In this blog post, Pravesh Naveriya, from RDVV – Jabalpur discusses the ouster of Cyrus Mistry as the Chairman of Tata and Sons. 

The Corporate Fight  

The battle between the only CEO who is not a part of the Tata Family and the management of Tata and Sons has served as a mirror for all the persons working in a corporation. This ugly fight between the management and the CEO of the Indian Corporation which is included among the top five contributors to the Indian Economy has once again proved that it’s the owners or the shareholders who always have the upper hand in corporations and the employees are mere puppets whose control is with the management.

Cyrus Mistry joined the board of Shapoorji Pallonji Group, the biggest shareholder of Tata and Sons in 1991 as Director and he was appointed as the Managing Director of the group in 1994. Shapoorji Pallonji holds around 18% of the Tata and Sons shares.

October 24, 2016

• The fight between the management and the Chairman of the Tata and Sons flashed across the world when Mr Cyrus Mistry was removed from his office, and Mr Ratan Tata was appointed as the Interim Chairman of the group. The next move of Ratan Tata was that he wrote a letter to the Prime Minister, regarding the removal of the Chairman of the group.
• It was reported that the decision of removal of Cyrus Mistry from his office is not something which has happened all of sudden rather it was under consideration from a very long time.
• Former Solitary General of India Mohan Parasaran confirmed that the group had approached him a month ago, regarding the legal consequences of the removal. It is also to be considered that the removal is not due to any personal reasons rather it is for the reason that Cyrus Mistry was not able to fulfil the managerial requirements of the board and the group.
• The removal of Cyrus Mistry is termed to be legal as per the provisions of the Indian law. The removal of Cyrus Mistry was executed by getting a majority against his removal from the office, and for this a notice had to be served 7 days before the meeting as per Section 173 of the Act, but it could be waived if at least one Independent Director is present in the meeting or if the decision has been ratified by the majority of the Directors.

October 25, 2016

• Shapoorji Pallonji group made a statement that they are going through the circumstances and there is no consideration for any legal action against Tata and Sons, Cyrus Mistry too went on to use the same note and denied that he is thinking of any legal steps.
• Tata and Sons filed a caveat in the Supreme Court, High Court and the National Company Law Tribunal (NCLT) so that no ex-parte order can be passed against the removal of Cyrus Mistry without their part being heard. A caveat is a notice which is filed by the party which is expecting a Legal Action against him from another party.
• Cyrus Mistry still said that he was not willing to take any legal action against the Tata group but did consult a law firm regarding the legal actions which could be taken.
• Ratan Tata asked the shareholders and the senior members of the group to continue to work without any panic.
• Two new Additional Directors were appointed on the Tata and Sons board.

October 26, 2016

• The Stocks of listed Tata Companies fell by 3.16% in the stock market after the removal of Cyrus Mistry from his office which created a lot of panic in the market.
• Cyrus Mistry came out with the point that he was not given an appropriate opportunity to defend himself which has been provided under law.
• Cyrus Mistry wrote a letter that he was shocked that he had been removed from his office on account of non-performance and he alleged that the board never gave him the appropriate opportunity.
• Cyrus Mistry argued that the Nano project had become a burden on the company but it is being continued only due to emotional reasons, and there is a lot of fraudulent in the manner the money is being invested, and the loans are given to different projects by the company.
• The Securities and Exchange Board of India (SEBI), made a statement that they are keeping a track on the case and will make sure that there is no fraud or irregularity in the stock market relating to the prices of the shares of Tata and Sons, as it is expected that the common or small shareholders may become prone to fraud due to the indifferences arriving between the Management and the Chairman of the group.

October 27, 2016

• Shares of various Tata group stocks were going down, Tata Power and Tata Motor were 3% down whereas Tata Steel was trading at 2% low.
• The Tata group responding to the allegations made a statement that it was unfortunate and unprofessional from the side of Cyrus Mistry that he was causing false charges upon one of the most trusted groups of the country and the office of which he had been with for such a long time.
• Ratan Tata regretted that a confidential report of the board went out in public and this had created all the confusions.
• The Aviation Minister of the country assured that the matter would have to follow the “law of the land” and it would be seen that no harm is done to the public.
• The Top Officials of the company made sure that this confusion arising due to the fight between the Management and the Chairman would not affect the reputation or progress of the group.

