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This article is written by Raj Jaiswal who is pursuing a Diploma in Business Laws For In-House Counsels from LawSikho.

Introduction

In this article, we will delve into one of the most high-profile corporate legal battles between Cyrus Mistry and Ratan Tata. We will also analyse the judgement of the Hon’ble Supreme Court in “Tata Consultancy Services Ltd. v. Cyrus Investment Pvt. Ltd.” dated 26th March, 2021 and also in whose favour was the judgement been passed. We will discuss the original cause of action which turned this case into a high-profile legal battle between Cyrus Mistry and Ratan Tata.

Let us first begin with about these companies and about Ratan Tata and Cyrus Mistry and their relationship with the company Tata Sons.

Background

Tata Consultancy Services (TCS) is a division of Tata Sons founded on April 1, 1968. It is an Indian multinational information technology (IT) services and consulting company having its headquartered in MumbaiMaharashtraIndia. TCS operates in 46 countries throughout the world.

Cyrus Investments Private Limited is a Non-govt company, incorporated on 7 March, 1923. It operates as an investment advisor. It’s a private unlisted company and is classified as ‘company limited by shares’.

Ratan Tata is an Indian industrialist as well as one of India’s most prominent business leaders. He was the former Chairman of Tata Sons and also the former Chairman of Tata Group.

Cyrus Mistry is an Indian businessman. He served as the Chairman (2012–16) of the gigantic Tata Group conglomerate. He is also one of the directors of Cyrus Investments Private Limited.

Timeline of events and the Disputes

In December, 2012: Cyrus Mistry was appointed as the Chairman of Tata Sons Limited chosen by a selection panel of Tata Group when Ratan Tata stepped down from the post.

In October, 2016: Cyrus Mistry was removed from the post of Chairman of Tata Sons Limited by a majority of the Board of Directors for loss of confidence.

On January 12, 2017: Tata Sons names N Chandrashekaran as the Chairman of Tata Sons Limited, the then TCS Chief Executive Officer and Managing Director. 

In February, 2017: Cyrus Mistry was removed as a Director of the board of Tata Sons, by the shareholders’ vote during a general meeting.

Thereafter, Cyrus Mistry files a suit under Sections 241, 242 and 244 of the Companies Act, 2013 before National Company Law Tribunal (NCLT), Mumbai alleging oppression of minority shareholder rights and operational mismanagement of the Tata Sons.

Mistry’s charges alleging oppression and mismanagement

Charges that Cyrus Mistry’s made on part of Tata Sons to Show Oppression and mismanagement by the group: 

  • Tata Sons abused their powers under few articles and Tata Trust exercised control over the Tata Sons board.
  • Removal of Cyrus Mistry as an executive chairman from Tata Sons Limited.
  • Transactions made with Siva and Sterling Group of Companies by Tata Groups.
  • Fraudulent transaction worth Rs. 22 crore in Air Asia by Tata Trusts.
  • The losses suffered in Nano car project clearly depicts the oppression of minority shareholder rights and mismanagement by the Tata Group.
  • The acquisition of Corus at overpayment by Tata Trusts.

NCLT, Mumbai Verdict

In July 2018, NCLT Mumbai Bench dismissed all the charges made against Tata Sons. The bench also rules that the Board of Directors of Tata Sons are competent enough to remove Cyrus Mistry From the post of Chairman of Tata Sons Limited. 

For the allegation regarding Air Asia, the bench held that it have been made with impunity by Cyrus Mistry flouting all legal principles.

As regards allegations on the Nano project, NCLT held that allegations were made without making Tata Motors a party to the case.

The NCLT also rejected allegations on the acquisition of Corus and the transactions made with Shiva and Sterling Group by Tata Group.

The bench also states that it found no merit in the arguments on the oppression of minority shareholder rights and operational mismanagement of the Tata Sons.

National Company Law Appellate Tribunal (NCLAT) Verdict

In December, 2019, the National Company Law Appellate Tribunal (NCLAT) overturns the NCLT, Mumbai Bench judgment, and had ruled in favour of Cyrus Mistry firms. The NCLAT states that Mistry’s removal as Chairman of Tata Sons was illegal. The NCLAT also ordered to reinstate Cyrus Mistry as chairman of Tata Sons and also termed N Chandrasekaran’s appointment to the chairman’s post of the over USD 100 billion salt-to-software conglomerates as ‘illegal’.

Tata’s contentions

In January, 2020, Tata Sons and Ratan Tata moved to Supreme Court and challenged the NCLAT decision before the Supreme Court. In its appeal Tata has contended that there was no wrongdoing involved on the part of Tata Group in the removal of Cyrus Mistry as chairman of Tata Sons Limited in October, 2016, the Tata Group also added that the board was “well within its rights to do so”.

