This article is written by Suprava Samanta from Sister Nivedita University, BBA-LLB (Hons) 4th Year, during her internship with LeDroit India.
Keywords: Corporate Governance, Minority Shareholder Rights, Oppression and Mismanagement, Boardroom Dynamics, Judicial Review in Corporate Law.
Abstract: The case of Tata Sons Pvt. Ltd. v. Cyrus Investments Pvt. Ltd. is a landmark corporate governance dispute in India, highlighting issues related to boardroom dynamics, minority shareholder rights, and the role of independent directors. The Supreme Court of India upheld the decision of Tata Sons to remove Cyrus Mistry as Chairman, emphasizing the principle that majority shareholders have the right to make business decisions, provided they do not violate statutory protections for minority shareholders. This case is significant for corporate law as it delineates the boundaries of shareholder democracy and judicial interference in internal management disputes.
Introduction: The corporate legal dispute between Tata Sons Private Limited (Tata Sons), under the leadership of Mr. Ratan Tata, and the Shapoorji Pallonji Group (Tata Consultancy Services Ltd. v. Cyrus Investment Pvt. Ltd., 2021) gained widespread attention and became a landmark ruling on oppression and mismanagement under the Companies Act, 2013. The conflict first surfaced publicly when it was brought before the National Company Law Tribunal (NCLT) in Mumbai in November 2017. The Supreme Court issued a detailed judgment on the matter on March 26, 2021. This case attracted global interest not only because it involved two major business conglomerates but also due to its potential impact on Indian corporate law and legal principles. Notably, it was the first case concerning shareholder oppression and mismanagement under the Companies Act, 2013, to be reviewed by India’s highest court. The case also explored various
aspects of Indian corporate law, including the roles and responsibilities of directors, the fiduciary nature of their obligations, the duty of nominated directors, the scope of affirmative voting rights, and the definition of ‘prejudice’ concerning specific shareholder groups.
Mr. Mistry claimed that his removal was a strategic move by Tata Sons to reassert control over the company. He argued that his open criticism of the company’s poor corporate governance practices led to his ousting. Furthermore, he alleged that efforts to damage his reputation were part of a calculated attempt to diminish the Shapoorji Pallonji Group’s influence within Tata Sons and its key subsidiaries. This, in turn, was meant to erode the rights and standing of minority shareholders. Various judicial and quasi-judicial bodies, including the NCLT, the National Company Law Appellate Tribunal (NCLAT), and the Supreme Court, reviewed the case and provided differing opinions. The NCLT dismissed Mr. Mistry’s claims of oppression and mismanagement, deeming them unsubstantiated. However, the NCLAT reversed this decision, reinstating Mr. Mistry as the Executive Chairman of Tata Sons. Ultimately, the Supreme Court overturned the NCLAT’s ruling and upheld the NCLT’s decision, ruling in favor of Tata Sons.
Detailed Description of the Parties –
Tata Sons Private Limited:
Tata Sons Private Limited is a private limited company incorporated under the Companies Act of 1913. It serves as the primary investment holding entity and the promoter for various companies within the Tata Group. Mr. Ratan Tata led Tata Sons as its chairman from 1991 until his retirement on December 28, 2012.
Tata Trusts:
The trusts affiliated with Tata Sons, collectively known as “Tata Trusts,” hold a 66% equity stake in the company. These include:
• Sir Dorabji Tata Trust (1932)
• Sir Ratan Tata Trust (1919)
• Tata Education and Development Trust (2008)
• Sarvajanik Seva Trust (1975)
• Lady Tata Memorial Trust (1932)
• JN Endowment for the Higher Education of Indians Trust (1892)
These trusts are primarily dedicated to philanthropic activities, supporting causes such as education, economic development, healthcare, art, and culture. While
Tata Sons serves as the holding company, its subsidiary companies operate independently, governed by their respective Boards of Directors.
Mr. Cyrus Pallonji Mistry:
Cyrus Pallonji Mistry, son of former Non-Executive Director Shri Pallonji S. Mistry, was appointed chairman of Tata Sons in 2012 following Ratan Tata’s retirement. However, he was removed from the position on October 24, 2016, after the Board of Directors collectively decided to oust him due to a loss of confidence in his leadership.
Key Subsidiaries Involved –
• Tata Consultancy Services Limited (TCS): It was established in 1968, TCS is a subsidiary of Tata Sons specializing in IT services, digital transformation, and enterprise solutions to support global businesses.
