Mumbai: Two Mistry family investment firms have won a partial victory in the form of a waiver of the minimum shareholding requirement (of 10%) for suing Tata Sons Ltd for alleged mismanagement and oppression of minority shareholders.
While granting the waiver, the National Company Law Appellate Tribunal (NCLAT) dismissed a plea by Cyrus Investments Pvt. Ltd and Sterling Investments Pvt. Ltd alleging oppression and mismanagement, saying the petition was not maintainable.
An NCLAT bench headed by chairperson S.J. Mukhopadhaya directed the Mumbai bench of the National Company Law Tribunal (NCLT) to issue notice to the respondents and hear arguments on the merits of the main case, which it said should be disposed of in three months.
The order was seen by legal experts as a partial victory for the Mistry family firms.
“Finally the main petition will be heard on merits. So far the tribunal had not gone into the arguments and allegations of oppression and mismanagement and (the petition) was dismissed on technicality that the Mistry firms did not meet the 10% threshold," said Tejesh Chitlangi, partner at legal firm IC Universal Legal.
“This is a positive verdict for the Mistry firms, in the sense that the appellate has decided to grant a waiver on the technicality. This is also indicative of the fact that NCLAT has considered the charges of alleged mismanagement and oppression serious enough that the petition will now be heard on merits by the NCLT," said Ramesh Vaidyanathan, founder of Advaya Legal.
Tata Sons said it had taken note of the order and was examining it. If it wants to, the holding company of the Tata group could challenge it in the Supreme Court.
A spokesperson for Mistry’s office said in an email that “the ruling of the National Company Law Appellate Tribunal is a welcome vindication of what we have stood for and the values for which we are pursuing the petition against oppression and mismanagement of Tata Sons Ltd".
The two investment firms, controlled by the family of ousted Tata Sons chairman Cyrus Mistry, had appealed to NCLAT in April against separate NCLT orders dismissing both petitions.
The tribunal had concluded its hearing on 24 July and reserved its judgment.
While the two Mistry firms did own a combined 18.4% of ordinary equity shares of the Tata group holding firm, their holding fell to 2.17% when both equity and preference shares were taken into account.
“An exceptional case needs to be made out under Section 244(1) to grant a waiver from the minimum shareholding requirement," Mukhopadhaya said.
As per the existing shareholding division of Tata Sons, “there are 51 members in the company", he said.
“Out of these, the two majority shareholders—Ratan Tata and Narotam Sekhsaria—hold 31% and 17% each and as such none of the other 49 members would be eligible to move court at all if this requirement is imposed."
The bench said some other factors need to be taken into consideration for deciding on the plea for a waiver—“whether the applicants are members of the company in question; whether the proposed application relates to oppression and mismanagement of the company or its members or is frivolous; whether a similar allegation has been made against the company by its members earlier, etc".
Mistry was ousted as Tata Sons chairman on 24 October and was also removed subsequently as director on the board of the Tata group holding company.
A Tata Sons spokesperson said: “We strongly believe that the allegations made by the petitioners are without basis and incorrect. Tata Sons will continue to defend its position at all appropriate legal forums."
PTI contributed to this story.