Opinion | Tata vs Mistry at the Supreme Court

As expected, the Tata Group has moved the Supreme Court against a recent ruling by the National Companies Law Appellate Tribunal (NCLAT) that left Bombay House stunned and Ratan Tata with another battle on his hands. The NCLAT had found Cyrus Mistry’s 2016 ouster as Tata Sons’ executive chairman illegal, and asked for his reinstatement. It also nixed Tata Sons’ subsequent conversion from a publicly held firm to a private one.

The case pivots on the complex question of majority versus minority shareholder rights under the law. Since Ratan Tata controls the Tata Trusts that own nearly two-thirds of the equity of the group’s holding company, Tata Sons, he exercises majority ownership. Mistry’s family owns about 18.4% via two separate entities. Regardless of whether Mistry was or wasn’t given functional autonomy during his tenure, majority-control is axiomatic in most business structures. This clout is exercised via a board of directors, which has the legal authority to eject a “key managerial person”; whether Mistry qualified as one could yet be a matter of judicial interpretation, though.

The bigger controversy here, perhaps, is over whether the NCLAT invoked Section 242 of the Companies Act in proper accordance with the letter of the law. Can a judgement be passed on a minority oppression case without Tata Sons being deemed fit for dissolution? So ask the ruling’s critics. The real splitting of hair, however, is over the firm’s conversion. Instead of the Companies Act of 2013, under which government approval is needed for it, the group reportedly used a circular dated 13 September 2013, which only requires an okay by the Registrar of Companies (which has also protested this part of the NCLAT order). What drew suspicion to the group’s motive for going private is an odd part of Tata Sons’ Articles of Association that assigns itself the right to direct a shareholder to sell his shares, a provision that wouldn’t be held valid for a public company. Article 75, as it’s called, was not enforced, but Mistry, as a minority stakeholder, was vulnerable to it. And legal vulnerability is nothing to sniff at.