• Tata Teleservices Limited (TSL): Founded in 1868, TSL represents Tata Sons’ presence in the telecommunications sector, offering cellular connectivity and related services.
• Tata Industries Limited (TIL): Also established in 1868, TIL was created to drive Tata Sons’ expansion into various industries beyond its traditional businesses.
Cyrus Investments Private Limited & Sterling Investment Corporation Private Limited:
These two investment firms are owned by the Shapoorji Pallonji Group which held a significant shareholding in Tata Sons. Mr. Cyrus Mistry had a major stake in both companies, reinforcing the group’s influence within Tata Sons.
Facts of Tata Consultancy Services Ltd v. Cyrus Investment Pvt. Ltd. (2021):
The central issue in this corporate dispute was the removal of Mr. Cyrus Pallonji Mistry as the Executive Chairman of Tata Sons Private Limited, along with his dismissal from directorial positions in various key Tata Group companies. As minority shareholders with an 18% stake in Tata Sons, the Shapoorji Pallonji Group—represented by Cyrus Investments Private Limited and Sterling Investment Corporation Private Limited—strongly opposed these developments. Initially, these investment firms held 48 preference shares and 40 equity shares in Tata Sons, but their stake grew significantly over time. Mr. Mistry, who had a controlling interest in these companies, was removed in 2016 due to concerns over his leadership and management style. Among the reasons cited for his
ousting were his interactions with the Income Tax Authorities and the unauthorized disclosure of confidential emails.
Mr. Mistry argued that his removal was a deliberate move by Tata Sons to consolidate its control over the company. He claimed that he was targeted because he had openly criticized the company’s weak corporate governance practices. Additionally, he alleged that efforts were made to tarnish his reputation and diminish the influence of the Shapoorji Pallonji Group within Tata Sons and its subsidiaries. These actions, he contended, were undertaken covertly to undermine minority shareholders’ rights and position in the company.
On March 16, 2012, Mr. Mistry was appointed as the Executive Deputy Chairman of Tata Sons for a five-year term, subject to shareholder approval. Following the general meeting’s endorsement, his appointment was confirmed. Later, on December 29, 2012, he was elevated to the position of Executive Chairman, with Mr. Ratan Tata assuming the role of Chair Emeritus.
Initially, Mr. Tata strongly backed Mr. Mistry’s appointment, but their working relationship deteriorated over time due to contrasting leadership styles. Mr. Mistry was accused of adopting an overly autocratic approach, which ultimately led to his removal in 2016. Following his ousting, Mr. Ratan Tata was reinstated as the interim Non-Executive Chairman of Tata Sons.
A key focus of the dispute was Article 75 of Tata Sons’ Articles of Association, which granted the company the authority to transfer ordinary shares through a special resolution without prior notice. Mr. Mistry raised concerns about the ethical implications of Tata Trusts’ influence over the Board, arguing that such involvement raised corporate governance issues. He also criticized several business decisions, including the investment in Air Asia India (P) Ltd., which involved a transaction of ₹22 crore, and the acquisition of Corus Steel, alleging that an excessively high price was paid.
Further fueling the controversy, internal communications written by Mr. Mistry regarding directors’ failure to uphold their fiduciary responsibilities and other ethical concerns were leaked to the media, generating widespread public attention. In response, Tata Sons issued a clarificatory statement highlighting a decline in financial returns during Mr. Mistry’s tenure, aiming to justify his removal.
Between December 12 and December 14, 2016, shareholders of Tata Industries Limited (TIL), Tata Consultancy Services Limited (TCS), and Tata Teleservices Limited (TSL) voted to remove Mr. Mistry from his directorial roles. Anticipating further resolutions for his removal, he voluntarily stepped down from the boards
of Indian Hotels Company Limited, Tata Chemicals Limited, Tata Power Company Limited, Tata Motors Limited, and Tata Steel Limited on December 19, 2016.
The conflict escalated into a full-fledged legal battle as tensions between Tata Sons and the Shapoorji Pallonji Group intensified. On December 20, 2016, Mr. Mistry filed a petition with the National Company Law Tribunal (NCLT) under Section 241 (which allows members to seek relief from oppression and mismanagement) and Section 242 (which grants the Tribunal suo-motu powers in such cases) of the Companies Act. He accused the majority shareholders, including Ratan Tata and Noshir Soonawala (former Vice Chairman of Tata Sons and trustee of the Sir Dorabji Tata Trust and Sir Ratan Tata Trust), of engaging in actions that harmed the company, its stakeholders, and the public. He challenged the legitimacy of his removal, arguing that it was arbitrary and unjust.
