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This article has been written by  Kumar Rajiv Ranjan pursuing the Diploma in General Corporate Practice: Transaction, Governance and Practice from LawSikho. This article has been edited by Adarsh  (Associate, Lawsikho) and Smriti Katiyar (Associate, Lawsikho). 

Introduction

The much publicized controversy and corporate war between Ratan Tata of Tata Sons and once his touted protégé  Mr Cyrus Mistry was back in news recently when a News item was published on 5th October’21 in the Economic Times that the promoters of SP[ Shapoorji Pallon Ji ] group were planning to raise Rs 6600 Crores by selling debentures to the investors that will be secured against shares of Tata Sons, the holding  Company of  Tata Group , according to the documents filed by Mistry family in this regard with Registrar of the Company on 25th  September 2021.

This move by the Mistry family has been considered a purposeful attempt to cause a dent to the image of Tata Sons  by many legal experts, and likely to be controversial considering the fact that Tata Sons in the past have also raised objections to Mistrys’ pledging their stake in the conglomerate holding Company. During the extended legal battle between two of the oldest conglomerates in India, it has come on record that the Mistry family does have a holding of 18.4% stakes in Tata Groups. Ever since the removal of Mr Cyrus Mistry from the position of  Executive Chairman of Tata Sons in 2016 and subsequently from the Board of Tata Group of Companies as Director, the once sweet relationship between two of the oldest business conglomerates has turned sour and acrimonious and a long extended  legal battle between the two corporate houses is going on.

Shapoorji Pallonji Group Scion Cyrus Mistry had succeeded Ratan Tata as the Chief and Chairperson of Tata Sons in 2012 amidst a lot of hoopla and fanfare. He was touted as the Future of Tata Sons. Four Years later he was unceremoniously shown the door by his mentor, none other than Mr Ratan Tata himself. The war which began on that day has been continuing.

Brief fact of the case

  • Mr Ratan Tata is one of the most respectable names in the corporate world. He is former chairman of Tata Sons and also of Tata group. Tata Sons have also ventured into the world of software and consultancy where it is one of the biggest and most established brands as Tata Consultancy services[TCS]. TCS is a multinational information technology services company and a sister unit of Tata Sons. But in the feud between Tata Sons and Mistrys, TCS also played a small but significant role. In fact, they were impleaded as Respondents by Mistry family/their investment firms when they filed the case before NCLT and they were also one of the appellants when NCLAT order was challenged before Supreme Court. In fact, the final verdict by the Supreme Court was delivered in civil appeal No. 440-441 of 2020 filed by TCS by clubbing other appeals of Tata Group.
  • Mr Cyrus Pallonji Mistry is the scion of Shapoorji Pallonji Group and he is an Irish businessman of Indian origin. He was the Sixth Chairman of Tata Group and remained seated on that Chair from 2012 to 2016, after which he was voted out by the Board of Tata Group and  Mr Ratan Tata returned as its Interim Chairman, and a few months later Mr Natrajan Chandrasekaran from TCS was chosen as the new Chairman.
  • As far as Shaporji Palonji Group is concerned, it is a construction, infrastructure, power, shipping and real estate company having its HQs at Mumbai. One of its listed Companies Forbes & Company Limited, is the oldest registered company in India engaged in shipping, logistics, engineering etc. and is also a well established brand in the field of water purification and its product Eureka Forbes is one of the highest selling and trusted water purifiers pan India. Mr Cyrus Mistry is also the director of Cyrus Investment Private Limited which is a non- Government Company and an investment advisor.
  • When Mr Ratan Tata stepped down from the position of Chairperson of Tata group, the selection panel of Tata Group selected Mr Cyrus Mistry as his successor. The candidature of Mr Mistry was also strongly supported by Mr Ratan Tata at that point of time. But soon differences arose between him and other Directors over his style of functioning and gradually an atmosphere of lack of confidence and trust was built up. Differences arose also between Mr Mistry and Mr Ratan Tata also over his style of functioning which was considered as too autocratic and not in consonance with democratic management style being practiced by Tata Group and Bombay House.What sealed his fate however was a decision of him taken in June 2016 when he finalized Tata Power’s acquisition of Welspun’s Solar farms for Rs 1.4 Billion without even consulting and taking approval of Mr Ratan Tata and other key shareholders. It was not the way the business had been run at the Bombay House. It turned out to be the final icing on the cake.
  •  Finally, on October 24 2016, he was removed from the Chairmanship of Tata Sons after a majority of the Board of Directors voted for his removal due to loss of confidence. Further, after his removal, concerted efforts were also made to remove him from all the group companies including Shapoorji Pallonji Group. Mr Ratan Tata returned as Interim Chairman of Tata Group. Finally on 12th January  2017, Sri N Chandrashekaran, then Chief  Executive Officer and Managing Director of TCS was appointed as the Chairman of Tata Sons.Sri Mistry was also removed from the Board of Tata Sons as Director on 6th February 2017.

