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Tata Sons v Cyrus Mistry : CJI Bobde Says His Son Appeared For SPG Subsidiary; Lawyers Express No Objection To CJI Hearing
LIVELAW NEWS NETWORK
14 Dec 2020 7:26 PM IST
The lawyers appearing in the case between Tata Sons Private Ltd and Cyrus Mistry in the Supreme Court expressed that they have no objection to the Chief Justice of India hearing the case merely because his son is appearing for a subsidiary of Shapoorji Pallonji Group in a case in Mumbai.When the arguments started on the fourth day of the case hearing, CJI SA Bobde told the lawyers :"I...
The lawyers appearing in the case between Tata Sons Private Ltd and Cyrus Mistry in the Supreme Court expressed that they have no objection to the Chief Justice of India hearing the case merely because his son is appearing for a subsidiary of Shapoorji Pallonji Group in a case in Mumbai.
When the arguments started on the fourth day of the case hearing, CJI SA Bobde told the lawyers :
"I discovered during the weekend that my son, who is practicing in Bombay, has been appearing for 2 years for a subsidiary of Shapoorji Pallonji Group in a matter related to slum rehabilitation. I must disclose this to you all".
The CJI asked if anyone had objection to he being part of the bench.
Senior Advocate Harish Salve, who is appearing for Tata Sons, said that he has no objection at all to the CJI hearing the case.
Senior Advocates Dr AM Singhvi, CA Sundaram, Mohan Parasaran, Syam Divan and Advocate Fereshta Sethna also concurred with Salve.
Following that, the CJI recorded the 'no-objection' in the order.
"This might otherwise create problems later on", CJI orally remarked after that.
Senior Advocate C A Sundaram, who is appearing for Cyrus Mistry, submitted that in courts of England, there have been instances where sons have appeared before their fathers.
The CJI replied that Justice PN Bhagwati has appeared as a lawyer before his father Justice N H Bhagwati.
On the fourth day of the hearing, Senior Advocate Sundaram continued to refer to the Articles of Association of Tata Sons to argue that they were used to 'oppress' the minority shareholders.
Apropos Sundaram's submissions regarding interference by Tata Trust in the company, CJI Bobde observed :
"Our experience of private companies is that there is a 'pater familias' figure acting like a head of family, asking for information from others. This is true for Tatas, Birlas etc".
In lighter vein, the CJI continued, "This might be happening with the SPG group of companies too".
"What is wrong in the head of family asking for information in a family run company?', CJI asked.
Sundaram submitted that Tata Sons is a company with thousands of shareholders. If the company was meant to be family run, it should have remained that way and should not have gone public, he added.
"There has to be some kind of consultation. Otherwise there will be chaos with these kinds of intrusions. The company cannot function in this fashion. Pater familias can be informed about the happenings. No problem with that. The problem is when they claim that they have absolute right to run the company under the Articles.You cannot use the Articles in a manner where you say that you have an absolute right over the affairs", Sundaram continued.
The bench will continue the hearing tomorrow.
Last week, Senior Advocate Salve completed arguments for Tata Sons. He argued that the the NCLAT can invoke powers under Sections 241 and 242 of the Companies Act 2013 only if it finds that there are just and equitable reasons to wind up the company. Mere differences of opinions between the minority and majority shareholders regarding various company decisions cannot be regarded as 'opperssion' or 'mismanagement'.
Salve also questioned the powers of the NCLAT to direct that a particular person has to be appointed as the Executive Chairman. That amounts to taking away the rights of the shareholders. Also, Mistry's term under the contract had expired in 2017 itself and therefore the reinstatement order was wholly untenable, he continued.
Detailed report about Salve's submissions may be read here.
Background
On January 10, the Supreme Court had stayed the December 18 order of the National Company Law Appellate Tribunal which reinstated Cyrus Mistry as the Executive Chairman of the company.
Tata side had given assurance in court that they do not propose to take any steps invoking powers under Article 75 of the Articles of Association against the minority shareholders of Shapoorji Pallonji group.
In the appeal, Tata Sons says that the NCLAT judgment sets a 'dangerous legal precedent' and is a 'blow to corporate democracy'.