On January 17, 2017, Mr. Natarajan Chandrasekaran was appointed as Chief Executive Officer and Managing Director of TCS and later became Chairman of Tata Sons. Finally, on February 6, 2017, Mr. Mistry was officially removed as a director of Tata Sons, marking a crucial development in the ongoing conflict between the Shapoorji Pallonji Group and the Tata Group.
Key Issues in Tata Consultancy Services Ltd v. Cyrus Investment Pvt. Ltd. (2021):
1. Was the removal of Mr. Cyrus Mistry from the position of Executive Chairman, followed by his dismissal as a director of the company, an act of oppression or prejudicial to the company’s interests?
2. Do the provisions within Tata Sons’ Articles of Association inherently create an unfair advantage for Tata Trusts—particularly the Sir Ratan Tata Trust and the Sir Dorabji Tata Trust—allowing them to maintain control over the company’s operations, and were these provisions misused by Mr. Ratan Tata?
3. Did the repeated interference of Mr. Ratan Tata and Mr. Noshir Soonawala in the management of Tata Sons negatively impact the company’s interests?
4. Was the Tata Nano project, an unsuccessful venture undertaken by Tata Motors under Mr. Ratan Tata’s direction, harmful to the company’s financial health?
5. Did Tata Steel’s acquisition of Corus Group in 2006 result in adverse consequences for the company or diminish the value of the petitioners’ investment?
6. Whether the business transactions with Siva Group Companies, overseen by Mr. Ratan Tata, detrimental to Tata Sons and its overall business operations?
7. Did certain business activities within Air Asia India (P) Ltd. amount to conduct that was prejudicial to the interests of the company and the public at large?
8. Was Tata Sons’ decision to pass a special resolution for its conversion from a public to a private company under Section 14 of the Companies Act— without making corresponding amendments to key Articles of Association—an act of oppression or unfairly prejudicial to the interests of the petitioners?
Contentions of the petitioner (Cyrus Investments Private Limited):
• The removal of Mr. Cyrus Mistry from his position as chairman of Tata Sons was challenged by the petitioners as unlawful, raising fundamental concerns regarding corporate governance, accountability, fairness, and integrity within the company.
• Mr. Mistry argued that specific provisions in Tata Sons’ Articles of Association—particularly Article 75—were inherently oppressive, as they granted disproportionate power to the Tata Trusts (Sir Ratan Tata Trust and Sir Dorabji Tata Trust). This, he contended, allowed the Trusts to exercise excessive influence over the company’s affairs and business decisions.
• Additionally, Mr. Mistry accused Mr. Ratan Tata and Mr. Noshir Soonawala of being excessively intrusive and interfering in the company’s operations.
• The petitioners strongly criticized the continued investment in the Nano Car Project, spearheaded by Tata Motors, which had accumulated losses exceeding ₹1,000 crores. They argued that despite its financial failure, emotional considerations tied to Mr. Tata’s personal involvement in the project had prevented a rational decision to terminate it.
• Similarly, the acquisition of Corus by Tata Steel Limited for over USD 12 billion was questioned, as the final price exceeded the original offer by 33%, suggesting an imprudent financial decision.
• The petitioners also contested the use of Tata Sons’ shareholding in various subsidiaries to convene an extraordinary general meeting aimed at removing Mr. Mistry from the company’s Board, arguing that this action exceeded the company’s legal authority.
• Regarding the partnership with Air Asia, the petitioners stated that the venture was established before Mr. Mistry took over as Executive Chairman and had been imposed upon him. They further alleged that Mr. Venkataramanan, the former managing trustee of Tata Trusts, had misappropriated funds from Air Asia under Mr. Tata’s influence. A forensic audit by Deloitte reportedly uncovered fraudulent transactions amounting to ₹22 crores, routed through fictitious entities in India and Singapore via hawala networks. The petitioners even accused Mr. Tata of indirectly financing terrorism, thereby damaging the Tata Group’s reputation.
• The petition also highlighted Tata Sons’ actions that undermined the role and independence of directors across the group’s listed companies. Specifically, they cited efforts to remove Mr. Nusli Wadia, chairman of Bombay Dyeing, allegedly due to his unwavering support for Mr. Mistry’s decisions.
• Furthermore, the petitioners claimed that sensitive information, including board meeting agendas, was regularly shared with Mr. Ratan Tata despite him holding no official executive position in the listed companies. This, they argued, violated the Securities and Exchange Board of India (SEBI) Regulations on Prohibition of Insider Trading (2015).