The legal battle

In the wake of above developments, Mr Cyrus Mistry filed an application under Section 241 and 242 of the Companies Act[ hereinafter referred to as the Act] before the National Companies Law Tribunal [hereinafter called as NCLT]   on following grounds:

  • There was oppression of minority shareholders.
  • There was operational mismanagement by Tata Sons. They cited the failure of the Nano Car Project and heavy losses suffered therein.
  • Abuse of a few Articles by Tata Sons and control of Tata Trust over the board of Tata Sons which they alleged to be an unethical corporate government practice. 
  • Article 75 of articles of Association of Tata Sons came under Specific challenge.
  • Questioned transaction of Rs 22 Crores in Air Asia by Tata Trust.
  • Transactions made with Siva and Sterling Group of Companies by Tata Groups were questioned.
  • Acquisition of Corus at overpayment by Tata Trust was also questioned.

This case was filed on December’20 2016 by two Mistry family backed investment firms namely Cyrus Investment Private Limited and Sterling Investment Corporation Private Limited before NCLT,Mumbai. The removal of Mr Cyrus Mistry was also challenged.

The legal issues

  1. Who are Minority Shareholders and what is Minority Interest ?

Oppression of Minority shareholders is one of the big issues raised by the Mistry family through their investment firms and subsequently through the petition of Mr Mistry himself. As the legal battle subsequently reflected, Mistry family initially got relief but the issue could not be sustained finally when questions of interpretation of the terminology came into operation. It was found that under the Companies Act’2013, the term “minority shareholding” and their rights has not been specifically defined in the same manner as it has talked about “ small shareholders” and “protecting the interest of small shareholders”. This absence of statutory provision for protecting the interest of minority shareholders in the Act turned out to be the weak link of the case as raised by Mistry family as the different pages of the legal battle between the two corporate houses later unfolded.

Generally speaking, a Shareholder is said to have minority interest in the Company if he is possessing less than 50% ownership or interest in the Company. The word can apply to either stock ownership or a shareholding interest in the Company. Minority interests are the part of  Company or Shares that the parent Company does not own even though they have the majority interest. Most minority interests in the Companies and Corporate world have been seen to have ranged between 10 % to 30%.

In the present case, Mistry family through their two investment firms has a holding of around 18.4% of shareholding pattern of Tata Group under the backdrop of which they claimed before Court of Law that their interest was jeopardized by the Board of Tata Sons by removing Mr Cyrus Mistry from the position of Chairperson and later Director of Tata Group of Companies and their interest also suffered due to some poor administrative decisions by the Board of Tata Group of Companies and  their general mismanagement.

  1. Section-241 of the Act:

It deals with the provisions relating to applications to be made before National Company Law Tribunal[NCLT] in case of any oppression or mismanagement and it enables a member of the Company to approach the NCLT if the member feels that the affairs of the company are being conducted in a manner that is prejudicial to the public interest or the interest of the Company or the company is going through a material change and such change will be prejudicial to the interest of the members of the Company. It also empowers the Central Government to refer such matters to a tribunal if it feels that the affairs of the Company are being conducted in a manner which is prejudicial to public interest.

