NCLT says Mistry family firms’ petition ‘not maintainable’
BATTLE IS ON Tribunal to hear another petition today
The National Company Law Tribunal (NCLT) on Monday ruled that Mistry family firms are not qualified to file a petition alleging mismanagement of Tata Sons Ltd and oppression of minority shareholders.
It will hear and may decide on whether it can waive this requirement on Tuesday.
The ruling that the two firms’ petition was not maintainable had been expected. It had also been expected that the NCLT would simultaneously hear and rule favourably on a petition seeking a waiver of maintainability norms filed by Cyrus Investments Pvt Ltd and Sterling Investments Pvt Ltd along with their original petition.
“The petitioners have failed to convince the court that the application is maintainable,” said BSV Kumar, presiding member of NCLT. Under the new Companies Act, shareholders are required to hold 10 equity to be qualified to file such a petition. The Act does not define equity to mean only ordinary equity but also preference shares, explained RS Loona, managing partner at Alliance Corporate Lawyers. Given this technicality, “there was little the petitioners could do,” he added.
Experts say that while a waiver can be expected— allegations of mismanagement by a minority shareholder are serious, and can’t be dismissed using a technicality — that will not be the end of the matter. “The law was amended in 2013 to allow for waiver in select cases, so that important cases are not dis- missed on technical grounds. So the matter is far from over,” Loona added.
Lawyers appearing for both the parties refused to divulge their legal strategy, saying that they are waiting for the tribunal to rule on the waiver application.
The two Mistry firms own a combined 18.4% of ordinary equity shares of the Tata Group holding firm, but their holding falls below 10% when preference shares are taken into account. According to the Tatas, Mistry firms hold only about 2.17% then.
In a hearing on January 31, the firms insisted that they wanted the tribunal to first hear the petition on maintainability. The tribunal did not agree and said that it would hear the plea on maintainability along with the main petition. In a January 31 order, the tribunal also allowed Tata Sons Ltd to hold a planned shareholder meeting.
On February 6, Cyrus Mistry was removed as a director of Tata Sons in the shareholders meeting, a few months after his ouster as chairman on October 24.
The investment firms approached the National Company Law Appellate Tribunal (NCLAT) against the order. Dismissing the appeal, NCLAT said that tribunal must first hear the petition on maintainability, the waiver plea, and then on merits of the case.
If NCLT grants a waiver on Tuesday, Tata Sons could challenge it in NCLAT since the rules say such a waiver should be sought before a petition is filed. If it rules against a waiver, Mistry could go to the appellate tribunal against Monday’s ruling and also on the waiver petition.
“Since, the plea has been called non-maintainable on technical grounds, the tribunal can rule on waiver if it finds merit in oppression of minority shareholders,” said JN Gupta, co-founder and MD, Stockholder Empowerment Services, a proxy advisory firm.