• Additionally, the petitioners accused Mr. Tata of maintaining close associations with Siva and Sterling group companies, which they believed led to confidential board discussions being leaked to the public.
• Finally, they argued that Mr. Tata had, on one hand, placed undue confidence in Mr. Mistry by entrusting him with significant company contracts, yet on the other hand, had later claimed that such trust had compromised the company’s interests.
Contentions of the respondent (Tata Sons):
• Tata Sons countered the allegations, arguing that the petition filed by Mr. Cyrus Mistry was primarily focused on his removal as chairman. The company contended that the petition was merely an expression of Mr. Mistry’s personal resentment, disguised as claims of oppression and mismanagement. It dismissed the accusations, asserting that the petition was an attempt to tarnish the company’s reputation.
• The company and its key stakeholders emphasized their unwavering confidence in Mr. Ratan Tata’s leadership, under which Tata Sons’ valuation had increased nearly 500 times during his tenure as chairman from 1991 to 2012.
• Regarding Mr. Tata’s role in company affairs, the company clarified that while he no longer held a formal board position, he was invited as a special permanent guest at board meetings. His attendance was discretionary, and board members were free to seek his guidance when needed.
• Addressing Mr. Mistry’s claims that certain Articles of Association were arbitrary, Tata Sons stated that shareholders had approved a resolution allowing the Tata Trusts to nominate one-third of the board members, given their 40% shareholding in the company. The resolution initially required unanimous approval from all directors appointed under Article 140B for key decisions but was later amended to allow decisions based on a majority vote of those present. The company highlighted that Mr. Mistry had supported these amendments at the time, contradicting his current claims.
• Tata Sons further argued that Mr. Mistry’s leadership lacked strategic clarity and enthusiasm for business growth. His approach to capital distribution was cited as evidence of his reluctance to address key management issues. The company stated that his failure to respect the Articles of Association contributed to the Board’s loss of confidence in his leadership.
• Additionally, the company accused Mr. Mistry of deliberately reducing Tata Sons’ representation on the boards of its key subsidiaries by not appointing successors when directors retired, deviating from past corporate practices. This, the company argued, weakened the group’s cohesion and disrupted communication between Tata Sons and its subsidiaries. The company also claimed that Mr. Mistry insisted on personally overseeing all communications and directives, which hampered coordination across the Tata Group.
• One of the major business decisions criticized by the company was Mr. Mistry’s approval of Tata Power Renewable Energy Limited’s acquisition of Welspun Renewables Energy Ltd. for over USD 1 billion. Tata Sons argued that this decision was imprudent, given the company’s existing debt of ₹40,000 crores and unresolved tariff issues at the Mundra project. The company contended that Mr. Mistry had failed to consult the board before making this acquisition.
• In response to concerns raised about the Articles of Association, Tata Sons pointed out that these provisions had been previously endorsed by Mr.
Pallonji Mistry (Cyrus Mistry’s father) and Mr. Mistry himself. The company emphasized that the amendments now being challenged had been in place for a long time and were never contested until Mr. Mistry’s removal.
• Defending the Corus Group acquisition, Tata Sons described it as a landmark transaction that positioned Tata Steel as the world’s sixth-largest steel producer. Similarly, it defended the Nano Car Project, arguing that it was an effort to revolutionize the Indian passenger car market. Regarding its engagement with the Siva Group, Tata Sons clarified that the group had served as a consultant to Tata Teleservices Limited (TTSL) and was involved as an equity investor. The company also justified its aviation ventures, stating that its partnerships with leading Asian airlines facilitated its re-entry into the aviation industry.
• Addressing allegations related to Mr. Mehli Mistry, the company highlighted that the petition failed to mention that he had been a director at Tata Power since 2002. Business transactions between Tata Power and Mr. Mehli Mistry were approved by Mr. Cyrus Mistry himself, further discrediting the allegations. Tata Sons also argued that most of the matters raised in the petition dated back to 1993-2008 and had never been disputed until Mr. Mistry’s dismissal, making them ineligible for review by the NCLT.
• The company contended that Mr. Mistry’s petition was driven by personal animosity towards Mr. Ratan Tata and Mr. Noshir Soonawala, seeking to damage Tata Sons’ reputation. It argued that the accusations did not pertain to the company’s operations but rather to the functioning of Tata Trusts, which fell outside the legal scope of the case. Additionally, allegations related to insider trading violations and the Foreign Exchange Management Act, 1999, were beyond the jurisdiction of the tribunal handling the petition.
