SC Orders Status Quo On Raising Capital Over Shares Held By Mistry's In Tata Sons

The Supreme Court on Tuesday ordered status quo against Mistry firms & Shapoorji Pallonji Mistry on raising capital against security of their shareholding in Tata Sons, by pledging, transferring or any further action in relation to the shares.

A bench of Chief Justice SA Bobde, Justice AS Bopanna & V. Ramasubramaniun will hear the case which was moved vide an "urgent application" by Tata Sons on October 28.

Today, Senior Advocate CA Sundaram appearing for Mistry's told the Court that Tata Sons was stopping the pledging of shares and sought early disposal of the case.

To this CJI Bobde replied: "How can lien be called transfer of property when it comes back? Pledge is a limited restricted transfer"

Senior Advocate Janak Dwarkadas appearing for Shapporji Pallonji Mistry said that there existed to prohibition against his clients from selling their shares. "If a sale notice is given, shares have to valued at a fair value," he added.

At this juncture, CJI SA Bobde stated,

"Neither Parties are willing to hold their horses for 4 weeks. Anything which affects the value of the shares is relevant. We thought you (Mistry) will agree to maintain status quo. If you do not agree, we will hear them now. We are only asking you all to wait for 4 weeks."

Senior Advocate Harish Salve appearing for Tata Sons told the top court that the shares need to be protected and urged the Court to stop their sale. "Tomorrow if Warren Buffet tries to come and buy the shares, we'll have to pay 30%," said Salve.

On September 5, Tata Sons had moved the apex court, seeking to restrain Shapoorji Pallonji Group (SP Group) from pledging the shares it held in Tata Sons, just a day after the Mistry group signed an agreement with Brookfield to raise Rs 3,750 crore as debt.

The Mistry family owns 18.5 per cent in Tata Sons while Tata Trusts and Tata group companies hold the rest.

The Tata group and SP group are involved in an ongoing legal battle since December 2016, after Cyrus Mistry was removed from the Chairmanship of Tata Sons in October 2016. 

Cyrus Mistry's appeal against the National Company Appellate Tribunal's (NCLAT) judgement which had reinstated him as the Executive Chairman of Tata Group is pending before top Court for adjudication. By way of this cross-action appeal, Mistry had sought expansive relief against the Judgement.

On the last date of hearing, a bench of Justices AS Bopanna & Hrishikesh Roy tagged the appeal with Ratan Tata and Tata Group's appeal challenging the same judgement passed by the NCLAT in December 2019.

Senior Advocate Harish Salve appeared on behalf of Tata Sons (& Ratan Tata) and stated that appeals of both sides can be heard expeditiously.

On January 10, 2020, In a temporary relief to Tata Sons Pvt Ltd, the Supreme Court had stayed the NCLAT Judgement of December 2019 (which reinstated Cyrus Mistry as the Executive Chairman of the company).

On January 24, the Top Court had issued notice in a plea filed by Tata Sons assailing the decision of the NCLAT wherein it had rejected an application seeking a modification of its December 2019 judgment.

On December 18, 2019, The National Company Law Appellate Tribunal restored Cyrus Mistry as the Executive Chairman of Tata Group.

Allowing Mistry's appeal, the Appellate Tribunal had set aside the judgment of Mumbai bench of National Company Law Tribunal (NCLT) that had upheld the appointment of N Chandrasekharan as Chairman in his place.

Further, the two member bench had observed that the tribunal's remarks against Cyrus Mistry were "undesirable and based on extraneously sourced material" which is "wholly unsubstantiated."

The Appellate tribunal had noted that the Nomination and Remuneration Committee comprised of Cyrus Mistry, two Independent Directors, namely Farida Khambhata (10th Respondent) and Ranendra Sen (8th Respondent) and one Director, Vijay Singh (9th Respondent), a nominee Director of 'Tata Trust had appreciated Mistry's performance and that his removal had nothing to do with his lack of performance.

Thereafter, the tribunal had referred to Article 121 of Articles of Association and had noted that it was not open to the Respondents to state or allege that loss in Companies under the Tata Conglomerate was due to the mismanagement of Cyrus Mistry:

"The consecutive chain of events coming to fore from the correspondence referred elsewhere in this Judgment amply demonstrates that impairment of confidence with reference to conduct of affairs of company was not attributable to probity qua Mr. Cyrus Pallonji Mistry but to unfair abuse of powers on the part of other Respondents." - NCLAT

The Tribunal also questioned the action on the part of the Company, its Board of Directors to take action to hurriedly change the Tata Sons Limited from 'Public Company' to a 'Private Company' without following the procedure under law.