The Supreme Court on Friday set aside the NCLAT decision re-instating Cyrus Mistry as Executive Chairman of Tatas Sons, ruling in favour of the multi-billion dollar salt-to-software conglomerate.
Mistry, scion of Shapoorji Pallonji Group, a minority shareholder in Tatas Sons, was initially only removed from the post of Executive Chairman. However, his subsequent actions, including the leaking of a confidential mail to the media to create a “sensation” and passing on information to the Income Tax authorities while claiming to be a “law abiding citizen”, was an open declaration of “all-out war” against the Tatas. These led to his removal as a Director, the court said.
“Cyrus Pallonji Mistry himself invited trouble,” a three-judge Bench led by Chief Justice Sharad A Bobde said in the 282-page judgment. Chief Justice Bobde said the ouster of Mistry not only as Executive Chairman but also a Director was justified. “A person who tries to set his own house on fire for not getting what he perceives as legitimately due to him, does not deserve to continue as part of any decision-making body,” observed the Chief Justice, who authored the verdict.
The court dismissed allegations by Mistry’s side of oppression of minority shareholders such as the Shapoorji Pallonji Group by the Tatas, who hold the majority stake. The SP Group holds 18.37 per cent shares in Tata Sons.
Contentions trashed
The court trashed contentions by Mistry’s side that the “oppressive” regime of Ratan Tata had led to bad business decisions for almost a decade. “It is interesting to note that at the time of his appointment in December 2012, what Mistry saw and acknowledged, was a ‘great learning experience he had under the direct guidance of Ratan N. Tata’, but at the time of departure in October 2016, what he saw was only a conduct for over 10 years that was oppressive and prejudicial to the interests of the company and of the minority…” the CJI noted.
The apex court dismissed the observations of the National Company Law Appellate Tribunal that affairs at Tata Sons were so “prejudicial and oppressive” that the company deserved to be wound up.
“Tata Sons is a principal investment holding company, of which the majority shareholding is with philanthropic trusts… NCLAT should have raised the most fundamental question whether it would be equitable to wind up the company and thereby starve to death those charitable trusts, especially on the basis of uncharitable allegations of oppressive and prejudicial conduct,” Chief Justice Bobde said.
The court also upheld the votive rights of the nominee directors. It said these same nominees, now accused of prejudice by Mistry, had named him Tata’s successor. But the court said the NCLAT certainly went overboard to re-instate Mistry as chairman.
The court said the NCLAT was acting well outside its jurisdiction to “mute” Tata Sons’ power under Article 75 of the Articles of Association to purchase the shares of any shareholder at a fair market price.
The court said the SP Group, after criticising Article 75, now depends on the same provision for an “exit option” from the Tatas. It said the valuation of shares of SP Group depends on the value of the stakes of Tata Sons. The court left it to the Tatas and the SP Group to reach a fair compensation on the latter’s shares either via the Article 75 route or any other legal means. The court said nothing prevents Tata Sons from re-converting itself from a public into private company.