The Supreme Court on Friday set aside a tribunal’s 2019 order reinstating Cyrus Mistry as the executive chairman of the over $100 billion Tata Sons, describing Mistry as someone who “set his own house on fire” and turned out to be “wrong decision of a lifetime” for Ratan Tata.
The court also answered all questions of law in the case in favour of Tata Sons, ruling that Tata Sons’ actions did not amount to mismanagement or oppression of minority shareholders. It also denied the Sharpoorji Pallonji (SP) group, which has a 18.37% stake in Tata Sons, proportionate representation reflecting its shareholding in the company. The court said it was for Tata Sons and Mistry and his group to work out terms for separation, and declined to put a number to Shapoorji Pallonji group’s holding in Tata Sons.
In its 282-page judgment, a bench led by Chief Justice of India (CJI) SA Bobde reproached Mistry for accusing Ratan Tata of acting like a “shadow director” in a plot to veto him out as the executive chairman of Tata Sons through a board meeting in October 2016.
“If someone, aggrieved after his removal from office can engage in shadowboxing through the companies controlled by him, he cannot accuse the very same person who chose him as successor to be a shadow director. Someone who gained entry through the very same door, cannot condemn it when asked to exit,” said the bench, which also included justices AS Bopanna and V Ramasubramanian.
In a statement, Ratan Tata said the court’s order, coming as it does “after relentless attacks on my integrity and the ethical conduct of Tata Sons, is a validation of the values and ethics that have always been the guiding principles of the group”.
Mistry and Shapoorji Pallonji group did not immediately issue a statement.
Quashing the National Company Law Appellate Tribunal (NCLAT) order of December 18, 2019, by which Mistry was restored as the executive chairman of the conglomerate, the court rejected Mistry’s contention that company’s affairs were conducted in a manner oppressive and prejudicial to the interests of Mistry’s SP group.
“If the company’s affairs have been or are being conducted in a manner oppressive or prejudicial to the interests of the SP Group, we wonder how a representative of the SP Group holding a little over 18% of the share capital could have moved up to the top most position within a period of six years of his induction,” the court said, throwing out Mistry’s submission that article of association gave affirmative voting rights to Ratan Tata, along with Nitin Nohria and NA Soonawala (as representatives of Tata Trusts), with an intent to run Tata Group as a family business.
“It is an irony that the very same person, who represents shareholders owning just 18.37% of the total paid up share capital and yet identified as the successor to the empire, has chosen to accuse the very same board, of conduct oppressive and unfairly prejudicial to the interests of the minorities…Mistry continued as Executive Chairman till he set his own house on fire in 2016,” said the court.
It held that there was nothing out of the ordinary about the affirmative voting rights.
Senior advocates Harish Salve and Abhishek Manu Singhvi appeared for the Tata Group while senior counsel CA Sundaram and Shyam Divan represented Mistry and the SP group before the apex court.
In the verdict, the bench ruled that failed business decisions and the removal of a person from directorship could never be projected as oppressive acts or prejudicial to the interests of minority shareholders. “In fact, it may be conceded today by Tata Sons that one important decision that the board took on March 16, 2012 (when Mistry was crowned as executive deputy chairman) certainly turned out to be a wrong decision of a life time.”
The bench called it “justified” that Mistry had to be removed not only as the executive chairman of Tata Sons but also as a director of the company after he leaked his email in October 2016 (alleging lack of corporate governance and failure on the part of the directors to discharge their fiduciary duties) to the press and sent certain sensitive documents to the Income Tax authorities without a due consultation, thereby substantiating the claim of lack of trust and confidence in him.
The top court found fault in the NCLAT judgment, emphasising that the latter reinstated Mistry without his having asked for it, and without any basis in law. By doing so, it said, NCLAT forced upon the Tata Group an executive chairman who was unable to support his own reinstatement and was arguing that the tribunal ought not to have passed this order. “Thus, the relief of reinstatement granted by the tribunal, was too big a pill even for the complainant companies (and perhaps Mistry) to swallow,” it noted.
Dismissing Mistry’s contention on the existence of a “quasi-partnership” between the Tata Group and the SP group, the bench maintained there never was and could never have been a relationship of this nature between them since the SP group boarded the train halfway (in 1980, when it was given a seat on the board) through the journey of Tata Sons and therefore the claim for proportionate representation on the board was “neither statutorily or contractually sustainable nor factually justified”.
The bench also rejected an alternative plea made by the SP group for fixing fair value compensation for exercising an exit option from Tata Sons.
“This court is concerned with questions of law arising out of the order of NCLAT. Therefore, we will not decide this prayer,” said the bench.
In September 2020, the SP group said it was willing to sell its 18.37% stake in Tata Sons Ltd at ₹1.8 lakh crore. The Tata Group, on the other hand, said in court the value of the stake is not more than ₹80,000 crore. After the SC judgment in favour of the Tata Group, this huge gap of ₹1 lakh crore is expected to likely become far greater.
The case goes back to 2016 when Mistry was dismissed as chairman of Tata Sons, the holding company of the Tata group. He and companies part of the SP group filed a case of oppression and mismanagement that they lost in the National Company Law Tribunal, but subsequently won in the appellate tribunal that also reinstated Mistry.