PARA 162)
“The language of the Company (‘Tata Sons Ltd.’) in its ‘Press Statement’
show that the Company and Contesting Respondents also know that the action
taken is ‘prejudicial’ and ‘oppressive’ to the interest of the members of the
Company and a large number of members, investors and interested parties have
raised concern. The ‘Tata Sons Ltd.’ has accepted that there is sense of
uncertainty at the global level.” (PARA 164)
“The proceedings of the sixth meeting of the Board of Directors of ‘Tata
Sons Limited’ held on Monday, 24th October, 2016 so far as it relates to
removal and other actions taken against Mr. Cyrus Pallonji Mistry (11th
Respondent) is declared illegal and is set aside. In the result, Mr. Cyrus
Pallonji Mistry (11th Respondent) is restored to his original position as
Executive Chairman of ‘Tata Sons Limited’ and consequently as Director of the
‘Tata Companies’ for rest of the tenure. As a sequel thereto, the person who
has been appointed as ‘Executive Chairman’ in place of Mr. Cyrus Pallonji
Mistry (11th Respondent), his consequential appointment is declared
illegal”. (PARA 187 i)
Observation-
· On 24th October 2016, Mr. Cyrus Mistry was removed as the Chairman of the Company. Section 118 of the Companies Act 2013, clearly indicates that a committee should have been formed if the Company wanted to remove Mistry. However, no such committee was formed in this particular case. Prior to the meeting held on 24th, there was a minute separately arranged by the ‘Tata Trusts’ in order to discuss his removal. Further, even before the decision could have been finalized, Mr. Ratan Tata asked Mr. Mistry to resign.
· If the Respondents believe that there was nothing ‘prejudicial’ and ‘oppressive’ in the way Mr. Mistry was removed, then what was the need to release a ‘Press Statement’ on 10th November 2016. Moreover, the wordings of the ‘Press Statement’ in themselves show how the Company knows that what they have done is against the law. It clearly portrays acceptance by the Company that a lot of people have shown concern about the way the Chairman was removed and that the same has caused uncertainty globally.
· ‘Tata’s’ in order to justify that they
have made the right decision and that their actions were correct released the
‘Press Statement’ focusing on how Mr. Mistry was incompetent and how the
Company was facing huge losses because of him. The ‘Press Statement’ came out
to be more like a blame-game by the ‘Tata’s’ on ‘Mistry’. If the Company was
able to identify these losses, then why instead of blaming Cyrus Mistry no
actions were taken by ‘The Board of Directors’ with the affirmative vote of the
Trustee Nominated Directors to identify those issues and stop the functioning
which caused losses there and then.
4. CONVERSION FROM PUBLIC COMPANY TO A PRIVATE COMPANY
“As per Section 14 of the Companies Act, 2013, if any Company decides to
alter its articles having the effect of conversion of a ‘Private Company’ into
a ‘Public Company’ or a ‘Public Company’ into a ‘Private Company’; it is
required to pass a special resolution and as per sub- section (2) of Section
14, it requires approval by the Tribunal. Only after order of approval by the
Tribunal, the Company can request the Registrar together with a printed copy of
the altered articles, to register the Company as ‘Private Company’ or ‘Public
Company’ as the case may be.” (PARA 170)
“The decision of the Registrar of Companies changing the Company (‘Tata Sons Limited’) from ‘Public Company’ to ‘Private Company’ is declared illegal and set aside. The Company (‘Tata Sons Limited’) shall be recorded as ‘Public Company’. The ‘Registrar of Companies’ will make correction in its record showing the Company (‘Tata Sons Limited’) as ‘Public Company’” (PARA 187 iv)
Observations-
· TATA Group was earlier a private company, however due to exceeding the turnover limit the company got converted to public. An attempt now was made and the manner of conversion according to the appellants was not in accordance to the law and the companies act since this could have been done only after getting approval of all the stakeholders. And this would only oppress the minority shareholders.
· As per Section 14 of the Companies Act, 2013, if any Company decides to alter its articles having the effect of conversion of a ‘Private Company’ into a ‘Public Company’ or a ‘Public Company’ into a ‘Private Company’; it is required to pass a special resolution and as per subsection (2) of Section 14, it requires approval by the Tribunal. Only after order of approval by the Tribunal, the Company can request the Registrar together with a printed copy of the altered articles, to register the Company as ‘Private Company’ or ‘Public Company’ as the case may be.
