The five-week long legal battle between Tata Sons Ltd and its ousted chairman Cyrus P. Mistry’s family firms, has so far gone largely in favour of Tata Sons Ltd, with the courts—first the National Company Law Tribunal (NCLT) and then the National Company Law Appellate Tribunal (NCLAT),
While it may seem that Mistry’s family firms are losing ground, the battle is far from over for two reasons—one, NCLT has yet to pronounce its final judgement on the petition and two, so far, both tribunals have not gone into the merits of the issue but only with pleadings and investigative agencies have not presented their fact-finding reports.
Mistry’s office declined to comment as the matter is in the court. Tata Sons also declined to comment because the matter is sub-judice. In the latest setback for the Mistry family firms, the appellate tribunal on 3 February dismissed all their appeals.
Among other things, the firms had sought a stay on the extraordinary general meeting and sought an order restraining Tata Sons from taking any action to oust Mistry as a director. With the NCLAT dismissing the plea, the holding company is set to eject Mistry on Monday. If he is removed as a director, it will be the first time in a decade that the Shapoorji family, which owns an 18.4% stake in Tata Sons since 1965, will lose representation on the Tata Sons board.
“Any of the judgements that we are seeing now are based on the questions of law. Questions of fact can be found only by an appropriate investigative authority. Till today, investors do not know what has actually transpired,” said Sumit Agrawal, partner at Suvan Law Advisors, a law firm representing Cyrus Mistry.
The next stage, added Agrawal, is likely to be about oppression and securities law violations. The legal wrangling will take a turn, he claimed, when agencies such as Securities and Exchange Board of India (Sebi) or ministry of corporate affairs disclose their findings. Also, he said an independent committee under a Supreme Court judge may be appointed to probe the allegations and counter-allegations. Due process of law has to take its course, he said.
To be sure, Sebi has already given a clean chit to Ratan Tata, chairman emeritus of Tata Sons, on alleged violation of insider trading norms citing a note from a Sebi board meet on 14 January. The Sebi note said sharing information with a chairman emeritus is normal course of business as “the benefit of his experience would be invaluable to the company.
Mistry family’s investment firms—Cyrus Investments Pvt. Ltd and Sterling Investments Pvt. Ltd—fired the first salvo on 20 December. In its 344-page petition filed at the NCLT, the family firms alleged mismanagement at Tata Sons and oppression of minority shareholders. In its hearing on 31 January, the NCLT gave a green signal to Tata Sons to hold a planned shareholder meeting.
Earlier in January, the Mistry firms filed a contempt of court petition seeking a stay on the Tata Sons EGM.
This was dismissed by the NCLT, which asked the firms to club it with their original petition alleging mismanagement of Tata Sons and oppression of minority shareholders. Dissatisfied with NCLT’s response, the Mistry firms moved the NCALT on 3 February. According to the firms’ petition before the NCLAT, orders delivered by the NCLT were both “wrong both on fact and law and….. set out a very bad precedent” on several counts, including by failing to give reasons for rejecting a stay on the 6 February meeting.
The NCLT bench in its hearing on 31 January asked Mistry’s counsel to argue on the merits of the original petition on 13 February. After concluding hearings on behalf of the Mistry firms, the tribunal will hear Tata Sons’ arguments on 20 and 21 February.
Mistry’s ouster from the board as a director will depend on the outcome of the final hearing, said R.S. Loona, managing partner at Alliance Corporate Lawyers. Either of the parties can appeal the order in the Supreme Court, said Loona, adding that “the final judgement by NCLT will be very material, as it will indicate what is the opinion of an independent quasi-judicial body.”
J.N. Gupta, managing director and co-founder at proxy advisory firm SES Governance said: “I have maintained this from the very beginning; the only issue lies in the optics of removal, there’s nothing illegal about the removal per se. Even if it was, there’s a small penalty of Rs2,500 in the company law. The court cannot dictate the appointment or removal of a person.”