NCLAT verdict on Cyrus Mistry’s removal is a severe indictment of the Tatas

The unceremonious removal of Cyrus Mistry from the post of chairman of Tata Sons in October 2016 has been pronounced illegal by the National Company Law Appellate Tribunal (NCLAT) which said he had been ousted without due process. In a dramatic reversal of the ruling by the Mumbai bench of the NCLT, the appeal court has upheld the Mistry family’s contention that it was oppressed as a minority shareholder. Indeed, the move to convert Tata Sons into a private company has been viewed by the appeals court to be illegal. This newspaper had condemned Mistry’s removal when it took place, and the subsequent actions taken to relieve him of all other posts in group companies. It had also said the conversion of Tata Sons into a private company appeared to be aimed at hurting the Mistrys who have been long-time stakeholders of Tata Group.

While the NCLAT ruling is not the last word and could well be overturned by the Supreme Court (SC), there is no doubt it comes as a big jolt for the Tatas. Even if not too many businessmen and corporate experts expressed their views publicly, the unseemly manner in which Mistry was sacked, and charges made against him, were seen to be unbecoming of India’s most ethical business group. Several independent directors had, in fact, supported Mistry, applauding the very performance that was questioned by Tata Sons.

Going by the charges traded between the two camps, it appeared that Mistry’s efforts to clean up the damaged balance sheets of some group companies and also to regularise matters at others were not always met with approval by Ratan Tata. Given most of the larger group companies are listed entities, the balance sheets clearly showed how unprofitable acquisitions and bad decisions had hurt businesses. Apparently, the various trusts had a bigger role in decision-making than the chief executives of the boards of the operating companies. Mistry had pointed out that directors left a meeting midway to discuss the agenda separately with Tata, something not expected in a Tata Sons boardroom, and probably why the NCLAT order asks Ratan Tata to ‘desist’ from interfering in the operations.

There is nothing to prevent Tata Sons from ignoring the court’s observations altogether and continuing to operate in the same fashion as it has in the past; it is a large and powerful conglomerate. But, it would do well to take cognisance of the views and to reflect on its actions because, even if the SC verdict goes in its favour—and there are several legal experts who believe it will—the reputation of its board has been severely damaged. To be sure, no one will say so, but the appeals court order paints a poor picture of the company’s boardroom practices. Tata Sons will claim that it has always followed due procedure and never once violated the law, and that is probably correct. However, it is the spirit behind the actions, and not the legal correctness that is being questioned. Indeed, the NCLAT’s 174-page order would, and should, be read by other business groups. It is unfortunate that very few companies in India consider it necessary to maintain some standard of corporate governance; most, including those that are supposedly run by professionals, care little for ethics, with independent directors largely playing along with the rest of the board. But, the NCLAT ruling, even if it has overstepped its limits, should serve as a wake-up call. Mistry has done corporate India a service by fighting for his rights.

Source: Financial Express