• Tata Sons firmly denied claims that the Tata Trusts had acted against the company’s interests, arguing that any harm to the company would directly impact the Trusts’ investments. The company also criticized the petitioners for selectively highlighting failed business ventures while ignoring the successes of Mr. Ratan Tata’s tenure, such as the acquisitions of Tetley, Jaguar Land Rover, and the growth of TCS.
• In response to allegations of financial misconduct at Air Asia, Tata Sons argued that Mr. Mistry had actively participated in the decision-making process, including the establishment of Vistara Airlines and the funding of Air Asia. The forensic investigation that uncovered fraudulent transactions
of ₹22 crores had implicated Air Asia’s ex-CEO, not Tata Sons’ directors. Moreover, decisions to increase investment in Air Asia were made under Mr. Mistry’s leadership.
• Regarding Mr. Soonawala’s alleged interference in company affairs, the company clarified that he had held senior positions at Tata Sons for many years, including serving as Finance Director, Vice Chairman, and Financial Advisor. The company emphasized that Mr. Mistry himself had previously sought Mr. Soonawala’s guidance on financial matters.
• Ultimately, Tata Sons denied all allegations and maintained that Mr. Mistry’s removal was conducted lawfully, in accordance with the Companies Act, 2013. The company rejected claims of oppression and mismanagement, asserting that Mr. Mistry’s dismissal was a legitimate and necessary decision.
NCLT’s Order:
In November 2017, Mr. Mistry filed a company petition before the National Company Law Tribunal (NCLT), Mumbai, challenging Tata Sons Private Limited’s decision to convert from a public limited company to a private limited company. However, on July 9, 2018, the NCLT dismissed Mr. Mistry’s petition, including his claims regarding his removal as chairman. The Tribunal ruled that his allegations of misconduct by Mr. Ratan Tata and the Board were unfounded and unsubstantiated. It further held that Tata Sons’ transition from a public to a private company was legally valid and not improper.
The NCLT made several key observations in its ruling:
1. Justification for Removal: The Tribunal held that Mr. Mistry was removed due to an increasing lack of confidence in his leadership, rather than any malicious intent by Mr. Tata or Mr. Noshir Soonawala. It clarified that the selection committee’s approval was not required for his removal as executive chairman.
2. Confidentiality Breach: The NCLT noted that Mr. Mistry had engaged in discussions with tax authorities and leaked confidential company information to the media. His public criticism of Tata Sons and its associated trusts further contributed to his removal.
3. Section 241 Inapplicability: The Tribunal ruled that Mr. Mistry’s removal from the board of directors did not fall under Section 241 of the Companies Act, 2013, which deals with oppression and mismanagement.
4. Board Representation Argument Rejected: Mr. Mistry’s claim that board representation should be proportional to shareholding was dismissed. The NCLT stated that such a provision must be explicitly mentioned in the Articles of Association, as per Section 163 of the Companies Act, 2013.
5. Baseless Allegations: The Tribunal found no merit in Mr. Mistry’s claims that certain individuals close to Mr. Tata, such as Mr. Mehli Mistry, had benefited unfairly at the company’s expense. Allegations related to business dealings with the Siva Group, Tata Teleservices (TTSL), Air Asia, the Corus acquisition, and the Nano Car project were also deemed unsubstantiated under Sections 241 and 242 of the Companies Act, 2013.
6. No Undue Influence by Mr. Tata and Mr. Soonawala: The NCLT rejected the claim that Mr. Tata and Mr. Soonawala acted as de facto directors, influencing Tata Sons’ decisions in a prejudicial manner. It concluded that there was no evidence to support such accusations.
7. Validity of Articles of Association: The Tribunal ruled that provisions within Tata Sons’ Articles of Association, including Articles 75, 104B, 118, and 121, were not oppressive or detrimental to the interests of the petitioners, thereby upholding their legitimacy.
8. Legality of Conversion to Private Company: The NCLT clarified that an application under Section 14 of the Companies Act, 2013, for conversion to a private company, does not fall under Sections 241 and 242. The Tribunal stated that under Section 43A(2A) of the Companies Act, 1956, Tata Sons had the legal right to notify the Registrar of Companies (ROC) to change its status to private. Since the law itself required this change, the petitioners’ claims of oppression due to the conversion were invalid.
9. Corporate Governance vs. Majority Rule: Mr. Mistry argued that corporate governance takes precedence over majority rule in company affairs. However, the NCLT rejected this view, emphasizing that corporate democracy and corporate governance are interconnected and cannot be at odds with each other.
