NCLT Rules in Favour of Tata Sons, Says Mistry Went Against Board

The NCLT found no merit in Mistry’s arguments that Ratan Tata was interfering in the governance of Tata Sons.

The two-year long legal feud between Tata Sons Ltd and its erstwhile Chairman Cyrus Mistry came to an end on Monday with the Mumbai bench of NCLT ruling in favor of Tata Sons.

The NCLT found no merit in Mistry’s arguments that Ratan Tata and NA Soonawala were interfering in the governance of Tata Sons, according to the verdict.

The bench headed by Justices BSV Prakash Kumar and V Nallasenapathy dismissed Mistry’s plea regarding corporate mismanagement and his ouster, after hearing both the parties for nearly four months between October and February.

Here are the key highlights from the judgement:

• NCLT rejects petition to reinstate Mistry in Tata Sons board.
• NCLT says Mistry openly went against the board, and so against the company.

In December 2016, two firms owned by Cyrus Mistry’s family had filed a case of oppression and mismanagement against Tata Sons and 20 others, including Ratan Tata.

The dispute stems from Mistry’s removal as Tata Sons chairman in October 2016 and later as a director. In March 2017, the NCLT had ruled that the Mistry firms do not fulfill the criteria to pursue the allegations.

The criteria are contained in Section 244 of the Companies Act, 2013. The section allows a shareholder of a company to bring an oppression and mismanagement case against the firm if it holds not less than one-tenth of the issued share capital.

Mistry’s counsels had argued that the two Mistry entities – Cyrus investments and Sterling investments – together hold 18.7 percent of equity shares in Tata Sons and meet the eligibility criteria under Section 244.

Tata Sons has contended that the issued share capital includes issued equity capital and issued preference capital; and according to this calculation, the two Mistry companies hold less than 3 percent of the issued share capital rendering them ineligible to file the case. The NCLT had agreed with Tata Sons’ argument in March last year.

On appeal, the Cyrus Mistry firms had secured a partial win at the National Company Law Appellate Tribunal (NCLAT) in September.

The NCLAT had granted the two Mistry firms a waiver from the 10 percent shareholding requirement to pursue oppression and mismanagement charges against Tata Sons. But the appellate tribunal had pointed out that it cannot deliberate on the merits of an oppression and mismanagement petition while deciding the threshold question of waiver. And so, the NCLT was directed to hear the merits of Mistry’s petition.

NCLAT’s ruling was followed by another key development – the decision by Tata Sons’ board to convert the entity into a private limited company.

Mistry’s firms had pointed to this development as another example of oppression of minority shareholders.

In their earlier arguments, counsels for the Mistry firms had also raised issues such as continuance of the loss-making Tata Nano project and awarding commercial contracts to Ratan Tata’s close confidants like Mehli Mistry and C Sivasankaran as examples of mismanagement that cost the company several crores and impacted dividends.

Tata Trusts, which acts as promoter to the $103 billion Indian conglomerate with a shareholding of 66 percent, had rebutted the arguments, saying Mistry was party to most of the decisions he had cited.

Further, they had argued that Mistry’s ouster was justified because he, intentionally and in bad faith, had leaked sensitive and confidential information causing loss to Tata Group’s market value. One of the arguments was that Mistry was appointed at the behest of Tata Trusts and his removal cannot be questioned by minority shareholders.

(This story was originally published on BloombergQuint.)