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SC rules in favour of Tata Group and sets aside NCLAT order

The valuation of the shares of S.P. Group depends upon the value of the stake of Tata Sons in listed equities, unlisted equities, immovable assets, etc., and also perhaps the funds raised by SP group on the security/pledge of these shares. Therefore, at this stage and in this Court, we cannot adjudicate on the fair compensation. We will leave it to the parties to take the Article 75 route or any other legally available route in this regard. (Para 21.4)


Civil Appeal Nos.440441 0f 2020 Along With other 7 Civil Appeal

Decided on March 26th, 2021

The Supreme Bench led by CJI S.A. Bobde Justice along with Justice A.S. Bopanna and Justice V. Ramasubramanian upheld the decision of the Tata Sons board in October 2016 to remove its then chairman, Cyrus Mistry, from office and later the company’s board and set aside the National Company Law Appellate Tribunal’s (NCLAT’s) order of December 2019, which had re-instated Mistry on the Tata Sons board.

Tata Sons (Private) Limited has challenged the final order passed by NCLAT whereby it was held that (i) Proceeding of the Sixth meeting of Board of Tata Sons Ltd. whereby Cyrus Pallonji Mistry (CPM) was removed from the post of Director; (ii) restoring CPM as the Executive Chairman of Tata Sons Ltd.; (iii) declaring the appointment of N Chandrasekaran in place of CPM as illegal; (iv) restraining Shri Ratan N. Tata (RNT) and the nominees of Tata Trust from taking any decision in advance; (v) restraining the Company, its Board of Directors and Shareholders from exercising the power under Article 75 of the Articles of Association against the minority members except in exceptional circumstances and the interest of the Company; and (vi) declaring as illegal, the decision of the Registrar of Companies (RoC) for changing the status of Tata Sons Limited from being a public company into a private company.

The grievance of RNT, as well as the Trustees of the two Trusts, is as regards the injunctive order of the Appellate Tribunal restraining them from taking any decision. We have on hand, 15 Civil Appeals, 14 of which are on one side, assailing the Order of NCLAT in entirety. The remaining appeal is filed by the opposite group, seeking more reliefs than what had been granted by the Tribunal. For the purpose of easy appreciation, we shall refer to the appellants in the set of 14 Civil Appeals as “the Tata Group” or “the Appellants”. We shall refer to the other group as “SP Group” (Shapoorji Pallonji Group) or “the respondents”.

In the company petition as it was originally filed by S.P. Group in December 2016 before the NCLT, the petitioners before the NCLT sought a set of about 21 reliefs.

While NCLT dealt with every one of the allegations contained in the main company petition and recorded its findings, NCLAT, curiously, focused attention only on (i) the removal of CPM (ii) the affirmative voting rights of the Directors nominated by the two Trusts in the decision-making process and (iii) the amended certificate of incorporation issued by the RoC, deleting the word “Public” and making it a private company once again.

The findings recorded by NCLAT for the grant of reliefs, revolved primarily around the removal of CPM, the affirmative voting rights, interference by nominee Directors, and the conversion of Tata Sons into a private company.

According to Tata Sons CPM, who was removed from the post of Executive Chairman, after having lost the confidence of 7 out of 9 Directors, has sought to use the complainant companies to besmirch the reputation of Tata Group. His leadership gave rise to certain issues such as insufficient detail and discipline on capital allocation decisions, slow execution on identified problems, lack of specificity and follow-through in the strategic plan and business plan, failure to take meaningful steps to enter new growth businesses, weak top management team and reluctance to embrace the Articles of Association that spelled out the governance structure of the company and the rights of Tata Trusts

This Court found that: “As we have pointed out above, the validity of and justification for the removal of a person can never be the primary focus of a Tribunal under Section 242 unless the same is in furtherance of a conduct oppressive or prejudicial to some of the members. In fact, the post of Executive Chairman is not statutorily recognised or regulated, though the post of a Director is. At the cost of repetition, it should be pointed out that CPM was removed only from the post of (or designation as) Executive Chairman and not from the post of Director till the Company Petition was filed. But CPM himself invited trouble, by declaring an all-out war, which led to his removal from Directorship. (Para 16.31)

Tata Sons is a principal investment holding company, of which the majority shareholding is with philanthropic Trusts. The majority shareholders are not individuals or corporate entities having deep pockets into which the dividends find their way if the Company does well and declares dividends. The dividends that the Trusts get are to find their way eventually to the fulfillment of charitable purposes. Therefore, NCLAT should have raised the most fundamental question of whether it would be equitable to wind up the Company and thereby starve to death those charitable Trusts, especially based on un­charitable allegations of oppressive and prejudicial conduct. Therefore, the finding of NCLAT that the facts otherwise justify the winding up of the Company under the just and equitable clause, is completely flawed.

While granting much more than what the complainant companies and CPM themselves thought as legally feasible, NCLAT failed to notice one important thing. The appointment of CPM as Executive Deputy Chairman of Tata Sons was to be for 5 years from 01.04.2012 to 31.03.2017, subject to the approval of the shareholders. While so, it is incomprehensible that the NCLAT directed reinstatement, and that too, of a Director of a company, after the expiry of his term of office. Needless to say, that such a remedy would not have been granted even by a labor court/service Tribunal in matters coming within their jurisdiction.

The swing that the S.P. Group has taken in their position relating to affirmative voting rights is quite funny. To begin with, they sought a prayer for striking off Article 121 in its entirety. Later they restricted their relief, by the Memo dated 12.01.2018, to the deletion of “the necessity of affirmative voting rights”. But now they are fine with the existence of affirmative voting rights for the majority in respect of matters covered by Article 121A, but want a similar right in favour of the nominee directors of the S.P. Group. If affirmative voting rights are bad in principle, we do not know how they may become good, if conferred on S.P. Group also. (Para 19.10-11)

It was observed that the NCLAT was completely wrong in holding as though Tata Sons, in connivance with the Registrar of companies did something clandestinely, contrary to the procedure established by law. The request made by Tata Sons and the action taken by the Registrar of Companies to amend the Certificate of Incorporation were perfectly in order.

Thus, in fine, all the questions of law are liable to be answered in favor of the appellants­Tata group and the appeals filed by the Tata Group are liable to be allowed and the appeal filed by S.P. Group is liable to be dismissed.

All appeals except C.A. No.1802 of 2020 are allowed and the order of NCLAT dated 18.12.2019 is set aside. The Company Petition C.P. No. 82 of 2016 filed before NCLT by the two companies belonging to the S.P. Group along with C.A. No.1802 of 2020 shall stand dismissed.



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