Overall, the Tribunal upheld Tata Sons’ decision-making processes as lawful and dismissed Mr. Mistry’s petition, finding no basis for claims of oppression or mismanagement.
NCLAT’S Order:
Unhappy with the NCLT’s decision, Mr. Mistry decided to challenge the ruling before the National Company Law Appellate Tribunal (NCLAT) in his personal
capacity. The NCLAT accepted his appeal along with petitions filed by two investment firms—Cyrus Investments Private Limited and Sterling Investment Corporation Private Limited. Meanwhile, on August 6, 2018, Tata Sons obtained approval from the Registrar of Companies (ROC) to formally convert from a public limited company to a private limited company.
On December 18, 2019, the NCLAT ruled in favor of Mr. Mistry and overturned the decision of the NCLT. The Appellate Tribunal reinstated Mr. Mistry as the Executive Chairman of Tata Sons for the remainder of his tenure. It also declared the appointment of Mr. Natarajan Chandrasekaran as executive chairman illegal, strongly criticizing the company’s decision. However, the NCLAT deferred the enforcement of its order for four weeks, giving Tata Sons an opportunity to appeal the verdict.
Additionally, the NCLAT overturned the NCLT’s approval of Tata Sons’ transition to a private company. It questioned the ROC’s decision to approve the conversion and demanded detailed justifications, including an explanation of the procedural steps followed during the approval process.
In its ruling, the NCLAT addressed two key concerns: the oppressive nature of certain provisions in Tata Sons’ Articles of Association and the removal of Mr. Mistry as executive chairman.
1. Influence of Tata Trusts: The NCLAT clarified that Tata Trusts did not directly control Tata Sons but exercised significant influence through specific Articles. For instance, Article 121 required the Board to secure majority approval, including affirmative votes from directors nominated by Tata Trusts, for key business decisions. Moreover, the Articles allowed Tata Trusts to transfer any shareholder’s ordinary shares—including Mr. Mistry’s—without prior notice, provided that certain conditions were met. These conditions included passing a special resolution at a general meeting and ensuring the presence of Trust-nominated directors who held affirmative voting rights.
2. Judicial Review of Articles of Association: The NCLAT acknowledged that courts do not have the authority to declare a company’s Articles of Association invalid if shareholders have previously agreed to them. However, the NCLT has the jurisdiction to assess whether the company’s actions, even if legally permissible, are oppressive, prejudicial, or harmful to its members, the company itself, or the public interest. If the misconduct is severe enough, the NCLT can intervene, including ordering the company’s closure.
3. Oppression and Mismanagement: The NCLAT found that Mr. Mistry and other minority shareholders faced continued oppression due to misgovernance and administrative failures within Tata Sons. The Tribunal questioned why the Trust-nominated directors, despite having the power to override board decisions, failed to exercise their affirmative voting rights in cases where the company made unprofitable business decisions. The Appellate Tribunal held that such inaction amounted to an abuse of power by Tata Sons and stated that the failures of the company could not be solely blamed on Mr. Mistry.
4. Unjust Removal of Mr. Mistry: The NCLAT ruled that Mr. Mistry’s dismissal on the basis of his track record was arbitrary and unjustified. It emphasized that corporate success depends on the collective efforts of all stakeholders, including Tata Sons, Tata Trusts, and the Board of Directors. Given that the Trust-nominated directors had the authority to reject unfavourable decisions at any time, it was unfair to hold Mr. Mistry solely accountable for the company’s setbacks. Thus, his removal was deemed unlawful.
5. Pre-planned Dismissal: The NCLAT reviewed the minutes of a meeting held by the Nomination and Remuneration Committee on June 28, 2016— just months before Mr. Mistry’s removal. During this meeting, the committee had commended Mr. Mistry for his contributions to Tata Sons, recognizing his role in strengthening the Tata Group and upholding the company’s core values. The Tribunal noted that this acknowledgment contradicted the reasons later given for his removal.
6. Flawed Dismissal Process: The Appellate Tribunal concluded that Mr. Mistry’s ousting was premeditated. The Board meeting agenda did not initially include a discussion on his removal, and the matter was introduced without prior notification. Furthermore, while the meeting minutes recorded the reasons for his dismissal, they were only documented after the decision had already been made.
7. Timing of Board Appointments: In reviewing the Board’s composition at the time of Mr. Mistry’s removal, the NCLAT discovered that out of the nine directors present at the meeting, three had been appointed just two months before the vote, while two others had joined only four months earlier. This raised concerns that the Board had been strategically restructured to ensure Mr. Mistry’s removal.
