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Tata v/s Mistry: Summarised Judement Of Hon'Ble Supreme Court

The Article comprises of the analysis of the judgement of the Hon'ble Supreme Court in the case of Tata Consultancy Services Ltd. V Cyrus Investment Pvt. Ltd. Dated on 26th March 2021. The discussion of the article revolves around the understanding of the court and the legal battle between Ratan Tata and Cyrus Mistry.

Dispute Which Arose Between Tata Vs Mistry

Cyrus Mistry was removed from his position as Executive Chairman of Tata Sons Limited on October 24, 2016, because the company's Majority Shareholders and Board of Directors lost faith in him as Chairman.

N Chandrashekaran, the former TCS Chief Executive Officer and Managing Director, is named Chairman of Tata Sons Limited.

Cyrus Mistry was terminated from the board of directors of Tata Sons by a vote of the shareholders at a general meeting.

Following that, Cyrus Mistry lodges a complaint with the National Company Law Tribunal (NCLT) in Mumbai, alleging persecution of minority shareholder rights and operational mismanagement by Tata Sons under Sections 241, 242 and 244 of the Companies Act, 2013.

Background
Tata Consultancy Services (TCS) was established on April 1, 1968, as a branch of Tata Sons. It is a global Indian information technology (IT) services and consulting firm located in Mumbai, Maharashtra. TCS has offices in 46 countries across the world.

Ratan Tata is an Indian industrialist and one of the country's most powerful businessmen. He was the previous Chairman of Tata Sons as well as the Chairman of the Tata Group.

Cyrus Investments Private Limited is a non-government company that was founded on March 7, 1923. It works as an investment advisor. It's an unlisted private company that's categorised as a "company limited by shares."

Cyrus Mistry is an Indian entrepreneur. He was the Chairman of the massive Tata Group business from 2012 until 2016. Cyrus Investments Private Limited is one of his companies, and he is one of the directors.

Laws Applied
Section 241 of the Companies Act, 2013:
This section provides relief to the members of a company in cases of oppression.

Any member of a company has the right to file an application with the Tribunal if the company's affairs have been or are being mishandled and conducted in an oppressive manner that harms the company, its members, or the general public. If the central government believes the company's affairs are being conducted in an improper manner, it can file an application with the tribunal under this clause.

Section 242 of the Companies Act, 2013  Powers of the Tribunal
Any member of a company has the right to file an application with the Tribunal if the company's affairs have been or are being mishandled and conducted in an oppressive manner that harms the company, its members, or the general public. If the central government believes the company's affairs are being conducted in an improper manner, it can file an application with the tribunal under this section.

Section 244 of the Companies Act, 2013  This section provides for the eligibility criteria to file an application under section 241 of the Companies Act, 2013.

This section should be done in accordance with section 241 of the Companies Act of 2013. It details the requirements of the application filed under Section 241 of the Companies Act, 2013.

Allegations On The Tata Group

Cyrus Mistry's charges on Tata Group to highlight the mismanagement by the group are as follows:
  1. Abuse of various powers particularly 121, 121A, 86, 104B and 118 under the Article of Association. Tata trust and it's nominee Director to exercise control over the Board of directors.
  2. Tata Sons Ltd dismissing Cyrus Mistry as an executive chairman.
  3. Claimed hesitant dealings with Tata Teleservices Limited, as well as one Mr. C. Sivasankaran.
  4. Accusing Ratan Tata of treating Tata Sons as a sole proprietorship, with all others serving as marionette, causing the Board of Directors to fail the fairness and probity test.
  5. Tata Trusts purchased Corus for an overpayment and jeopardising the talks for its merger with Thyssen Krupp.
  6. The losses incurred in the Nano automobile project plainly demonstrate the Tata Group's violation of minority shareholder rights and incompetence.
  7. Giving a corporate guarantee to the Trust Company for a loan to Sterling from Standard Chartered Bank.
  8. Making Kalimati Investments Ltd., a subsidiary of Tata Steel to provide an inter corporate bridge loan to Sterling.
  9. Dealings with NTT DoCoMo and Sterling, which resulted in a gigantic arbitration amount.
  10. Ratan Tata making personal gain for himself.
  11. Mehli Mistry's enterprises have benefited as a result of their personal friendship with Ratan Tata.
  12. Tata Trusts making a fraudulent transaction of Rs. 22 crore in Air Asia.

Why Was The Order Put To Stay?

Tata Sons Ltd. Moved to Supreme Court for urgent hearing against the order of National Law Appellate Tribunal which was to reinstate Cyrus Mistry as an Executive Chairman of Tata Group's Holding Company. Terming it a recipe for unmitigated disaster.

In January, 2020. Supreme Court stayed the order of NCLAT. Chief Justice of India SA Bobde observed that the appellate tribunal granted reliefs which weren't even sought by the ousted chairman.


