Ad­van­tage Mistry:

The re­cent NCLAT or­ders bring par­tial re­lief to ousted Tata Sons Chair­man Cyrus Mistry in his bit­ter bat­tle with the Tata Group.

India Business Journal - - CONTENTS - MUNISH SHEKHAVAT & IBJ BU­REAU

The re­cent NCLAT or­ders bring par­tial re­lief to ousted Tata Sons Chair­man Cyrus Mistry in his bit­ter bat­tle with the Tata Group.

The Na­tional Com­pany Law Ap­pel­late Tri­bunal (NCLAT) has re­strained Tata Sons from forc­ing ousted chair­man Cyrus Mistry's fam­ily out of the hold­ing com­pany of the $100-bil­lion (a lit­tle over Rs 7,20,000 crore) Tata Group. How­ever, the tri­bunal has re­fused to stay Tata Sons' con­ver­sion to a pri­vate com­pany. The tri­bunal's in­terim or­der fol­lowed Mr Mistry's plea for putting on hold the ap­proval for con­ver­sion of Tata Sons into a pri­vate com­pany from a pub­lic lim­ited com­pany.

Bring­ing fur­ther re­lief to Mr Mistry, the NCLAT has also ad­mit­ted his plea, chal­leng­ing the or­ders of the Na­tional Com­pany Law Tri­bunal (NCLT). The ap­pel­late tri­bunal is yet to pass its fi­nal or­der on the mat­ter re­lated to re­moval of Mr Mistry from the Mum­bai-head­quar­tered hold­ing com­pany of the Tata Group.

The Mum­bai bench of the NCLT had ear­lier dis­missed Mr Mistry's pe­ti­tion that had chal­lenged his re­moval as chair­man of Tata Sons in a board­room coup in 2016. Un­der the Com­pa­nies Act, 2013, an or­der of the NCLT can be chal­lenged be­fore the NCLAT.

Le­gal wran­gle

The Mistry fam­ily, which is the largest share­holder in Tata Sons, had moved the NCLAT, chal­leng­ing Tata Sons' plan to re­strict its share­hold­ers from freely sell­ing their stake. For this, Tata Sons has been re­sort­ing to the Ar­ti­cle 75 of the com­pany's Ar­ti­cles of As­so­ci­a­tion (AoA) that can be used by the board to force a share­holder to sell out.

The Ar­ti­cle 75 has been a part of the AoA of Tata Sons since its in­cep­tion in 1917, which was a pri­vate lim­ited com­pany then. How­ever, it was changed into a pub­lic lim­ited com­pany in 1965. It was after this change of sta­tus that the Mistry fam­ily had bought 18.4 per cent stake in Tata Sons.

The Ar­ti­cle 75 deals with the com­pany's power to trans­fer shares and au­tho­rises Tata Sons to pass a spe­cial res­o­lu­tion at any time and re­solve that any holder of or­di­nary shares trans­fer his or­di­nary shares. "Such a mem­ber would there­upon be deemed to have served the com­pany with a sale no­tice in re­spect of his or­di­nary shares in ac­cor­dance with Ar­ti­cle 58 hereof, and all the an­cil­lary and con­se­quen­tial pro­vi­sions of these Ar­ti­cles shall ap­ply with re­spect to the com­ple­tion of the sale of the said shares," man­dates the Ar­ti­cle 75.

In Septem­ber last year, Tata Sons had re­ceived share­hold­ers' nod to con­vert it­self into a pri­vate lim­ited com­pany from a pub­lic lim­ited com­pany, lim­it­ing in ef­fect Mr Mistry fam­ily's abil­ity to sell its stake to out­siders. A pub­lic lim­ited com­pany al­lows share­hold­ers to sell their stake to any­one legally, but a share­holder of a pri­vate lim­ited com­pany can­not sell the shares to ex­ter­nal in­vestors.

Tata Sons had con­tended that it was al­ways a closely-held pri­vate en­tity but was con­sid­ered a pub­lic lim­ited com­pany due to its size un­der an old le­gal pro­vi­sion. The com­pany had al­tered the rules gov­ern­ing its struc­ture last year, thereby al­low­ing its share­hold­ers to ap­prove a change to its le­gal sta­tus, over­rid­ing ob­jec­tions from Mr Mistry.