Overall, the NCLAT found that Mr. Mistry’s removal was unlawful, his role in Tata Sons’ business failures was unfairly exaggerated, and Tata Trusts’ influence over the company had contributed to ongoing oppression of minority shareholders. Consequently, the Tribunal ruled in Mr. Mistry’s favor and reinstated him as the Executive Chairman.
Appeal to the Supreme Court:
In January 2020, Tata Sons filed an appeal with the Supreme Court, seeking to overturn the NCLAT’s ruling that reinstated Mr. Mistry as chairman. Tata Sons argued that the NCLAT’s decision disrupted corporate governance norms and infringed upon the Board of Directors’ authority, ultimately undermining the principles of corporate democracy.
Reasons for Appeal:
1. Reinstating Mr. Mistry as chairman goes against corporate democratic principles, as his removal was based on a majority vote by the Board. 2. Furthermore, Mr. Mistry never sought reinstatement after his tenure ended. 3. The NCLAT’s directive requiring Tata Sons to consult with its minority shareholders, the Shapoorji Pallonji group, before appointing an executive chairman was considered unnecessary.
4. Tata Sons also challenged the NCLAT’s decision to restrict the authority of Mr. Ratan Tata and the nominees of Tata and its associated trusts, particularly in matters requiring a majority vote at the Annual General Meeting.
Supreme Court’s judgement:
The Supreme Court reviewed several key legal issues raised in the appeals, focusing on whether the NCLAT’s findings were legally sound, given that the NCLT’s conclusions had not been explicitly overturned. The Court also examined whether the reliefs granted by the NCLAT, such as Mr. Mistry’s reinstatement and other directives, were within the scope of Section 242(2) of the Companies Act, 2013. Additionally, it considered whether the NCLAT had the authority to restrict rights under Article 75 without invalidating it and whether its characterization of the affirmative voting rights under Article 121 as oppressive was justified. Another key issue was whether Tata Sons’ reclassification from a public to a private company required approval under the Companies Act, 2013.
Key Observations of the Supreme Court:
After analyzing the legislative history of Section 43A of the Companies Act, 1956, the Supreme Court concluded that the concept of a “deemed public
company” had been abolished under the Companies Act, 2013. Instead, the definition of a “private company” had reverted to its pre-2000 status. The classification of a company as private must be determined by the definition provided in Section 2(68) of the Companies Act, 2013. In this case, Tata Sons’ Articles of Association met all the requirements under this section.
Findings on Tata Sons’ Conversion to a Private Company:
The Supreme Court reviewed the timeline of Tata Sons’ legal status and concluded:
• Tata Sons was a private company until January 31, 1975.
• From February 1, 1975, to December 12, 2000, it functioned as a deemed public company under Section 43A of the Companies Act, 1956.
• Between December 13, 2000, and September 11, 2013, it remained a deemed public company due to amendments to the Companies Act, 1956.
• Since September 12, 2013, Tata Sons has legally remained a private company under Section 2(68) of the Companies Act, 2013.
The Supreme Court criticized the NCLAT’s decision, noting that Tata Sons had followed the procedure outlined in Section 14(1)(b) of the Companies Act, 2013. This section, when read along with sub-sections (2) and (3), required the company to obtain a revised certificate of incorporation after its reclassification as a private company. The NCLAT had mistakenly conflated Tata Sons’ request to update its Certificate of Incorporation with an attempt to alter its Articles of Association. Tata Sons had merely asked the Registrar of Companies to acknowledge its existing legal status rather than create a new one.
The Supreme Court also dismissed the NCLAT’s view that Tata Sons had delayed obtaining approval from the government for its conversion. The NCLAT had suggested that Tata Sons should have taken action between 2000 and 2013 under Section 43A(4) of the Companies Act, 1956. However, the Supreme Court clarified that Section 43A(11), introduced in the Companies (Amendment) Act, 2000, had rendered all subsections of Section 43A, except sub-section 2(A), inapplicable after the amendment. As a result, the requirement for government approval under Section 43A(4) had ceased to exist from December 13, 2000, making the NCLAT’s proposed deadline irrelevant.
