An Insight into Tussle between Cyrus Mistry Vs Ratan Tata
Tata Sons-Cyrus Mistry feud origin
On October 24, 2016; Tata Sons decide to replace Mr. Cyrus Mistry as Chairman of Tata Group. Eminent Chairman Ratan Tata to be the interim chairman of the Tata Group for 4 months. Presently, Natarajan Chandrasekaran is the Chairman of Tata Group.
Tata Sons-Cyrus Mistry – The Case
- Mistry family’s allegations:-
Mismanagement at Tata Sons and oppression of minority shareholders—Mr. Cyrus Mistry alleged that Mr. Ratan Tata abused the powers vested in him as the erstwhile chairman of the Tata group in terms of the various businesses entered into which includes Nano car project, acquisition of Corus, Tata Teleservices, Air Asia, dealings C. Sivasankaran and M Pallonji & Co.
- Corporate governance breakdown and excessive interference by Tata Trusts
Mr. Ratan Tata and other trustees, acting as “shadow directors”, have been controlling Tata Sons as a “super-board” with trustee-nominated directors accustomed to act under the instructions of Tata Trusts, which hold 66% in Tata Sons. The trustees sought to micro manage the governance of Tata Sons.
- Illegal removal of the executive chairman
The executive chairman was removed without any notice or explanation.
- Abuse of articles of association
The article of associations of Tata Sons, whose aim was to have a governance framework to protect the firm’s interests, have been converted into a regime enabling the control of Tata Sons by Mr. Ratan Tata and Mr. Noshir Soonawala, trustees of the Tata Trusts.
- Violation of insider trading norms
Law violations by Tata and Noshir Soonawala , a trustee for procuring unpublished price sensitive information from listed Tata companies.
- Tata Son’s response
Issues raised are nothing but a ruse by Mr. Cyrus Mistry. This is merely to publicly express his displeasure at the loss of his office as the executive chairman of Tata Sons. It is an attempt to besmirch the reputation of the Tata group.
- Mistry’s removal not illegal
Mr. Cyrus Mistry’s removal was resolved upon by a majority of the directors (seven out of nine directors who voted in favour of Mistry’s removal as the executive chairman).
- Mistry was well acquainted with the affairs of Tata Sons and the Tata group
This was much before Mistry became the executive chairman in December 2012. He was part of the board’s deliberations in respect of several decisions which he is now attempting to call into question.
- Why now?
Mistry is seeking to justify the inexplicable delay by the petitioner in availing judicial remedies. He did not take the requisite step to address the alleged mismanagement and oppression nor did he bring it to the notice of the board of Tata Sons. He rose from slumber to voice this grievance only after he was removed.
- Allegations levelled against Ratan Tata misconceived
All decisions at Tata Sons and Tata companies have been taken by the relevant management teams. In his own draft presentation Mistry had proposed an active and consistent engagement with the trusts and the trust nominee directors.
- No special treatment to C. Sivasankaran
The allegations with respect to the instances of dealings with C. Sivasankaran, chairman of the Siva group, are not relevant to the present proceedings for alleged oppression of the petitioners and alleged mismanagement of the affairs of Tata Sons. There is absolutely nothing on record to suggest that these transactions involved a degree of undue favour or special treatment at the behest of Tata group companies.
- Flawed business decision do not tantamount to acts of oppression
Assuming but without conceding that these business decisions were in fact flawed and imprudent, such transactions do not tantamount to acts of oppression or mismanagement as is the settled legal position.
NCLT-NCLAT Ruling Timeline
- December 20, 2016- Mistry firms move NCLT alleging oppression of minority rights at Tata Sons.
- December 22, 2016- NCLT refuses interim relief to Mistry, demands proof of oppression of minority rights at Tata Sons.
- January 11, 2017- Mistry files contempt of court petition, says Tata Sons cannot remove him from Board.
- January 18, 2017- NCLT dismisses Mistry’s petition on contempt of court.
- The NCLT dismissed the contempt petition filed by two Mistry family firms against Tata Sons Ltd over a shareholder meeting (EGM) called on February 06,2017 by the latter to remove Cyrus Mistry from the board. The tribunal opined that Tata Sons' action didn't amount to contempt of court.
- And further asked the Mistry family firms to file an affidavit to support an earlier petition they filed alleging mismanagement and oppression of minority shareholders by the Tata group holding company.
- February 02, 2017 – Mistry moves NCLAT to protect Board seat.
- February 03, 2017- NCLAT rejects petition, but rules to hear case maintainability first.
- March 06, 2017 – NCLT rules Mistry petition not maintainable.
The grounds on which the petition was dismissed:-
Provisions of the Companies Act, 2013
- SECTION 241 and 242 deal with prevention of oppression and mismanagement by the majority on the minority shareholders.
- According to section 244 (1) (a), to seek relief under sections 241 and 242, the petitioner(s) need to comprise “not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company.”
- Section 244 (1) (b) gives NCLT the power to grant a waiver, of the 10% threshold requirement cannot be mandatory.
Cyrus Mistry Shareholding in Tata Group
- According to Cyrus Mistry group – Mistry group holds 18.4% of total shares (Preference Shares + Equity Shares) in Tata Sons (the holding company of the Tata Group) and meet the eligibility criteria as per Section 244 of the Companies Act, 2013.
- According to Tata Sons – As per Tata Sons, Cyrus Investments and Sterling Investment Corporation, Mistry’s family investment arm via which he has filed the petition, are just two of the 51 members of the company and hold just 2.17% of its paid-up share capital, their petition is not maintainable on either of the counts. It has alleged that although the two Mistry firms hold 18.4% of the ordinary shares of the company, they hold just 2.17% of the issued share capital when even preference shares are considered.
Note: views expressed herein the article by the author are her personal views.