Tata Trusts cannot legally own shares in group companies, and demands for “pre-clearance” by trustee Ratan Tata undermined the independence of the Tata Sons board, Cyrus Mistry’s counsel said in his arguments before the Supreme Court on Wednesday.

Senior Advocate Shyam Divan, appearing on behalf of the Mistry group, told the apex court that under Section 35 of the Maharashtra Public Trust Act, 1950, public charitable trusts such as Tata Trusts cannot own shares in companies.

Divan is representing the SP Group, while senior counsel C Aryama Sundaram had earlier appeared on behalf of Cyrus Investments and Sterling Investment Corporation, the two family-run firms through which ousted Tata Sons chief Cyrus Mistry had filed his appeals.

To protect the interest of Tata Sons, the SP Group was inducted in 1965 as a reliable and trustworthy partner, when it bought a stake from then Tata Group chief JRD Tata’s sister.

Mutual trust and confidence

The extent of mutual trust and confidence can be seen from the fact that during these periods, when the public trustee abstained from voting, it was the SP Group that had a dominant vote, Divan said.

He alleged that there were instances of breach of Articles of Association (AoA) and violation of the essential understanding the two groups who had had for decades. The acts of the trustees, particularly Ratan Tata, in seeking pre-clearance of all board agenda items (of Tata Sons), so that he could instruct his nominee directors how to vote, were completely contrary and ultra vires the Companies Act. This was also an abuse of Article 121 of Tata Sons’ AoA, said the counsel.

Under Section 166 of the Companies Act, 2013, all directors are expected to exercise independent judgement as they act in a fiduciary capacity, he added.

He also argued that the removal of Cyrus Mistry without any agenda item was a breach of Article 118 of Tata Sons’ AoA.

When contacted, another Mistry group lawyer confirmed the development.

The Supreme Court will continue hearing the argument on Thursday. It is expected to wrap up hearings this week ahead of the winter recess, which starts on December 18.

Tatas deny charges

Sources close to Tata Sons “vehemently” denied all these allegations, and added the holding by Tata Trusts in Tata Sons is legally valid, and there is no prohibition under the Maharashtra Public Trusts Act. Further, there is also no breach of AoA and the accusation that a selection committee should have been formed for removal of the chairman has no basis. The lawyers had also argued that there was no quasi partnership, the SP Group got a board seat only in 1981 and there was no right to nomination of a board seat.

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