· However, in this particular case, no
such procedure as per section 14 was followed by the company as no application
had been filed to the tribunal under the mentioned section for its conversion from
‘Public’ to ‘Private’ Company. However, the Registrar of the Companies had
shown ‘Tata Sons Ltd.’ As ‘Private’ and struck down the word ‘Public’ which was
against the law and hence cannot sustain. Thereafter the judgment ordered this
to be held as illegal and there ought to be corrections made with respect to
this by the Registrar of Companies.
5. COMPANY’S AFFAIRS BEING ‘PREJUDICIAL
AND ‘OPPRESSIVE’ TO MEMBERS INCLUDING APPELLANTS.
NCLT-
“It is needless to say that the interest of the Petitioners means the economic interest of the Petitioners. It is not sufficient if the petitioners have substantial interest in the company, they have to make an averment that acts complying of have caused harm or injury to the economic interest of the Petitioners, but it has not been mentioned as to what economic interest has been effected by the acts of the Respondents with respect to the affairs of the Respondent company.” (PARA 32)
“So the Petitioners have to prove that affairs of the company have been
or being conducted in a manner prejudicial or oppressive to the interest of the
members or the company or the public interest and also to prove such act is
just and equitable to wind up the company, then on seeing just and equitable
ground for winding up, if such winding up would unfairly prejudice such member
or members, then only this Tribunal can pass orders as it thinks fit.” (PARA 36)
“In this case the petitioners at threshold itself failed to make out any
cause of action to maintain the petition.” (PARA 37)
NCLAT-
“In view of ‘prejudicial’ and ‘oppressive’ decision taken during last
few years, the Company, its Board of Directors and shareholders which has not
exercised its power under Article 75 since inception, will not exercise its
power under Article 75 against Appellants and other minority member. Such power
can be exercised only in exceptional circumstances and in the interest of the
company, but before exercising such power, reasons should be recorded in
writing and intimated to the concerned shareholders whose right will be
affected.” (PARA 187 iii)
Observations-
· Article 75 gives TATA SONS the power to ask any shareholder to sell their holdings by passing a special resolution. The shares could be only sold to other existing shareholders or outsiders as per the board’s decision. However, this could be easily misused by the Tata’s as they could ask the Mistry family firms to exit at any moment as they would want them to. The board would also have the power to decide the value of those shares. SP Group has about 18.4% stake holdings in TATA SONS and the relationship has been so since last 50 years. Now clause is totally arbitrary and gives the power to one set of stakeholders over other and therefore totally violating the rights that the minorities exercise.
· The judgment clearly mentioned its reasons for concluding that the acts of the Company were ‘prejudicial’ and ‘oppressive’ to the minority shareholders including the Appellants because of the; affirmative vote that was given to the trustee nominated directors; due to extreme intervention by Mr. Ratan Tata and Mr. N.A. Soonawala in the company affairs; the manner in which Mr. Cyrus Mistry was removed first from his chairmanship and later from all the director positions held in the Tata Companies without providing any reasons for doing the same that could be justified; all forming a chain of events that raised concerns globally.
6. OBSERVATIONS MADE BY TRIBUNAL AGAINST MR. CYRUS MISTRY UNDESIRABLE.
“We find certain observations made by the Tribunal against Mr. Cyrus
Pallonji Mistry and other Appellants are undesirable and based on extraneously
sourced material not on record. It casts impact on the reputation of the
Appellants and Mr. Cyrus Pallonji Mistry which may affect them in pending
proceedings, if any, and their business. These remarks are not only disparaging
but also wholly unsubstantiated by any document on record. An illustrative list
of such remarks which the Appellant sought to expunge...” (PARA 190)
Observations-
· The NCLAT in its 172-page judgment made a precise note of all the parts of the judgment passed by NCLT, Mumbai that had made remarks derogatory and defamatory to Mr. Cyrus Mistry, which as the judgment mentioned were unnecessary and didn’t have any material record. The reputation of Mr. Mistry was significantly hampered due to the same and therefore it was ordered to the Tribunal to remove those unwanted remarks.
· The judgment made note of about 11
Paragraphs of the Judgment passed by NCLT, Mumbai on 9th July
2018. Mr. Cyrus Mistry in his personal capacity had filed a petition before the
NCLAT pointing out the assertions made by the Tribunal as they impacted both,
his professional and personal integrity.
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