The Mumbai bench of the National Company Law Tribunal (NCLT) on Monday finished hearing the arguments of ousted Tata Sons chairman Cyrus Mistry’s and Tata Sons’ lawyers on whether or not the former’s allegations of oppression of minority shareholders by the latter are maintainable. It, however, reserved the order for March 6. The tribunal also said that it will start hearing the main case from March 7.
According to Section 244 (a) of the Companies Act, to seek relief under sections 241 and 242, the petitioner(s) need to comprise “not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company”.
Tata Sons has argued that since Cyrus Investments and Sterling Investment Corporation, Mistry’s family investment arm via which he has filed the petition, are just two of the 51 members of the company and hold just 2.17% of its paid-up share capital, their petition is not maintainable on either of the counts. It has alleged that although the two Mistry firms hold 18.4% of the ordinary shares of the company, they hold just 2.17% of the issued share capital when even preference shares are considered.
Mistry’s lawyers, on the other hand, have argued that equity shareholders are a different class of shareholders from preference shareholders and Mistry’s firms have meet the one-tenth requirement when only equity shares are considered. They have argued that given the substantially larger size of preference share capital of the company, if both equity and preference shares are considered, then at least 81% of equity shareholding is required to meet the one-tenth eligibility criterion.
The arguments over the maintainability aspect follow a ruling by the National Company Law Appellate Tribunal (NCLAT) on February 3 that the NCLT should first decide whether Mistry’s petition is maintainable or not and if it isn’t, it should then decide whether a waiver, as requested, is being provided to him, and only after that should the tribunal hear the merits of the main case. “We are of the opinion that during the final hearing the question of maintainability should be decided first and if it is answered in negative, against the appellants, the question of waiver of the petition be decided if any strong ground has been made out to claim exception under proviso to subsection (1) of Section 244. In case aforesaid issues are decided in favour of the appellants, then the tribunal can decide the case on merit,” the tribunal had earlier said in its order.
The order by the NCLAT overruled the NCLT’s January 31 order that Mistry’s lawyers should argue their main case without worrying about the maintainability or the waiver petition. “It is settled proposition of law that a party can raise maintainability at any point of time, therefore, it is the discretion of the court to decide whether the maintainability point is to be decided at threshold or along with the main company petition,” the January 31 order of the NCLT’s Mumbai bench read.
The maintainability arguments are the latest in the Tata-Mistry legal battle that started in the board room but is now out in the courts. It started on October 24 after Mistry was unceremoniously replaced as the chairman of Tata Sons.
He was then voted out of the board of Tata Consultancy Services in an EGM, after which he resigned from the boards of all listed Tata Group companies and vowed to take the fight to a higher platform in a bid to restore corporate governance and ethics to the group.