Tata Sons can’t force Cyrus Mistry out, yet: NCLAT

New Delhi: In a significant development in the Tata-Mistry court battle, the National Company Law Appellate Tribunal (NCLAT) on Friday restrained Tata Sons Ltd from forcing the Mistry family out of the holding company and left to a later date its verdict on staying the conversion of the Bombay House-headquartered company to a private firm.

“If the appellants (Cyrus Investments) are forced to sell their shares which may affect the merits of the appeal, as they will cease to be member(s) of the company, we direct the respondents (Tata Sons) not take any step in terms of Article 75 for transfer of shares of minority shareholders like appellants and others during the pendency of the appeal. No further interim order is required to be passed at this stage,” said the tribunal.

The appellate tribunal admitted the plea by Cyrus Investments Pvt. Ltd seeking an interim stay on the conversion and posted the matter for hearing on 24 September, after which the fate of Tata Sons as a public company is likely to be decided.

On 9 July, the NCLT Mumbai bench had allowed Tata Sons to go private, which was challenged in NCLAT by the Mistry family.

“The registrar of companies having now changed the certificate of the company from ‘public limited company’ to ‘private company’, and in view of Article 75, the company may by special resolution resolve to direct the holders of ordinary shares to transfer their shares,” the bench had noted in its order on Friday.

Article 75 of the Articles of Association relates to “company’s power of transfer shares.” Friday’s order is the latest development in the boardroom battle between Cyrus Mistry, who was ousted as chairman of Tata Sons in 2016, and the Ratan Tata-led firm. If the appellate tribunal allows Tata Sons to become a private firm, it would insulate the company from any threat of being taken over by any entity in a “hostile manner”.

This means any shareholder of privately-held Tata Sons will have to seek permission from its board before selling his stake to another entity, including one with a hostile intent. The Mistry family, which had deep ties with the Tata group before the fallout, owns 18.4% stake in Tata Sons that is valued at $17 billion.

Shareholders of Tata Sons on 22 September 2017 voted in favour of the Tata group holding firm becoming a private company at the first annual general meeting (AGM) under the chairmanship of N. Chandrasekaran.

The move was opposed by the Mistry family, represented by a proxy. Mistry opposed the move to take the holding company private because it would restrain the ability of his family firms to sell their stake.

Mistry, in his appeal filed through a family run investment firm, had also alleged “oppression and mismanagement” on the part of Tata Sons. Taking note of the issue, the appellate tribunal in its order said on Friday, “We have noticed the rival contention of the parties, we are not inclined to decide the aforesaid issue at the stage of hearing for grant of interim relief.”

“To some extent, the observation as of now will not matter at the time of the final hearing. However, once Tata Sons becomes a private company the shareholders will not be able to sell shares easily and NCLAT seems to be taking this into account while passing interim orders,” said a lawyer who did not wish to be named.