Ruling on Mr. Mistry’s Removal and Reinstatement:
The Supreme Court ruled in favor of the Tata Group, affirming that removing an individual from the position of chairman does not fall under Section 241 of the
Companies Act, 2013, unless the removal was carried out in a manner that was prejudicial, oppressive, or detrimental to the company, its members, or the general public. The Court also clarified that neither the NCLT nor the NCLAT had the authority to interfere in the removal of a chairman through a petition filed under Section 241. Finally, the Court ruled that Sections 241 and 242 of the Companies Act, 2013, do not grant tribunals the power to reinstate individuals to their positions.
Important Case Laws:
The Indian judiciary, while analyzing the present case, referred to various landmark judgments to gain a deeper understanding of the legal principles governing oppression and mismanagement under the Companies Act, 2013. The following cases are particularly significant in interpreting these concepts:
In Loch v. John Blackwood (1924), the court held that a company should only be wound up when there are substantial and justified reasons, primarily due to a growing lack of trust in its management and operations. However, such a lack of confidence must not be based on personal grievances or dissatisfaction arising from being outvoted in business decisions or internal policies. Instead, petitions for winding up must be founded on genuine concerns about the company’s transparency and ethical management. If there is a well-founded apprehension regarding the honesty and integrity of the company’s leadership, leading to a significant trust deficit in its ability to conduct business effectively, then winding up the company would be considered justified under the principle of “lack of confidence.”
In Rajahmundry Electric Supply Corporation Ltd. v. Nageshwara Rao (1955), the court ruled that for the “just and equitable” clause under Section 242 of the Companies Act, 2013, to apply, allegations of lack of confidence in a director’s leadership must be reasonable and well-founded. The judgment emphasized that mere disagreements or minor disputes between majority and minority shareholders regarding trust deficits are not sufficient grounds for invoking this clause; the concerns must be significant and substantive.
In Needle Industries (India) Ltd. & Ors. v. Needle Industries Newey (India) Ltd. & Ors. (1981), the court provided clarity on Section 397 of the Companies Act, 1956, stating that allegations of incompetence, inefficiency, or negligence alone are insufficient to seek relief under this provision, as they lack substantial factual and evidentiary backing. To succeed in a claim under Section 397, the petitioner must demonstrate a pattern of unfair, dishonest, or prejudicial conduct by the company’s management that directly impacts shareholders’ legal and
ownership rights. The petition must present concrete evidence proving unethical and unfair actions by the directors that prevent shareholders from freely exercising their rights. Only under such circumstances can a claim for oppression and mismanagement be considered valid under Section 397.
Conclusion:
The Tata-Mistry dispute has played a pivotal role in shaping corporate governance in India, particularly in highlighting issues related to shareholder oppression and mismanagement under the Companies Act, 2013. This case stands as the first instance where the Supreme Court of India adjudicated on oppression and mismanagement in a corporate context, with a special focus on Sections 241 and 242 of the Companies Act, 2013. It brings attention to the challenges faced by large corporations regarding ownership structures and power dynamics, emphasizing how unequal power relationships can curtail the rights of minority shareholders, especially when their interests conflict with those of the promoters. A common trend observed in corporate governance is the prioritization of promoter interests over the broader interests of the company, which can have long-term adverse effects on a corporation’s sustainability within its industry. Hence, it is imperative for corporate entities to structure their governance frameworks in a way that protects shareholder rights and ensures that policies are balanced, rather than being skewed in favor of promoters at the expense of other stakeholders who contribute to the company’s growth and success.
This case, which unfolded over five years from boardroom conflicts to courtroom battles, serves as a landmark in corporate jurisprudence, offering insights into previously uncharted areas of the Companies Act, 2013. It represents a significant development in India’s corporate legal landscape, particularly regarding the interpretation and application of Section 241 of the Companies Act, 2013, as examined by the judiciary. Furthermore, it provides corporate law professionals and enthusiasts with a deeper understanding of the jurisdiction of company law tribunals, clarifying that a petition under Section 241 concerning the removal of a chairman is neither maintainable nor triable unless it can be demonstrated that the removal resulted from oppression and mismanagement that adversely impacted the petitioner, the company, or the public interest.
Additionally, this case exemplifies an ongoing power struggle between two influential individuals, which ultimately escalated into a matter of personal pride. At its core, there was no substantial legal dispute beyond the issue of Mr. Mistry’s removal as chairman of Tata Sons Private Limited—a decision driven by eroding trust in his leadership rather than personal animosity on the part of Mr. Tata.
References:
1. Loch v. John Blackwood (1924)
2. Rajahmundry Electric Supply Corporation Ltd. v. Nageshwara Rao (1955) 3. Needle Industries (India) Ltd. & Ors. v. Needle Industries Newey (India) Ltd. & Ors. (1981)