  1. Section-242 of the Act:

It deals with the powers of the Tribunal to adjudicate upon and decide an issue whenever any application is moved before it under Section 241 of the Act.

Contention of various parties before NCLT and subsequently before superior courts

I.TCS and Tata Group:

i. There was no oppression on the part of the Tata group.

ii. It was the decision of the Board to remove Mr Cyrus Mistry from Chairmanship of Tata Sons.

iii. It was a reasoned and justified action and the Board was well within its right to take such decisions.

iv. There was no mismanagement.

II. CYRUS INVESTMENT PVT LIMITED, STERLING INVESTMENT COMPANY PVT LIMITED AND MISTRY FAMILY:

  1. Removal of Mr Cyrus Mistry from the position of Executive Chairman    [and subsequently as Director of Tata Group of Companies] was unlawful and  an authoritarian act as well as  an act of oppression by Tata Trust owned by Mr Ratan Tata holding 68% plus ownership in Tata Sons.
  2. The Legality of Tata Son’s conversion from a public company to a private company.
  3. Should Nominee Directors of a majority shareholder have substantial affirmative powers ?
  4. Mismanagement and poor administration.

The chronology of events relating to precipitation of the legal battle before NCLT

  1.  6th March’2017: NCLT Mumbai set aside the plea of the above named two investment firms over maintainability issues ruling that they did not meet the criteria of 10% ownership in the Company for filing any case of alleged oppression of minority shareholders under the Companies Act. The Court observed that the Mistry family owns 18.4% stake in the closely held Tata Sons but it is inclusive of preferential shares. If those shares are excluded, their holding gets reduced to less than 3%.
  2.   17th  April 2017: NCLT, Mumbai also rejected their plea seeking waiver in the criteria of having at least 10% ownership in a Company for filing a case of alleged oppression of minority shareholders.
  3. 27th  April 2017:  The two orders of NCLT, Mumbai were challenged by the two  Investment Firms before NCLAT.
  4. 21st September 2017: The petitions of the two investment firms   seeking waiver in filing the case of oppression and mismanagement etc. against Tata Sons were allowed by NCLAT. The other petition on maintainability was however rejected on the ground that Mistry family did not have more than 10% shares in Tata Sons.

The case was referred back to NCLT, Mumbai with directions to issue notices and proceed in the matter.

  1.  5th October  2017: The two investment firms moved before the Principal Bench of NCLT at Delhi by filing a petition seeking transfer of the matter from Mumbai to Delhi citing likelihood of bias[ Perhaps a cardinal mistake and tactical blunder by  the Legal Team of Mistry Group as by such petition, integrity of judicial system was questioned which are never  appreciated by Superior Courts]
  2. 06th October 2017: Expectedly the petitions were dismissed. A cost of Rs 10 Lakh was also imposed on the two firms which was to be shared equally.

The NCLT verdict

The case was heard by NCLT Mumbai and order was passed on July 09 2018 whereby the pleas of Mr Mistry/ two investment firms were dismissed. The pleas of Mistry challenging his removal as Tata Sons’ Chairman were dismissed. His other plea relating to rampant misconduct on the part of Ratan Tata and the Company’s Board was also dismissed as NCLT observed that it did not find any merit in the allegations of mismanagement in Tata Group firms.

THE BATTLE CONTINUES: APPEAL BEFORE NCLAT [NATIONAL COMPANY LAW APPELLATE TRIBUNAL]:

  1. August 3 2018: The two investment firms filed their Appeals against the order of NCLT. Mr Cyrus Mistry also moved before NCLAT in his personal capacity against the order of NCLT.
  2. August 29 2018: NCLAT admitted the petition filed by Mr Cyrus Mistry and decided to hear the same along with the two main petitions filed by the two investment firms
  3. May23 2019: Hearing was concluded and NCLAT reserved its order.

The order passed by NCLAT

The much awaited order was pronounced by NCLAT on December 18 2019. The hon’ble Tribunal overruled the judgment passed by NCLT, Mumbai. Sri Cyrus Mistry was restored as Executive Chairman of Tata Sons but the Tribunal suspended implementation of the order by four weeks and thereby a reasonable time was allowed to Tata Sons to file its appeal.

