Appeal says ruling creates confusion in the working of important corporate entities
Mistry was removed as chairman of Tata Sons in a surprise move on 24 October 2016
Mumbai: Tata Sons Ltd on Thursday challenged in the Supreme Court an appeals tribunal order that held former chairman Cyrus Mistry’s ouster as illegal, terming the court’s direction to reinstate him untenable in law and inconsistent with the Companies Act.
In its petition, Tata Sons said the National Company Law Appellate Tribunal (NCLAT) ruling “has created confusion in the working of important corporate entities, some of which are listed companies". Mint has reviewed a copy of the petition. A spokesperson for Mistry firms declined to comment.
“The direction to restore Cyrus Mistry for his remaining term, without noticing that the term has come to an end is a recipe for disaster, for the reason that it will create unnecessary confusion in the working of companies and lead to more conflict. Any shadow over the management of any of these companies puts public interest in jeopardy," said the petition.
Tata Sons is challenging NCLAT’s December judgement that directed the company to reinstate Mistry as chairman and termed the appointment of his successor N. Chandrasekaran illegal. The order puts at risk the holding company’s efforts to cut costs, sell assets and boost growth across Tata group companies.
According to Tata Sons, “a directorial complaint, at best, has been blown up into a case of oppression and mismanagement of Tata Sons, including a finding that it is just and equitable to wind up a 150-year-old company".
Mistry was removed as chairman of Tata Sons in a surprise move on 24 October 2016. He was later ousted as a director from the holding company’s board, and then removed from several operating companies in the group.
Mistry’s tenure was to have ended in March 2017.
The appeals court had cited alleged haste in Mistry’s removal as chairman of the Tata group’s holding company, ignoring the interest and oppression of minority shareholders, and mismanagement at Tata Sons as reasons for the ruling.
NCLAT also mandated immediate restoration of Mistry as a director at three Tata Group companies —Tata Consultancy Services, Tata Industries Ltd and Tata Teleservices (Maharashtra) Ltd.
Tata Sons, in the petition, said the NCLAT verdict that held Chandrasekaran’s appointment as executive chairman to be illegal was against shareholder rights and democracy because his appointment had the approval of shareholders and board members.
The conglomerate said the order restoring Mistry’s directorship in three group companies was inconsistent with corporate democracy because his removal was through shareholder approval.
“Interestingly, in the judgement NCLAT has given directions to three Tata companies who were not a party to the petition, which is not in consonance with principles of natural justice," said Tejesh Chitlangi, senior partner at IC Universal Legal. “Many of the directions by NCLAT also seem to deviate from settled company law principles. It will be up to the apex court to adjudicate whether a new precedent will be set or whether as a matter of law, the corporate democracy and majority principles would prevail."
Ramesh Vaidyanathan, founder of Advaya Legal, said the apex court ruling would hinge on consequences of the NCLAT ruling and the legality of directions.
“For an interim relief, the balance of convenience is in Tata’s favour. Mistry has been outside the firms for three years, so there is no tearing hurry to rejoin the boards till the matter is finally adjudicated. The apex court ruling would also be an interesting case to decide on the extent of applicability of shareholder sovereignty and the arms-length principle between majority shareholders and sovereignty of company boards," said Vaidyanathan.
The petition, which will be heard on 6 January when the court reopens after the winter vacation, seeks to set aside the entire NCLAT order. The counsel for Tata Sons will also seek urgent relief ahead of a Tata Consultancy Services board meeting on 9 January, as the board is meeting to consider its third quarter earnings and would need to decide on the reinstatement of Mistry as a director.