The Supreme Court has comprehensively dismissed every charge of oppression and mismanagement made by entities owned by Cyrus Mistry against Tata Sons Pvt.
Not just that, the court has gone so far as to suggest there never was a case to begin with. That the original cause of action was Mistry’s dismissal as chairman of Tata Sons. Everything else was a dressing up of that cause.
“Though the complainant companies padded up their actual grievance with various historical facts to make a deceptive appearance, the causa proxima for the complaint was the removal of CPM (Cyrus Pallonji Mistry) from the office of executive chairman.”
But removal of a chairman, or even director of a company is not grounds enough to determine oppression or prejudicial behaviour, the apex court said whilst overturning the decision of the National Company Law Appellate Tribunal that had found oppression and mismanagement and ordered the reinstatement of Mistry.
While Mistry made several specific charges against Tata Sons in the oppression case, the Supreme Court examined only a few. The court’s explanation for this was that the National Company Law Tribunal had dismissed each of the charges whereas the NCLAT overturned only a few of the tribunal’s dismissals. Since tribunals are courts of fact and the Supreme Court of law, it limited its proceedings to the conclusions arrived at by the NCLAT.
Mistry’s Charges To Show Oppression:
Abuse of few articles and control exercised by Tata Trusts over Tata Sons board
Removal of Cyrus Mistry as executive chairman
Transactions with Siva and Sterling Group of Companies;
Transactions with Mehli Mistry
The losses suffered by Tata Motors Ltd. in Nano car project
The acquisition of Corus
As the NCLAT did not overturn the NCLT dismissal of the last five, the Supreme Court considered the dismissal to be final. In the context of oppression it examined
– Removal of Cyrus Mistry as executive chairman and director
– Affirmative voting rights to Tata Trusts’ nominee director on Tata Sons
– Corporate governance and other articles including Article 75
Cyrus Mistry’s Dismissal
On Mistry’s removal as executive chairman of Tata Sons, the top court noted that it is a well settled position that certain failed business decisions or a removal of a person from directorship cannot be called as acts oppressive to minority shareholders.
In such a case (under Section 241, 242 of company law) a tribunal, the court said, cannot ask whether the removal was correct/valid but it has to see whether such removal would tantamount to oppression of the minority shareholders.
Both, with regard to Mistry’s oppression case and the NCLAT’s findings, the top court examined several aspects of the Articles of Association of Tata Sons, including rights such as affirmative votes, pre-consultation with Tata Trusts.
It dismissed each of Mistry’s arguments and stated the Tata Group was guided by corporate governance and had included many practices, such as board committees, etc., even though it was not required by law to have them.
Article 121 of Tata Sons’ Articles of Association grants affirmative voting rights to the nominee directors of the Tata Trusts in certain matters.
The top court pointed out that such rights are a global norm and in this case they confer only a limited right on the nominee directors. Going by the shareholding, Tata Trusts with 66% could have packed the board, the court said, while noting it didn’t.
Article 75 allows Tata Sons to resolve by special resolution the transfer of any shareholder’s shares. Mistry has termed this as coercive. The Supreme Court viewed it as an exit clause. Besides, it said Article 75 had never been invoked and future action is not covered under oppression.
Also, Article 75 has existed for decades and Mistry was himself party to an amendment in the year 2000 which gave Article 75 its present form.
Pre-Consultation With Tata Trusts
The court opined that given the charitable objectives of the Tata Trusts, their nominee directors on board Tata Sons are not like any other ordinary directors. It also questioned whether the need for having independent directors on the board itself was an acknowledgment that not every director could be expected to exercise completely independent judgment irrespective of who nominated them.
A nominee director of the Trusts holds a fiduciary duty towards their beneficiaries.
Frequent Changes In Mistry’s Case
The top court also detailed the shifting arguments of the Mistry side through the five-year long litigation on seeking certain reliefs. The plea for reinstatement of Mistry was later amended to seek proportionate representation on the board. While challenging the affirmative voting rights of the Tata Trusts’ nominee directors on Tata Sons’ board, Mistry’s case sought the same rights for his SP Group.
The court termed the request for the same rights as “quite funny”.
In all, the apex court found no instance to support the oppression case and overturned all of NCLAT’s findings and reliefs.