By Shikhar Bhardwaj

The Supreme Court, on 26^th March, brought down the curtains on one of the biggest boardroom wars between salt-to steel conglomerate Tata Group and its former executive Chairman Cyrus Mistry. What gave rise to this long battle was the removal of Mistry from his position as the Chairman of Tata Sons in October, 2016. The matter before being dealt by the Supreme Court was argued before the NCLT and NCLAT. However, the apex court failed to contemplate a few aspects in its judgment. 

Background

Tata conglomerate is India’s largest business group running businesses in seven sectors in more than eighty countries. Tata Sons is the holding company of the Tata Group. Tata Sons is an unlisted company. Around 66 % of its shares are owned by the various Tata trusts while Shapoorji Pallonji Group (Cyrus Mistry family group) is the largest individual shareholder with an 18.37% stake. Mr. Cyrus Mistry was appointed as the Chairman of Tata Sons in the year 2012 who was the sixth Chairman of Tata Sons. The battle started in October 2016 when Cyrus Mistry was ousted from his position as the Chairman of Tata Sons and Mr. Ratan Tata was appointed as the interim Chairman of Tata Sons.

Why was Cyrus Mistry removed as Chairman?

The loss of confidence of the Members of the Board of Directors in Mistry was the main reason behind his removal as Chairman of Tata Sons. The other reason behind his removal was the legal dispute related to DoCoMo with the Japanese Firm which went to the London Court of International Arbitration where the Court ordered the Tata Sons to pay $1.17 billion as compensation to NTT DoCoMo. Some of the other reasons were negative growth and increase in debt of Tata Sons during his tenure, his style of management, and his tussle with Mr. Ratan Tata.

What did the National Company Law Tribunal, Mumbai hold?

After Cyrus Mistry’s removal as Chairman of Tata Sons, Mistry family backed investment firm Cyrus Investment Pvt. Ltd. and Sterling Investment Corp. Pvt. Ltd. moved before the NCLT, Mumbai under section 241, 242, and 244 of the Companies Act, 2013. It was alleged by the firms that there was oppression of minority shareholders and mismanagement going on in the company. They also contended that the removal of Mistry as Chairman was not done in accordance with legal procedure.

However, on 6th March 2017, NCLT dismissed the plea by Mistry’s family investment firms on the grounds of non-maintainability as the petitioners did not meet the statutory requirement of 10% ownership in the Company for initiating an application alleging oppression of minority shareholders. Later, the NCLT Mumbai also rejected the plea by the two investment firms seeking waiver in the statutory requirement of 10% ownership for initiating an application of oppression of minority shareholders. 

Later, the petitioners moved to the National Company Law Appellate Tribunal which allowed the plea of two investment firms seeking waiver in the statutory requirement of 10% ownership for initiating an application of oppression of minority shareholders. NCLAT remitted the matter to NCLT Mumbai and asked it to decide the matter on merit. On 9 July 2018, the NCLT Mumbai dismissed the firms’ plea challenging Mistry’s removal as Chairman and held that there were no merits in allegations of oppression and mismanagement in Tata group firms. It also opined that the removal of Mr. Cyrus Mistry as executive Chairman was because the Board of Directors lost confidence in Mistry.

What did the NCLAT hold?

In August 2018, the two investment firms filed an appeal in NCLAT against the order of NCLT. In December 2019, the NCLAT allowed Cyrus Mistry’s and two investment firms to appeal against an order of his removal as Chairman of Tata Sons. The appellate tribunal reinstated him as the Executive Chairman of Tata Sons and termed the appointment of N. Chandrasekaran’s as illegal. NCLAT also set aside the conversion of Tata Sons from a public company to a private company.

What did the Supreme Court hold? 

Cross appeals were filed before the Supreme Court by the Tata Sons and Cyrus Mistry investment firm against the NCLAT order. Tata Sons challenged the NCLAT ruling altogether while Shapoorji Pallonji Group sought representation on the Tata Sons Board.

A three-judge bench comprising of Chief Justice SA Bobde, Justice AS Bopanna, and Justice V Ramasubramanian upheld the decision of TATA Sons’ to sack Mistry as its Chairman. The Court opined that removal of Mistry from the post of Chairman cannot be said to be oppressive or prejudicial. Further, the Court went on to say that the NCLAT could not have reinstated Mistry as Chairman. It also set aside the NCLAT ruling which set aside the conversion of Tata Sons into a private company. In short, the apex court answered all legal questions involved in favor of Tata Sons.

The apex court dismissed the appeals by SP Group. The Court stated that there is no statutory right available to a minority shareholder to claim proportionate representation. Such right is only available to a small shareholder, which S.P Group was certainly not. 

What was the reaction from both sides after the Supreme Court ruling?

Soon after the Supreme Court verdict, Ratan Tata released a statement on his social media where he appreciated and thanked the Supreme Court. He said that judgment is a validation of the values and ethics that have always been guiding principles of Tata Sons.While on the other side, Cyrus Mistry expressed his disappointment over the Supreme Court verdict which went against him. Mistry in a statement said ‘Every member of society looks to institutions such as courts to validate and endorse the appropriateness of his or her actions and beliefs. As a minority shareholder of Tata Sons, I am personally disappointed by the outcome of the judgment with respect to our case’.

Whether the Supreme Court judgment is justified? 

The Supreme Court judgment puts an end to the four and half year long battle between the two family groups. However, the apex court failed to consider what might have taken place in the boardroom, whether misconduct took place on the part of the board in removing Cyrus Mistry?, whether ethics were maintained? The Court should have also taken into consideration the fact that the presence of Mr. Ratan Tata would have made it difficult for Cyrus Mistry to manage the group companies with full freedom. Other than that, the Supreme Court did not rule on the separation of ownership between the two family groups and asked the parties to explore other legal options available to them. The question of valuation of Mistry’s shares has also been left open. If the parties could have done it themselves they would not have knocked the doors of the Courts. This verdict will surely impact the Mistry’s bargaining power with the Tata Sons. During the hearing, the Tata Group valued the SP Group shares in Tata Sons worth at Rs. 80,000 crore while the Mistry family claimed that their shares were worth close to Rs. 175 lakh crore. However after this verdict, the gap in valuation of shares is likely to widen.  

The case being one of the biggest legal battles in the corporate world, the Court could have dealt with the legal issue of corporate governance at large rather than limiting itself to the dispute in hand.

(Shikhar is a law student at UPES School of Law, Dehradun and a Contributor at TA. He tweets at @shikhar__08)

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