Subsequently, in January, 2020 the Supreme Court granted relief to Tata Group and stays the NCLAT order of December 2019 to reinstate Cyrus Mistry as the executive chairman of Tata Sons.

Governing Laws

  • Section 241 of the Companies Act, 2013 – This section provides relief to the members of a company in cases of oppression.

Any member of a company has a right to apply to the Tribunal if the affairs of the company have been or are being mismanaged and are conducted in an oppressive manner damaging the interests of the company, its members or the public at large. The central government can also make an application to the tribunal under this section if it feels that the affairs of the company are being conducted in a prejudicial or oppressive manner.

  • Section 242 of the Companies Act, 2013 – Powers of the Tribunal

Section 242 states that if, on any application made by any member of a company or the central government under Section 241, the Tribunal believes that the affairs of the company have been or are being mismanaged and are conducted in an oppressive manner damaging the interests of the company, its members or the public at large, or the winding-up of the company would unfairly prejudice such member or members, the Tribunal may, intending to bring to an end the matters complained of, make an order to regulate the conduct of affairs of the company regarding the purchase of shares, restriction on the transfer of the share, termination, setting aside or modification of any agreement, setting aside of any transfer or any orders as the tribunal thinks fit.

  • Section 244 of the Companies Act, 2013 – This section provides for the eligibility criteria to file an application under section 241 of the Companies Act, 2013.

Section 244 of the act lays down the qualification to be met for an application to be maintainable under Section 241 of the Companies Act, 2013. 

Supreme Court Verdict

The Supreme Court on March 26, 2021, pronounced its long-awaited judgement in the Tata- Cyrus Mistry case. The judgement was pronounced by a bench of Supreme Court headed by Chief Justice S A Bobde and comprising Justice V Ramasubramanian and Justice A S Bopanna. The judgement was pronounced in favour of the Tata Group. The bench dismissed all the charges of oppression and mismanagement against the Tata Sons Limited made by entities owned by Cyrus Mistry.

The Supreme Court observed that “unless the removal of a person as a chairman of a company is oppressive or mismanaged or done in a prejudicial manner damaging the interests of the company, its members or the public at large, the Company Law Tribunal cannot interfere with the removal of a person as a Chairman of a Company in a petition under Section 241 of the Companies Act, 2013.

The court held that mere removal of a person as Chairman of the Company is not a subject matter under Section 241 unless it is shown to be “oppressive or prejudicial”. The court held that Sections 241 and 242 of the Companies Act, 2013 do not specifically confer the power of reinstatement.

Therefore, The Supreme Court set aside the December 18, 2019 order of the National Company Law Appellate Tribunal (NCLAT) to reinstate Cyrus Mistry as executive chairman of Tata Sons. 

The bench also held that there was never a case, to begin with, the only dispute that arise was the removal of Cyrus Mistry as chairman of Tata Sons Limited and the companies were padding up their actual grievance with various historical facts.

Conclusion 

The five-year-long and the most high-profile corporate legal battle between Cyrus Mistry and Ratan Tata gave us the precise definition of Section 241 of the Companies Act, 2013 and its applicability.

The Judgement also gave a brief idea concerning the power of the Company Law Tribunal and held that it cannot interfere with the removal of a person as a Chairman of a Company in a petition under Section 241 of the Companies Act, 2013 unless such removal is “oppressive or prejudicial in nature”.

There wasn’t a case, to begin with, the only dispute that arise was the removal of Cyrus Mistry as chairman of Tata Sons Limited.

Cyrus Mistry was removed from the post of Executive Chairman of Tata Sons Limited on October 24, 2016, is because the Majority Shareholders and Board of Directors of the company lost confidence in Cyrus Mistry as Chairman, not because by contemplating that Cyrus Mistry would cause discomfort to Ratan Tata.

References

  1. https://en.wikipedia.org/wiki/Ratan_Tata
  2. https://www.britannica.com/biography/Cyrus-Mistry
  3. https://www.livelaw.in/top-stories/supreme-court-tata-sons-appeal-nclat-order-to-reinstate-cyrus-mistry-as-chairman-171764
  4. https://www.mca.gov.in/SearchableActs/Section241.htm
  5. http://ebook.mca.gov.in/Actpagedisplay.aspx?PAGENAME=17652
  6. https://www.bloombergquint.com/law-and-policy/tata-vs-mistry-why-mistrys-oppression-case-failed-in-the-supreme-court
  7.  https://www.business-standard.com/article/companies/tata-vs-mistry-sc-rules-in-favour-of-tata-group-sets-aside-nclat-judgment-121032600417_1.html

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