Mumbai: Tata Sons has asked the National Company Law Tribunal (NCLT) to dismiss the case filed against it by Cyrus Mistry’s family investment firms, claiming the petitioners don’t have the necessary qualification to file such a suit.
Tata Sons said that the petition, filed by Cyrus Investments Pvt. Ltd and Sterling Investment Corporation Pvt. Ltd alleging mismanagement of Tata Sons and oppression of minority shareholders, should be dismissed under the Companies Act. According to this Act, the petitioners should be holding at least one-tenth of the “issued share capital” of Tata Sons or representing at least one-tenth of the total number of members.
“It is well settled that the term ‘issued share capital’ of a company comprises not only the issued equity capital of such company but also the issued preference capital,” Tata Sons said in its response. It added that if preference capital is also included, the Mistry family firms hold only 2.17% of the total issued share capital of Tata Sons. They hold 18.4% of the ordinary share capital of Tata Sons.
There can be a question on the admissibility of the petition if a company has issued preference shares and if the aggregate share capital (of the petitioners) is less than 10%, said R.S. Loona, managing partner at Alliance Corporate Lawyers.
Similarly, the two petitioners don’t make up one-tenth of the total number of members of Tata Sons, which stands at 51, the petition said.
To be sure, the Companies Act also says that these conditions can be waived if an application is made. However, Tata Sons has contended that since the two investment firms haven’t sought any waiver at the time of filing the petition, any leave “if sought now, will only be an after-thought and not even maintainable”.
“Technically it appears to be the right contention, although the law doesn’t specifically define the term ‘issued share capital’ anywhere,” said J.N. Gupta, co-founder and managing director of Stakeholder Empowerment Services, a proxy governance firm. “However, it would have been better if Tatas win this battle on merit than technicalities.”
The Tata Sons response also said that because the petitioners didn’t take any remedial action for alleged breach of violations earlier or voice their dissent, their petition is time-barred. For instance, some of the allegations, such as the unjust enrichment of the M. Pallonji group of firms from their contracts with Tata Power, date back to 1993.
The “petitioners cannot take refuge under the generic plea that the acts of oppression and mismanagement are continuing, in order to meet the plea of limitation”, the Tata Sons response said.
Another reason why the petition should be dismissed was because the allegations related to insider trading and hawala transactions fall outside the jurisdiction of the NCLT, the Tata Sons affidavit said.
It said Cyrus Investments and Sterling Investments have also received dividends and “unconditionally” accepted them, and approved balance sheets and audited accounts of Tata Sons “without reservation”.
The petition has been filed to try and secure the position of Mistry as a director of Tata Sons though he continues to act to the detriment of the Tata group, the response said. It said the petition was sponsored by Mistry, who was adopting “a ‘scorched earth’ policy of tarnishing the reputation of the Tata Group”.
Mistry, in his representation to Tata group shareholders, has always maintained that governance reform in the group was his aim and his decision to tackle issues related to this may well be the reason for his ouster.
Tata Sons reiterated that Mistry was replaced as chairman because he had lost the confidence of the board and shareholders.
On 24 October, the board of Tata Sons, controlled by the Tata Trusts, forced then chairman Mistry’s exit. The two sides have since been trading charges and the matter is now before the company law tribunal. The NCLT will next hear the case on 31 January.
“The petitioners and Cyrus Mistry will file their rejoinder on all facts and issues that are involved in the proceedings,” said a person close to the ousted chairman.