Cyrus Mistry’s family firms challenge NCLT order on maintainability at NCLAT
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Mumbai: Advancing the legal battle with Tata Sons Ltd, Cyrus Mistry’s investment firms have filed an appeal at the National Company Law Appellate Tribunal (NCLAT), challenging the rejection of their petition alleging mismanagement and oppression of minority shareholders.
Cyrus Investments Pvt. Ltd and Sterling Investments Pvt. Ltd moved the NCLAT on Wednesday against the 6 March order by the National Company Law Tribunal (NCLT) that the petition was non-maintainable, said two people aware of the development who requested anonymity.
The office of Mistry, who was ousted as Tata Sons chairman on 24 October, declined to comment.
NCLT had ruled that Cyrus Investments and Sterling Investments were not qualified to file the petition alleging mismanagement and oppression of minority shareholders at Tata Sons, the holding company of the $103 billion Tata group.
“The petitioners have failed to convince the court that the application is maintainable,” said B.S.V. Kumar, presiding member of NCLT, in the March order.
Under the new Companies Act, shareholders are required to hold 10% equity to be qualified to file such a petition. The Act does not define equity to mean only ordinary equity.
The two Mistry firms own a combined 18.4% of ordinary equity shares of the Tata group holding firm, but their holding falls below 10% when preference shares are taken into account. According to the Tatas, Mistry firms hold only about 2.17% then.
Later, in an order passed on 17 April, NCLT said it would not waive the 10% requirement for the Mistry firms to file the petition.
It makes sense for Mistry’s firms to approach the appellate body on maintainability and waiver separately as the legal arguments put forward on the two issues were different, said Ramesh Vaidyanathan, founder and managing partner at Advaya Legal, a law firm.
The plea on maintainability was based on the fact that equity shareholding of the Mistry firms is above the threshold of 10%. The waiver arguments were on why the tribunal should waive the threshold requirement, said Vaidyanathan. While arguing in favour of the waiver, the Mistry firms had cited concerns on voting and veto rights accorded to Tata trustees on the board of Tata Sons.
“Assuming that the petitioners are likely to approach the tribunal on waiver and main petition being dismissed, the tribunal may consider merging the appeal against dismissal of maintainability and waiver. This is because the urgency to deal with this matter is no longer there,” added Vaidyanathan.
As the final order of the 17 April hearing is yet to be released, the firms could not have clubbed the waiver and maintainability petitions, said the first of the two people cited earlier.
In a setback to Mistry and his family firms, the NCLT in its 17 April hearing not only refused to grant a waiver from the shareholding requirement, but also dismissed the main petition alleging mismanagement and oppression.
The appellate authority typically doesn’t interfere with a decision by the lower authority unless there’s been a gross injustice, said Tejesh Chitlangi, partner at law firm IC Legal.
“They (Mistry camp) really will have to bring in something substantial to the appellate tribunal to override the ruling of the lower authority,” he said.
This looks unlikely as the Mistry firms would have exhausted all the options and played their best card, he said, adding that from here on, more than anything, it’s going to be a time-consuming exercise.