NCLAT decision to reverse the removal of Mr. Mistry is a setback to Tata Sons
Three years after Tata Sons Limited voted to remove Cyrus P. Mistry from his post as the Executive Chairman of the Tata Group’s main holding company, the National Company Law Appellate Tribunal (NCLAT) last week declared his removal “illegal” and ordered his reinstatement. The appellate body’s decision to reverse the National Company Law Tribunal’s ruling dismissing Mr. Mistry’s challenge to his ouster, in October 2016, has far-reaching implications. For a start, the NCLAT has in no uncertain terms held that Tata Sons’ “affairs have been or are being conducted in a manner ‘prejudicial’ and ‘oppressive’ to members” including Mr. Mistry as also ‘prejudicial’ to the interests of the company and its group companies. By upholding the appellants’ contention that the minority group of shareholders — the ‘Shapoorji Pallonji (SP) Group’ — had been a victim of ‘prejudicial’ and ‘oppressive’ actions undertaken by the majority shareholders of Tata Sons, the NCLAT has struck a blow on behalf of the rights of all minority shareholders. Terming the company effectively a “quasi-partnership-company” — the Tata Group through the Tata Trusts and other Tata entities and family members holds 81% of Tata Sons’ effective shareholding while the SP Group owns 18% — the appellate body stressed the need for the Tata holding firm to operate as a “two-group company” that could provide checks and balances in the running of the businesses.
The NCLAT’s findings lay emphasis on greater transparency and adherence to governance norms especially in the conduct of affairs at the controlling company of a large diversified conglomerate. Throughout its 172-page ruling, the appellate body has relied extensively on the correspondence between Mr. Mistry and the respondents including his predecessor and interim replacement Ratan Tata, and its findings are hard to fault on facts. That the NCLT had in its ruling dismissing Mr. Mistry’s plea made several “disparaging” and “wholly unsubstantiated” remarks against him also attracted censure from the appellate body, which expunged them entirely. The tribunal’s language reflecting a predisposition to view the Tata Group in a favourable light points to the pressing need for a more dispassionate judiciary while dealing with corporate misdemeanours. With the Tata Group clear that it plans to challenge the NCLAT verdict, it will be left to the Supreme Court to have the final say on the conclusions of the NCLAT, particularly on the question of whether Tata Sons is in effect a “quasi-partnership”. This construct was, after all, the basis for the NCLAT’s reasoning that the company had always been run on mutual trust and understanding between the Tata and SP groups — a trust that the appellate body would like to see restored post its ruling.