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Tata Sons mulls legal recourse after losing round one to Mistry

The ruling threatens to create more uncertainty for the group as it has immediately restored Mistry’s directorship.

ET Bureau|
Last Updated: Dec 19, 2019, 06.44 AM IST
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The clash between Mistry and Ratan Tata has been one of the most high profile and publicly fought corporate battles in India.
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India’s quasi-judicial appeals body dealing with corporate law cases on Wednesday dramatically reinstated Cyrus Mistry as executive chairman of Tata Sons, the holding company of the Tata group, three years after he was sacked from his position due to non-performance.

The National Company Law Appellate Tribunal (NCLAT) termed Mistry’s removal in October 2016 by Tata Sons as illegal and made him executive chairman again, queering the pitch for the sprawling salt-software conglomerate headed by the soft-spoken N Chandrasekharan who replaced him.

The NCLAT also set aside Tata Sons’ decision to convert itself into a private company and accepted Mistry’s argument that Tata Sons and its directors and shareholders acted in a prejudicial and oppressive manner to minority shareholders.

Tata group shares fell after the ruling with Tata Motors, the company with the biggest debt -- falling nearly 3% while Tata Global Beverages fell 4% and Indian Hotels slipped 3%.

Celebrations erupted at SP group, founded by Cyrus’ father Pallonji Mistry’s ancestors, while a stunned Tata group reacted with shock and surprise.

“It is not clear how the NCLAT order seeks to overrule the decisions taken by shareholders of Tata Sons and listed Tata operating companies at validly constituted shareholder meetings. The NCLAT order even appears to go beyond the specific reliefs sought by appellant,” a Tata Sons statement said. The firm is likely to appeal the order.

The NCLAT judgement threatens to create more uncertainty for the group as it has immediately restored Mistry’s directorship in Tata Sons and the three group companies from which he was sacked three years ago. The tribunal has said the reinstatement of Mistry as executive chairman Tata Sons will be operational after four weeks.

The NCLAT two-judge bench has also asked Tata Sons chairman emeritus Ratan Tata and the nominee of the Tata Trusts who hold about 66% stake in the group’s main holding company to “desist from taking any decision in advance which requires a majority decision of the Board of Directors or in the Annual General Meeting”.

The order also ruled against the conversion of Tata Sons from ‘Public Company’ to ‘Private Company’, as the action taken by the Registrar of Companies is against the provisions of Section 14 of the Companies Act, 2013. Declaring the conversion illegal, the order said it is ‘prejudicial’ and ‘oppressive’ to the minority members and depositors etc., conversion of the ‘Tata Sons Limited’ from ‘Public Company’ to ‘Private Company’ by Registrar of Companies.

Mistry, whose family through investment firms is a minority shareholder of Tata Sons owning 18.4% of Tata Sons has been embroiled in a legal battle with Tata Group after he was ousted in 2016 over charges of shareholder oppression and mismanagement.

The reclusive Mistry who was inundated with telephone calls congratulating him on Wednesday said it was not a personal victory. “Today’s judgment is not a personal victory for me but is a victory for the principles of good governance and minority shareholder rights.”

While Mistry, akin to his nature preferred to keep a low profile, he had adopted an aggressive stance and had approached several legal forums to contest his sacking as chairman and making allegations of inappropriate interference in the company's affairs led by family patriarch and the conglomerate's chairman emeritus Ratan Tata.

“There will be an impact on Tata group shares as it introduces tremendous uncertainty, a senior executive at a management consultancy firm said.

Shuva Mandal, Group General Counsel, Tata Sons in a cryptic statement indicated that the Group’s intention to appeal before a higher forum. “Tata Sons strongly believes in the strength of its case and will take appropriate legal recourse,” he said. Aware that the order could inject a lot of uncertainty among stakeholders, Mandal said the group has always acted in a fair and equitable manner. “Tata Sons assures its various stakeholders that it not only has always operated in a fair and equitable manner but also acted in accordance with the law and will continue to do so.”

However, the senior counsel for Cyrus Mistry in an interview to ET claimed that he was not surprised. “I am not looking at it as a major victory for any group. I am looking at it as a very important victory for the purpose of corporate governance and for the purpose of ensuring proper and adequate corporate governance and transparency in management,” said Aryama Sundaram, senior Counsel for Cyrus Mistry.

Tata Group is one of India's oldest and biggest conglomerates with interests in sectors including technology, steel and automobiles.

The clash between Mistry and Ratan Tata has been one of the most high profile and publicly fought corporate battles in India.

“For over fifty years, the Mistry family, as the significant minority shareholder of Tata Sons, has always endeavoured to play the role of a responsible guardian of an institution that the entire nation is proud of,” a statement from the Mistry said. Mistry is a scion of the Shapoorji Pallonji family that holds 18.4% stake in Tata Group.

Also Read

Cyrus Mistry unlikely to pursue chairmanship at Tata Sons

Challenges keep Tata Sons’ N Chandrasekaran on his toes

Tata Sons move to list Cyrus Mistry as Director

Business as usual for Tata Sons Chairman N Chandrasekaran

Tata Sons’ conversion into private company illegal: NCLAT

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