 In the order passed, the Tribunal held that Mr Mistry was removed from the post of Chairmanship illegally and the Board of Directors did not have a right to remove him. The Tribunal observed that such powers can be only exercised in exceptional circumstances and in the interest of the Company. Further, before exercising such powers, reasons for removal should be recorded in writing and intimated to the respective shareholders whose rights shall be affected. In light of the above, the Tribunal ordered Tata Sons Ltd to reinstate Mr Mistry and held that the appointment of Sri N Chandrasekaran as Chairman of Tata Sons was illegal.

However, as stated above, the NCLAT suspended the implementation of the order by four weeks and allowed Tata group reasonable time to prefer its Appeal.

The contentious issues and analysis of the orders passed by NCLAT vis-a-vis NCLT

  1. Oppression of Mr Cyrus Mistry: On the contentious issue relating to the allegations that the affairs of the Company are conducted prejudicial and oppressive to the general public interest, interest of the Company and interest of its members, Section 241 is a legal tool available to a member of the Company under which an application can be filed before the Tribunal. This Legal tool was utilized by the two investment firms holding a minor shareholding of 18.45% and Sri Cyrus Mistry against his removal from chairmanship of Tata Sons. As already stated at preceding paragraphs, Section-242 allows the Tribunal to adjudicate upon such applications and pass its orders.
  2. NCLT observed that removal of an employee falls within the ambit of Section 241 of the Act. The Tribunal, however, also observed that a Company is incorporated for the benefits of its members and it is for the members to appoint their Executive Chairman. In  light of the above observations, the claim of the two investment firms/Sri Cyrus Mistry that  the Company’s Board  did not have any right to decide the Chairman was declared as devoid of merit and was accordingly rejected by NCLT, Mumbai. It acknowledged that the Board of Directors have lost confidence in Sri Cyrus Mistry and, therefore, they were within their rights in removing Sri Mistry.
  3. On the other hand, NCLAT observed that Mr Mistry was removed from his post without any discussion and records of the Company did not show any lack of performance on his part. Therefore, NCLAT ordered for his reinstatement after four weeks from the date of its order.
  4. Oppression of minority Shareholders:  The bone of contention between the two business conglomerates was Articles of Association of Tata sons. Mistry Group contended that some of the Articles (and in particular Article 75) are extremely loaded in favor of Tata Sons and are oppressive in nature as far as minority shareholders are concerned which was hotly contested by Tata Group.
  5. Article 75 of the Articles of Association of Tata Sons enables Tata Sons to ask any shareholder to sell its shares either to the existing shareholders or to any outsider selected by the Board through Special resolution. It was argued by Mr Mistry/ his Investment Firms that the above provision in the Articles of Association of Tata Sons is oppressive as it compels the minority shareholders to sell their shares as per the choice of Board of Tata Sons..
  6. NCLT observed that Article75, even though it restricts transferability of shares, was in existence even before filing of the applications by the Applicants and about existence of this clause, the Applicants were very well aware much before filing of their applications before the Tribunal. In order to prove oppression, alteration in articles of association in a manner prejudicial to the interest of minority shareholders was required to be done but there was no such move by Tata Sons. Hence, NCLT, Mumbai observed that any allegation of oppression was not established.
  7. On the other hand, NCLAT commented adversely upon existence of Article 75 in the Articles of Association of Tata Sons and observed that as it restricts transferability of the shares and as a result, on occasions it may work against the interest of minority shareholders in light of which it directed Tata Sons not to invoke Article 75 against the minority shareholders.
  8. Conversion of Tata Sons into a private company from a public company:  This was another contentious issue which came for deliberation before the judicial institutions. The NCLT observed that such a conversion of a public company into a private company does not fall within the ambit of Section 241 or Section 242 but NCLAT observed that in the instant case, the conversion from public to a private company was done suddenly and in between the proceedings. The NCLAT further observed that the correct procedure for conversion was also not followed.
  9. QUASI PARTNERSHIP: The question as to whether or not Tata Sons can be recognized as a quasi partnership was raised before both the Tribunals. NCLT invalidated the claim of the applicants that the Company can be recognized as a quasi partnership between Tata Group and Shapoorji Pallonji Group but NCLAT acknowledged the claim. However, NCLAT did not accept and acknowledge that legitimate consequences from such partnership can lead to oppression. Moreover, the NCLAT also ignored the principles established by the Hon’ble Supreme Court in various judgments on how to determine whether it is a quasi partnership. This flaw in their order was later utilized by the Legal Team of Tata Sons before Apex Court.
  10. MISMANAGEMENT: The allegations of mismanagement and prejudice were not accepted by NCLT on the grounds that they [Tata Sons] are majority shareholders and, therefore, they cannot go against their own interest. On the other hand, NCLAT observed that mismanagement was quite evident as Tata sons incurred heavy losses because of some prejudicial decisions and resolutions passed by its Board and observed that there were certain glaring examples of mismanagement and failure. The legal team of Mistry family repeatedly highlighted the failure of Nano Project, misadventure of Air Asia etc. which were given cognizance to by NCLAT.
  11.  However, the claim questioning the conduct of Mr Ratan Tata as the Director was held as unreasonable and frivolous by both the Tribunals as they observed that  the applicants could not establish or prove that he (Mr Ratan Tata) acted prejudicially to the interest of the Company or the applicants.

