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India’s appeals court restores Mistry as chairman of Tata Group

IN a big win for Cyrus Mistry, a company law appeals court on Wednesday (18) restored him as executive chairman of Tata Sons and ruled that appointment of N Chandrasekaran as head of the holding company of over $110 billion salt-to-software conglomerate was illegal.

The National Company Law Appellate Tribunal (NCLAT) held that the group's chairman emeritus Ratan Tata's actions against Mistry were oppressive and the appoint of the new chairman illegal.


It, however, stayed the operation of the order with respect to reinstatement for four weeks to allow Tatas to appeal.

Setting aside a lower court order, the NCLAT also quashed the conversion of Tata Sons into a private company from a public firm. It also directed Tata Sons not to take any action against Mistry, whose family owns some 18 per cent interest in Tata Sons.

The remaining 81 per cent is held by Tata Trusts and Tata Group companies along with Tata family members.

Mistry, scion of the wealthy Shapoorji Pallonji family, had in December 2012 succeeded Ratan Tata as the Executive Chairman of Tata Sons, a post that also made him the head of all Tata group listed firms such as Tata Power and Tata Motors.

In an overnight coup, he was removed as the Chairman of Tata Sons in October 2016.

Along with him, the entire senior management too was purged and Ratan Tata was back at the helms of affairs four years after he took retirement.

Mistry challenged the removal before the Mumbai bench of National Company Law Tribunal but lost and then went in for appeal at the NCLAT.

Tatas had cited alleged failure of Mistry to "deliver on the promises that he had made at the time of his selection as the Chairman" and inability to lead the group in a cohesive manner and failure in providing proper guidance and support to the group as the reasons for his sacking.

Mistry had contended that he was removed because of his "efforts to remedy past acts of mismanagement", for resisting interference of Ratan Tata and for instituting a formal governance framework to regulate the role of the Tata Trusts.

The "legacy hotspots" included shutting down the small car Nano project; cutting losses with expensive decisions in firms such as Indian Hotels Company Ltd (IHCL) and Tata Teleservices Ltd; and Air Asia fraud.

While Mistry termed the NCLAT judgment as "victory for the principles of good governance and minority shareholder rights", Tata Sons said the NCLAT order appears to have gone beyond the specific reliefs sought by Mistry and it was not clear as to how the NCLAT order seeks to over-rule the decisions taken by shareholders of Tata Sons and listed Tata operating companies at validly constituted shareholder meetings.

"The proceedings of the sixth meeting of the Board of Directors of Tata Sons Ltd held on Monday, October 24 2016 so far as it relates to removal and other actions taken against Cyrus Pallonji Mistry is declared illegal and is set aside. In the result, Cyrus Pallonji Mistry is restored to his original position as Executive Chairman of Tata Sons Ltd and consequently as Director of the Tata companies for rest of the tenure," the NCLAT said in its order.

As a sequel thereto, the appointment of Chandrasekaran, who replaced Mistry, "is declared illegal," it said.

The NCLAT ordered Ratan N Tata and the nominee of the Tata Trusts to "desist from taking any decision in advance which requires majority decision of the Board of Directors or in the Annual General Meeting".

Also, the company, its Board of Directors and shareholders were ordered not to exercise power under Article 75 against Mistry.

Powers under Article 75 had not been exercised since inception and "can be exercised only in exceptional circumstances and in the interest of the company, but before exercising such power, reasons should be recorded in writing and intimated to the concerned shareholders whose right will be affected,” it said.

Mistry was the sixth chairman of Tata Sons and had a tenure up to March 2017.

The NCLAT order gives him five more months at the helm of Tata Sons if the said order is not stayed or overturned by the Supreme Court.

Declaring the decision of the Registrar of Companies to change character of Tata Sons from public company to private one as "illegal", NCLAT asked the RoC to correct records to show the company as public company.

The court also stated that some observations in the July 9, 2018 judgment passed by the NCLT were "inappropriate and avoidable".

These included appreciating activities of Tata Sons and highlighting its products, which had no bearing on merits of the case, it said, adding certain observations against Mistry were "undesirable and based on extraneously sourced material not on record".

Stating that such observations cast "impact on the reputation" of Mistry, the NCLAT expunged those remarks while setting aside the July 9, 2018 Judgment of NCLT, Mumbai.

After the judgment was pronounced, Tata Sons counsel prayed for suspension of part of the judgment reinstating Mistry.

"With a view to ensure smooth functioning of the company, while we are not inclined to suspend the Judgment pronounced today in its totality, but suspend the part of the Judgment so far as it relates to replacement of the present Executive Chairman and reinstatement of Mistry for a period of four weeks," the NCLAT said.

"Rest of the Judgment and Directions including the direction to reinstate Cyrus Pallonji Mistry as Director of the company and directors of three Tata companies shall be complied forthwith."

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