The Mistry fam­ily, which de­rives

al­most $17 bil­lion (around Rs 1,22,500 crore) of its for­tune from the 18.4 per cent stake in Tata Sons, had filed sev­eral law­suits chal­leng­ing the ouster of Mr Mistry from the Mum­bai-head­quar­tered com­pany. Dur­ing the hear­ing, Mr Mistry had al­leged that the ap­peal against the or­der of the NCLT, Mum­bai, was filed be­fore the NCLAT in the evening of Au­gust 6, 2018, and that the Tatas had hur­riedly moved the Regis­trar of Com­pa­nies (RoC), Mum­bai, which had passed a cer­tifi­cate con­vert­ing the com­pany as Tata Sons Pvt Ltd.

"Tak­ing into con­sid­er­a­tion the facts and that the ap­peal is pend­ing and if the ap­pel­lants (Mr Mistry) are forced to sell their shares which may af­fect the mer­its of the ap­peal, as they will cease to be mem­ber(s) of the com­pany (Tata Sons). We di­rect the re­spon­dents (Tatas) not take any step in terms of Ar­ti­cle 75 for trans­fer of shares of mi­nor­ity share­hold­ers, like ap­pel­lants (Mistry) and oth­ers, dur­ing the pen­dency of the ap­peal," the two-mem­ber bench of the NCLAT, headed by its Chair­per­son Jus­tice S J Mukhopad­haya, has ruled. "Over change of sta­tus of Tata Sons, no fur­ther in­terim or­der is re­quired to be passed at this stage," the ap­pel­late tri­bunal has added.

Twists & turns

The Mistry camp had chal­lenged the July 9 or­der of the Mum­bai bench of the NCLT, which had dis­missed its pleas against Mr Mistry's re­moval as Tata Sons chair­man as also al­le­ga­tions of ram­pant mis­con­duct on the part of Ratan Tata and the com­pany's board.

The spe­cial bench of the NCLT had held that the board of di­rec­tors of Tata Sons was "com­pe­tent" to re­move the ex­ec­u­tive chair­per­son of the com­pany. NCLT bench mem­bers B S V Prakash Ku­mar and V Nal­lase­na­p­a­thy had also added that Mr Mistry was ousted as chair­man be­cause Tata Sons' board and its ma­jor­ity share­hold­ers had "lost con­fi­dence in him".

Mr Mistry had taken over as the chair­man of Tata Sons in 2012 after Ratan Tata had an­nounced his re­tire­ment. Two months after his re­moval in Oc­to­ber 2016, Mr Mistry's fam­i­lyrun com­pa­nies Cyrus In­vest­ments and Ster­ling In­vest­ments Corp had ap­proached the NCLT as mi­nor­ity share­hold­ers against Tata Sons, Ratan Tata and some other board mem­bers.

In his pleas, Mr Mistry had pri­mar­ily ar­gued that his re­moval was not in ac­cor­dance with the Com­pa­nies Act and that there was ram­pant mis­man­age­ment of af­fairs across Tata Sons. He had also al­leged that Tata Trust Chair­per­son Ratan Tata and its trustee N Soon­awala had in­ter­fered with the day-to-day op­er­a­tions of the group com­pa­nies, they had acted as shadow di­rec­tors, and all of the above had caused mas­sive rev­enue loss for the group.

In his plea, Mr Mistry had also sought ex­pung­ing of re­marks and some words used in the July 9 or­der of the NCLT. Mr Mistry still re­mains a di­rec­tor on the board of the hold­ing com­pany of the Tata Group. Tata Trusts hold 66 per cent stake in Tata Sons, while the Mistry fam­ily owns a lit­tle over 18 per cent in the hold­ing com­pany.

For the past two years, the ven­er­a­ble Tata Group has been em­broiled in a bit­ter bat­tle be­tween Mr Mistry and Ratan Tata's Tata Sons. Both the camps have ac­cused each other of vi­o­lat­ing cor­po­rate gov­er­nance norms and in­dulging in mal­prac­tices. Mr Mistry seemed to be los­ing the cor­po­rate bat­tle after the NCLT had dis­missed his pe­ti­tions. But the NCLAT's or­ders have brought par­tial re­lief to him. The fo­cus is now on the fi­nal ver­dict of the NCLAT. Un­til then, Bom­bay House - the iconic build­ing in Mum­bai that houses Tata Sons and other group com­pa­nies - will have to re­main shrouded in un­cer­tainty.

Bom­bay House, the iconic build­ing in Mum­bai thathouses Tata SonsThe bit­ter board­room bat­tle has cast a shadow on the ven­er­a­ble Tata Group.

Mr Mistry has al­leged that Tata Trust Chair­per­son Ratan Tata had in­ter­fered with day-to-day op­er­a­tions of group com­pa­nies.

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