Legal battle before the Apex Court

Aggrieved by the orders of NCLAT, Tata Sons Limited appealed before Supreme Court of India by preferring an Appeal having Civil Appeal number 440-441 of 2020 clubbed with some other Civil Appeals wherein their Legal Team coined the phrase of CORPORATE DEMOCRACY and successfully contested their case. It was contended that the NCLAT did not give cognizance to and rather undermined the existence of corporate democracy in Tata Group of Companies. The case was finally heard by a division bench consisting of Mr Justice S A Bobde, V Rama Subraminiam and A S Bopanna which was finally decided on March 21 2021.

The Apex Court set aside the order of the NCLAT, dismissed the charges of oppression and mismanagement against Tata Sons Ltd and ruled against Mr Cyrus Mistry. The Hon’ble Supreme Court acknowledged the questionable conduct of Mr Mistry and made a sweeping remark that Sri Cyrus Mistry himself invited trouble as he was involved in leaking extremely confidential and classified information about the company in the Media just to create sensation in light of which the Apex Court considered his removal from the position of chairmanship and Directorship of Tata Group of Companies as justified.

The Apex Court further observed that:

  1. Mere removal of a person from the post of Chairmanship shall not fall within the scope and subject matter of Section 241 if it is not prejudicial to the interests of minority shareholders.
  2. If the actions are not prejudicial or oppressive to the interest of the company, its members or the public at large, Tribunal does not enjoy any authority to interfere with the removal of a person as Chairman of a Company by exercising its authority under Section 242 of the Act on an application moved under Section 241 of the Act.
  3. Section 241 and 242 of the act do not expressly confer the powers of reinstatement to the Tribunal.
  4. The issue of minority shareholders and their rights was deliberated at length in the Supreme Court order. The Legal team of Shapoorji Pallonji Group/its two investment firms/Mistry family argued before the Court that removal of Cyrus Mistry meant oppression of minority shareholders. However, SC upheld Tata Group’s decision to remove Cyrus Mistry as executive Chairman of Tata Sons. The Supreme Court also observed that the Minority shareholders do not automatically get a right to a seat on the Board. Private Companies, which have minority shareholders, are free to make an enabling provision to do so if they wish to but right now they are under no statutory obligations to do so.
  5. It is important to remember that in the petitions following removal of Mr Mistry as the Executive Chairman and subsequently as Director from the Board of Tata Group of Companies, the Mistry family/ the two investment firms had alleged that Tata sons was being run and operated in a manner which was “Oppressive” and “Prejudicial” to the rights of the minority shareholders. But the argument was lost at the interpretation and construction stage before the Apex Court.
  6. It was observed that while interpreting and discussing the rights of minority and small shareholders and their importance in the Board of the Company, the Supreme Court has held that minority shareholders or their representatives are not automatically entitled to a seat on the private Company’s board like a small shareholder representative.
  7. The Apex Court observed that the provisions contained in the 2013 Companies Act only protects the rights of small shareholders of listed companies by asking such companies to have on their Boards at least one Director elected by such small shareholders.