It is contended in appeal that judgment has virtually re-written the Articles of Association of the company to confer new rights on the minority shareholders, which were not otherwise existing.
The present legal battle has its genesis in the company petitions filed by Shapoorji Pallonji Group under Sections 241 and 242 of the Companies Act 2013 alleging oppression and mismanagement in Tata Sons. These petitions were filed in the wake of Mistry's removal. The NCLT Mumbai bench dismissed the petitions, against which appeals were filed in NCLAT. Cyrus Mistry also filed a separate appeal seeking to expunge certain remarks made against him by the NCLT.
On December 18, the Appellate Tribunal ordered the reinstatement of Mistry as the Chairman. Tatas contend that this relief was not even sought by Mistry and the other appellants.
Tatas v Cyrus Mistry : 15 Grounds Of Challenge Against NCLAT Order
Tata Sons's controlling shareholding (nearly 66% of ordinary share capital) is owned by Tata Trust. SP owns 18.37 per cent stake in Tata Sons.
Mistry, scion of the SP group, who was made the Chairman in 2012 following the exit of Ratan Tata, was removed in 2016.
Some of the key points in the statutory appeal filed by Tata Sons under Section 423 of the Companies Act 2013 are :
- Cyrus Mistry's term as Chairman had expired in March 2017. NCLAT lacks jurisdiction to direct Mistry's reinstatement beyond his original term, especially when such a relief was not sought for.
- Cyrus Mistry was removed by a majority decision of Board of Directors due to "loss of confidence". NCLAT direction to restore Mistry amounts to undermining principles of "corporate democracy".
- The removal was in accordance with the process under Articles of Association. The NCLAT has not given reasons to state how the removal process was illegal and wrong.
- NCLAT lacks jurisdiction to declare Tata Sons a "public company" when it is a "private company" under Section 2(68) of the Companies Act 2013. Tata Sons possessed all characteristics of a private company for over 100 years since its incorporation.
- Restoring Mistry for his remaining term, even after expiry of his term, is a "recipe for disaster" as it will lead to more confusion and conflicts within the company.
- Lack of confidence in Executive Chairman is a sufficient ground to remove him. Such removal will not amount to "oppression".
- NCLAT cannot sit in appeal over the "commercial wisdom" exercised by the Board of Directors regarding the suitability and fitness of a person to act as Chairman.
- NCLAT also ordered the reinstatement of Mistry as Director of other Tata companies - Tata Industries Ltd, Tata Consultancy Services Ltd and Tata Teleservices Ltd - on the ground that it was a logical consequence of his reinstatement as Tata Sons Executive Chairman. However, these three companies, which are distinct legal entities, were not parties to the litigation.
- The direction of NCLAT to Tata Sons to consult Shapoorji Pallonji Group for appointments of Executive Chairman and Directors in future is contrary to the Articles of Association. Rights not provided to minority share holders under the AoA have been conferred on them by the NCLAT.
- The direction restraining Ratan Tata, nominee Director of Tata Trusts, from taking any advance decision requiring majority of BoD at AGM, is beyond NCLAT's powers.
- NCLAT fails to explain how the actions of Board constituted "prejudice" and "oppression" as per the legal tests under Sections 241 and 242 of the Companies Act 2013.
- Mere 'prejudice' to a member will not give power to Tribunal pass under Section 242 of the Companies Act, as the section uses the word "oppression" in conjunction with "prejudice".
- Orders under Section 242 can be passed only if there are facts which show that the winding up of the company is otherwise necessary. The NCLAT judgment does not discuss such facts. The order gives the impression that winding up of Tata group is otherwise necessary.
- The NCLAT proceeded on the wrongful premise that there was 'understanding' between Tata Group and Shapoorji Pallonji Group that one of the persons from SPG will be made Executive Chairman. There is no record of such 'understanding'.
- NCLAT wrongly infers that merely because Tata Trusts nominees possess affirmative voting rights, all decisions of the Board of Directors are taken at the instance of Tata Trusts or under the threat of exercise of affirmative voting rights
Click here to read/download order