October 28, 2016

• The find for the new Chairman had started inside the office as per the reports, but it was kept confidential. The candidates who were being examined were the Chief Executive Officer of Tata Consultancy Services, N. Chandrasekaran, Jaguar Land Rover Head Mr Rafh Spelt the brother-in-law of Cyrus Mistry and a member of the founder family, Trent Ltd Chairman Mr Noel Tata.
• Ratan Tata said that the allegations of the mismanagement or the trust of investments are false as the investments were made only after the board decided that to do.
• Cyrus Mistry responded to this and said that he was shocked that Ratan Tata was giving false facts and no one in the group was aware of all that he was claiming to happen.

Legal Fight

• Cyrus Mistry filed his reply along with the Affidavit to the National Company Law Tribunal (NCLT), in which he said that he was not allowed to run the group as per his own, rather it interfered by the members of the Tata Trust Group which hold almost 66% of the shares of the group’s parent company. He even said that Ratan Tata, Noshir Soonawala and R. Venkataraman interfered a lot in the running of the company and he was not allowed to work freely rather he was at all times put under the pressure of working as per the wishes of Ratan Tata.
• Cyrus Mistry has provided the documents as evidence to prove that there was a lot of interference by Ratan Tata in working of his office. As evidence, he had provided the messages which were exchanged between him and Ratan Tata which is more than 555 in number, which very clearly proves that there was a lot of interference on the part of Ratan Tata.
• Cyrus Mistry also said in his reply that he was pushed too far for higher sales of the Nano Car which according to him was doing no good for the company rather it was becoming a burden on the company but as the car was the dream project of Ratan Tata he was not willing to stop its production which was costing the company and the entire group at large. He also said that he wanted to use Nano for Ola instead of Uber as Ratan Tata himself had a personal investment in Ola.
• Cyrus Mistry alleged that he was not the only one who was interfered by Ratan Tata, but there were some occasions when he interfered with the working of many senior members of the group as he is not ready to retire from the group rather he wants to dictate the working of the group.
• He further said that what was started with “suggestions” in the year 2013 eventually resulted in assertions of rights under the Article of Associations. The Article of Association was changed when he joined the office of Chairman.

Removal of Cyrus Mistry from his office

• A Chairman is elected as well as removed by the board members in the General Meeting of the board. A Chairman may either file his resignation, or he may be removed from his office by the board members if he has committed certain acts which are prohibited under the Companies Acts of the country or the Article of Association of the company.
• The Chairman will have to vacate his office if there is a no-confidence motion passed against him in the general board meeting of the company. A no-confidence motion is considered to be passed when the majority of the board decides to remove the Chairman from his office.
• A no-confidence motion is to be initiated by a member of the board who wants to remove the Chairman from his office then the other members of the board may either support his decision or may vote against his decision one by one. If the move to remove the Chairman gets the majority, then a no-confidence motion is said to have been passed against the Chairman, and then he shall vacate his office.
• The Chairman shall be given an appropriate opportunity of being heard, and if he can bring the board members in his confidence then he may continue to hold his office otherwise, he will have to vacate his office.
• When the appointment of the Chairman has been done as per the Article of Association of the company then the Chairman can only be removed by the board members if he has committed any fraud or he has been involved in any kind of mismanagement inside the company, or he is found to be disloyal with the company.

Conclusion

Cyrus Mistry, as well as the Management of Tata and Sons, have filed a caveat in the Supreme Court, High Court, as well as the National Company Law Tribunal (NCLT), avoiding any ex-parte orders against them. Cyrus Mistry still enjoys the support of the biggest shareholder of the group, although this cannot help him legally, but he could use this fact to pressurise the group. He has filed his reply stating that he was removed from his office illegally and has submitted certain documents as evidence to prove that Mr Ratan Tata has been interfering in his work.