  8. As per provisions of the Companies Act 2013, a small shareholder is a shareholder or a group of shareholders who hold shares of nominal value of not more than Rs 20000[Twenty thousand Rs]. The Supreme Court observed that as the Mistry family and the SP Group were not small shareholders but Minority Shareholders, there was no statutory provision which gave them the right “to claim proportionate representation” on the Board of Tata Sons.
  9.  The Apex Court further observed that the right to claim proportionate representation is not available for the SP Group even contractually, in terms of the Articles of Association. Neither SP Group nor CPM [Cyrus Pallonji Mistry] can request the Tribunal to rewrite the contract, by seeking an Amendment to the Articles of Association. “The Articles of Association, as they exist today, are binding upon the SP Group and CPM.” The Top Court had said.
  10. Another bone of contention in the spat between Tatas and Mistry was the existence of Article 75 in the Articles of Association of Tata Group which gives the Company the right to purchase shares from a minority or a small shareholder at a fair market value. Fearing that the Tata Group may use it to try and buy out the SP Group, the latter urged the Company law tribunals and the Supreme Court to not allow the same to be used.
  11. Further the Mistry camp had also alleged that the Tata Group had taken several commercial decisions which did not yield the desired results and had resulted into more loss to the minority shareholders than the majority shareholders .But the questions on the rights of minority shareholders and its protection had remained unanswered though the Apex Court did not consider Article 75 as oppressive and also they did not accept the allegations of mismanagement against Tata Group of Companies.
  12. The Court also observed that Article 75 is nothing but an exit option to shareholders which was attacked by Mistry Group before NCLT/NCLAT. So the Apex Court had opined:

 “We cannot adjudicate on fair compensation. We will leave it to the parties to take the Article 75 route or any other legally available route in this regard.”

  1. The SC also rejected Mistry’ Group plea against conversion of Tata Sons from a Public Limited Company into a Private Limited one and also did not enter into the issue of valuing the Company’s stake. However, during hearing, the Mistry family, one of the oldest business families in India, valued its stake at Rs 1.76 Trillion while Tatas pegged it far below at up to 80000 Crores. 
  2. The Court at times also appeared to have treaded a middle path and has suggested that a divorce without acrimony should be encouraged but to what extent this theory shall be bought by Mistry Group is lying only in future, The latest development has only indicated that Mistry Group are in no mood to budge.

The Supreme Court judgment and its impact on corporate governance

The Order of the Supreme Court was viewed by a majority of Legal experts as a resounding victory for Tata Group of Company and in particular Sri Ratan Tata who was amongst the first to welcome the order. It has, however, given rise also to many unanswered questions in the field of corporate governance. Many experts also felt that the minority shareholders were not given a fair deal by the Apex Court. Further, some strong observations by the Apex Court have also created more confusion and doubts regarding the validity of the long standing principles of Corporate Governance. Some questions that emerged are as following:

  • In what manner duties of Directors shall be determined?
  • Does it depend on the Company they work for?
  • What are the roles and fiduciary duties of Nominee Directors?
  • Do the Directors nominated by charitable Trusts have wider responsibilities to the public than other Directors?

