Mistry case to set precedent in oppression disputes: Experts

The Mistry family’s investment firms failed to make a case of “oppression” of minority shareholdersand mis management of Tata Sons at the National Company Law Tribunal (NCLT) and the order would now become a precedent for similar disputes in corporate India, said corporate lawyers.

“The NCLT order has made sure that the majority shareholders have an absolute control over the company’s affairs and minority shareholders will have to prove that the conduct of majority shareholders was oppressive and illegal. The word ‘oppression’ is difficult to prove inacourtoflaw, andunlessthere are some illegal activities by the Tata Sons board, it will be difficult to prove such allegations,” said HP Rani na, a lawyer.

On Monday, the Mumbai bench of the NCLT rejected the petitions filed by two Mistry investment firms, Cyrus Investments and Sterling Investment, which own 18.5 per cent in Tata Sons. The Mistry firms had alleged that Tata Sons had oppressed minority shareholders — the two Mistry firms — and sought a restoration of a boardseattothem. Thepetitions were moved after Cyrus Mistry was removed as executive chairman on October 24,2016.

In the petition, the two firms alleged Mistry was removed after he undertook clean-up operations of various legacy hot spots, which resulted in huge losses to the Tata group, and had challenged the manner of his removal. The issues included the costly acquisition of Corus Steel and investment in the Nano car project.

Ranina said just because the majority shareholders took a view different from that of minority shareholders, it need not be classified as “oppression” of minority shareholders.

“Mistry should take legal opinion from former Supreme Court judges whether this case would pass judicial scrutiny in the higher courts before proceeding further,” he advised.

Other lawyers said making allegations was one thing but proving it in a court of law was difficult .“The decision son legacy issues taken by the previous Tata Sons management, led by Ratan Tata, impacted all shareholders of Tata Sons and not only theminority shareholders. Mis try has to prove that the decisions taken by Tata Sons were against the interests of minority shareholders and those benefited only the majority shareholders—the Tata Trusts ,” said RS Loona, managing partner of Alliance Law.

The NCLT order on Monday showed that Mis try had failed to prove that, he said.

Lawyers and corporate governanceexperts said the case set a precedent and made it difficult for minority shareholders of Indian companies to prove “oppression” by majority shareholders. “In case there is a dispute in future, the majority will prevail,” said Ranina.

Experts also said the matter could now go to the National Company Law Appellate Tribunal and then to the Supreme Court and thus become a test case for shareholders’ rights.

Recently, the minority shareholders of Fortis removed the independent directors of the company because it was found that they were unable to stop diversion of funds from the company.