Verdicts As Mentioned In The Hon'ble Supreme Court's Judgement

NCLT (National Company Law Tribunal)

The SP group filed a complaint in December, 2016 regarding various issues Mistry's major claim was that he was forced out of his position as Executive Chairman of Tata Sons and afterwards as a Director on the board of the company as well as other Tata firms owing to oppression by Tata Sons' promoters, Tata Trusts, who owned over 68 percent of the company. Oppression, as instilled under Section 241, refers to conducting the affairs of the company in a manner prejudicial or oppressive to public interest, interests of the company or its members. The NCLT stated that dismissing an employee does not fall within the scope of Section 241, and that this argument is without substance because a corporation exists for the benefit of its members. They also felt that Mistry's removal from the boards of directors of numerous Tata firms was due to him disclosing private and sensitive information.

It was also claimed that minority shareholders were being oppressed, particularly under Article 75 of Tata Son's Articles of Association. Article 75 empowers Tata Sons to urge any shareholder to sell his shareholdings to current shareholders or to outsiders chosen by the board of directors by passing a special resolution. The NCLT stated that this clause restricting the transferability of shares existed long before the petitioners became subscribers, and that they knowingly accepted it. Furthermore, in order to show prejudice to minority shareholders, a new article or change of an article must be written, which is not the case here.

The company's decision to go private was questioned. The claim that such a conversion falls under the authority of Sections 241 and 242 was rejected by the NCLT.

Both courts examined the question of whether Tata Sons may be called a quasi-partnership. The NCLT dismissed petitioner's claims that the company operated as a quasi-partnership between the Tata Group and the Shapoorji Pallonji Group.

Another key issue was Ratan Tata and the Tata Trust's mishandling of Tata Sons and other Tata Group Firms. The claims of bias against Tata Sons were dismissed by the NCLT since the Trusts were majority shareholders and could never act in a self-destructive way.

On July 9, 2018, the NCLT rejected the case, finding no validity in accusations of minority shareholder persecution or mismanagement on Ratan Tata's or Tata Trusts' behalf.

NCLAT (National Company Law Apellate Tribunal)

The termination of Mistry from his position was never discussed nor expected, according to the NCLAT, because records demonstrate that the firm excelled under his leadership, and so a case of poor performance could not be made. As a result, he was reinstated as a director of many businesses, including Tata Sons' Executive Chairman, although just four weeks after the judgement.

In view of the facts, NCLAT directed Tata sons to refrain from using Article 75 against Shapoorji Pallonji Group.

NCLAT, on the other side, found evidence of bias and oppression by the board of directors against minority shareholders and the firm. It was held that the conversion from public to private was made hastily in the midst of a pending lawsuit, and that it did not even follow proper procedures under Section 14. The Registrar of Companies was ordered to remedy the error by the court and also declared Tata to remain Public.

Although NCLAT acknowledged this allegation, they failed to agree that legitimate expectations emerging from such a relationship, which are based on mutual trust and confidence, may be a source of oppression. The Hon'ble Supreme Court has also established specific principles in order to evaluate whether a company is a quasi-partnership through so many of the judgments, however NCLAT disregarded these principles and relied on its own untested assumptions, understanding and reasonings.

The losses sustained by Tata Sons and other businesses as a result of adverse judgments made by the individual Boards of Directors, which were basically filled with a majority of Tata Trust's members, were plainly evident, according to the NCLAT.

Supreme Court
On March 26, 2021, the Supreme Court issued its decision in the Tata-Cyrus Mistry case. The verdict came down in favour of the Tata Group. All accusations of oppression and mismanagement levelled against Tata Sons Limited by Cyrus Mistry were rejected by the bench. The decision was made by a Supreme Court bench led by Chief Justice S A Bobde Justice V Ramasubramanian and Justice A S Bopanna. The Supreme Court has stayed the National Company Law Appellate Tribunal's (NCLAT) decision to restore Cyrus Mistry as executive chairman of Tata Sons on December 18, 2019.

The Supreme Court listed the number of appeals by the Tata Group and referred them as the Appellants and the other party as the SP Group as the respondents.

The Supreme Court observed that unless the removal of a person as a chairman of a company is oppressive or mismanaged or done in a prejudicial manner damaging the interests of the company, its members or the public at large, the Company Law Tribunal cannot interfere with the removal of a person as a Chairman of a Company in a petition under Section 241 of the Companies Act, 2013.

The court determined that a person's removal as Chairman of the Company is not a subject matter under Section 241 of Companies Act unless it is proved to be "oppressive or detrimental." The court decided that Sections 241 and 242 of the Companies Act of 2013 do not expressly grant reinstatement authority.

Hence, The Supreme Court has dismissed the National Company Law Appellate Tribunal's (NCLAT) decision to restore Cyrus Mistry as executive chairman of Tata Sons on December 18, 2019.

Conclusion
The case of Tata versus Mistry, in my opinion, provided us a broader perspective on sections 241, 242, and 244 of the Companies Act,2013.

Making us understand that unless the removal of a person as a Chairman of a Company is "oppressive or detrimental in nature," the tribunal cannot intervene in a petition filed under Section 241 of the Companies Act, 2013, the tribunal cannot intervene. Whereas in this case, Cyrus Mistry was terminated from his position as Executive Chairman of Tata Sons Limited on October 24, 2016, because the company's Majority Shareholders and Board of Directors lost faith in him as Chairman, not because Ratan Tata was concerned that Cyrus Mistry would cause him hardship.

The case can be used as a precedent for the future reference in the company law cases.

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