Mumbai: The National Company Law Tribunal (NCLT) on Tuesday adjourned a waiver plea filed by the Mistry family firms (in their fight against Tata Sons Ltd) to 17 March, but proceedings on Tuesday indicated the strategy likely to be adopted by them.
The two firms argued that the Articles of Association (AoA) of Tata Sons violated the spirit of the Companies Act and that the two directors nominated by Tata Trusts, the largest shareholders in the group holding company, onto the board of the company had extraordinary powers.
Tata Sons is yet to present its arguments.
The tribunal ruled on Monday that Cyrus Investments Pvt. Ltd and Sterling Investments Pvt. Ltd were not qualified to file a petition alleging mismanagement of Tata Sons and oppression of minority shareholders. Under the Companies Act, shareholders require at least 10% ownership to file a case; the Mistry family stake in Tata Sons falls to 2.17% if preference shares are considered.
Cyrus Investments and Sterling Investments had requested that the technicality be waived.
The way the affairs of the company are conducted have a “bearing on public interest… and the articles run afoul of letter and spirit of Companies Act”, said Aryama Sundaram, counsel for the Mistry firms. “Voting by minority shareholders is being rendered useless with the way articles are structured.”
Sundaram argued that the AoA are drafted in such a way that two Tata Trust-nominated directors are controlling the affairs of Tata Sons. According to the AoA, eight items such as those related to fundraising and certain investment plans need to have the majority vote of trust-nominated directors. Tata Trusts, which own two-thirds of Tata Sons, have the right to nominate one-third of its board.
“We (Mistry firms) are the only ones who have an independent view and the rest of the views are governed by the two trustees,” said Sundaram, referring to Ratan Tata and Noshir Soonawala.
He also said that Bharat Vasani, Tata Sons’s chief legal and group general counsel, had raised concerns that the AoA gave immense power to Tata trustees on the board of Tata Sons in an email to Cyrus Mistry in January 2016.
“(Top corporate lawyer) Cyril (Shroff) told me that there is general impression in the market that the Trusts control Tata Sons and Cyrus does not have a free hand in running the group. But no one knows the exact mechanism through which the control is exercised,” Vasani said in the email, a copy of which is a part of a rejoinder filed by Mistry.
Vasani had also urged Mistry to meet Shroff to understand the insider trading implications of Tata Sons sharing information related to listed Tata operating companies with the trusts.
A person close to Tata Sons said that Mistry firms are presenting their interpretation of the AoA, which may not be correct.
“The articles say that to pass a resolution, a majority of trust nominee directors are required as against the argument that trusts and two trustees were exercising control over the company,” he said, asking not to be identified.
Referring to Vasani’s email, this person said that petitioners did not talk about the question that was posed to Tata’s legal counsel.
Getting a favourable judgement on the waiver plea is crucial for the Mistry firms, which have had a series of legal setbacks; the tribunal did not grant them any interim relief or stop the 6 February shareholding meeting of Tata Sons which removed Mistry as director. He was removed as chairman of Tata Sons on 24 October.
Corporate lawyer H.P. Ranina said that all is not lost.
“While there is technical requirement that a waiver (request) needs to be filed with the main petition, NCLT has agreed to hear the Mistry companies on waiver. So, it is safe to say that NCLT may not pass a verdict keeping this as a reason,” said Ranina.
“Whichever way the NCLT rules, it would be a long legal battle with both the sides approaching the National Company Law Appellate Tribunal (NCLAT) all the way up to Supreme Court,” he added.