It was comprehensive and elaborated 282 pages judgment by the Apex Court and even though Section-166 of the Act explains in details the duties of Directors, but the Order has elaborately discussed this question since Mistry Group had challenged the affirmative voting rights granted to Tata Sons Directors nominated by Tata Trust which was pleaded by the Legal Team of Mistry as oppressive and prejudicial to the interest of minority shareholders. On this question, the Apex Court made three very important observations:

  •  The Court distinguished Tata Sons from other Companies by virtue of it being an investment holding Company[ But there is no such distinction in the Act].In the order, the Apex Court repeatedly noted that Tata Sons is a principal investment holding company not engaged in any direct business activity.
  • It observed and suggested that Tata Sons nominated Directors need not make independent decisions [But do they require taking independent decisions? Being Nominated Directors, why should they not cater to the interest of their Nominators? Is there any restriction if Nominated Directors act in a particular fashion catering to the needs of their Nominators only?].
  • The Court has also observed that because the affirmative voting rights are enjoyed by nominated Directors of philanthropic charitable trusts, they are unlike other Directors appointed in shareholders meetings. But this distinction which the Apex Court has created is utterly confusing because the Companies Act 2013 and rules made there under creates no such distinction and the legal provisions bear no correlation to the business or activities in which the Company is involved and the duties of the Director.
  • It observed and suggested that Directors nominated by charitable trust      [Tata Trust was considered as a charitable Trust] have a much wider duty towards public interest.[But there is no such defined role under the Act].one observation of the Supreme Court is worth quoting here:

“If all Directors are required under Section 166(3) to exercise independent judgment, we do not know why there is a separate provision in Section 149(4) for every listed public company to have at least one-third(1/3rd  of the total number of Directors as Independent Directors.”

However, these notings by the Apex court are more in the form of observations and suggestive in nature and the ratio of the judgment does not appear to alter any position as felt by experts.

  • The Court also observed that “a Director nominated by a charitable trust also holds a fiduciary duty  with the Trust and a fiduciary duty towards the nameless, faceless beneficiaries of those trust” and in that situations, you cannot take a purely commercial approach that these Directors should only be focused on making money but that they are also right to trying to protect the interest of the Trusts but yet a Director nominated by a charitable trust must act in “ pure, unadulterated public interest “The apex Court advised.
  • This interpretation and advice by the Apex Court raises a question as to in what manner a nominated Director should act particularly those in Public Sectors and Government entities. Should they always promote their nominator’s interest? The other question is what liabilities shall they incur if they promote the interest of the Company by acting on conventional jurisprudence and wisdom? These questions have remained unanswered. Thankfully, the order of the Apex Court on these questions has been given in the form of advice and observations and not as RATIO DECIDENDI.

Conclusion

From day one, it was a very high profile case. As presented at the preceding paragraphs while analyzing the Supreme Court order, this case exposed the weaknesses in the corporate governance system. However, it also gave a precise interpretation of Section 241. The conflicting orders of NCLT and NCLAT created a lot of ambiguity and confusion and the Apex Court by its verdict attempted to put to rest all such confusions and speculation.

From the Law points alone, Mr Cyrus Mistry has a weak case even though he had a more sympathetic and emotional ground because the way he was ousted had left a very bad taste in the mouth. The rights and its redressal upon impeachment as is available to minority shareholders was not very carefully handled by the Legal team of Mistry family and ultimately it fell flat before  the Apex Court at the stage of “interpretation” and “construction”.

Cyrus Mistry himself or his father, who was also Director of Tata Group of Companies before him, had never objected to Tata Sons’ Article of Association, its many overseas acquisitions  (some turned out into misadventure), deals with Siva, Nano Project failures or alleged proximity of Mr Ratan Tata with Mr Mehul Choksi. It finally went against them.

The order has also opened a fresh debate on the rights of minority shareholders as by distancing them from Small Shareholders, the Supreme Court has opened a new vista and now while going ahead, such shareholders will have to ensure that they have a contract with the majority shareholders or the promoters of the Company to ensure that they have adequate representation on the Board. The Supreme Court has not negated the concept of quasi partnership or a contractual agreement. Going forward, it will be important for all minority shareholders to have an agreement to that effect as well as an article of association amended to capture the allocation/ division of Board seats to protect their interest.

In the end, it can be only stated that both sides have however suffered a big dent to their image as a good corporate governance house and few new questions on the principles of Corporate Governance have emerged, the answers to which lie only in the future.


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