The corporate sector has seen tremendous expansion all across the world. The
business sector is the backbone of many countries' economies, particularly in
It accounts for over 53% of the Indian economy. Individuals in this field have
numerous options to advance.
As a result of this expansion, a proper and well-formed corporate law was
established, which includes monitoring all legal and external affairs problems
such as investigations, litigation, mergers and acquisitions, international
trade issues, and so on.
Hence, to ensure the legitimacy of economic transactions, employees are advised
of their rights and responsibilities, and firms are represented. This also
focuses on the corporate governance that is required for a company's smooth
Landmark Cases under Company Law
Salomon v Salomon & Co. LtdFacts of the Case
Aaron Salomon's business was organised into a company in 1892, with his wife,
daughter, four sons, and himself as shareholders.
Mr. Salomon, the company's managing director, sold the company for £39,000 and
took a £10,000 debt out of it.
Edmund Broderip paid Mr. Salomon a £5000 advance on the security of the
Soon after, there was a drop in sales, which was followed by strike action,
which resulted in a business downturn.
Because of his position and duty in the company, Mr. Edmund sued Mr. Salomon to
In this case, Mr. Salomon, the company's founder, is protected from personal
obligation to creditors because the company is a separate legal entity from its
The notion of corporate personhood established by the Companies Act of 1862 was
upheld by the court.
Thus, creditors of a bankrupt firm cannot sue the company's shareholders for
payment of outstanding debts.
Royal British Bank v TurquandFacts of the Case
Mr Turquand was the insolvent Cameron's Coalbrook Steam, Coal and Swansea and
Loughor Railway Company's official manager (liquidator).
It was established in 1844 under the Joint Stock Companies Act.
The company had issued a £2000 bond to the Royal British Bank, which guaranteed
the company's current account draws.
The bond was signed by two directors and the secretary and was under the
company's seal. For non-payment of the same, the claimants, the Royal British
Bank, sued him.
The company stated that the directors had only the ability to borrow the
company's resolution had allowed what under its registered deed of settlement
(the articles of association).
The defendants also claimed that no resolution authorizing the issuance of the
bond had been passed, and that no bond was issued without the approval and
consent of the company's shareholders.
Sir Jervis was of the opinion that the Court of Queen's Bench's decision should
be affirmed. He was inclined to believe that the issue, which had been raised
primarily in this case and in that Court, did not always arise and did not
require a decision.
His impression is that the replication's resolution goes far enough to satisfy
the deed of settlement's criteria.
According to Sir Jervis, the deed allows directors to borrow on a bond the sum
or sums of money that may be borrowed from time to time by a resolution passed
at the Company's General Meeting, and the replication of the resolution, adopted
at the General Meeting, authorizes the directors to borrow such sums on bonds
for such periods and at such interest rates as they may deem expedient, in
accordance with the act of settlement and the Act of Parliament; however, the
resolution authorizes the directors to borrow such sum.
It seemed to me to be enough, said Sir John Jervis CJ.
If this is the case, the other point does not arise, and we do not need to
determine; for it appears to us that the plea, whether we regard it as a
confession and rejection or a unique non-est factum, does not create any
obstacle to the Company's advance.
He went on to say that - we can now assume that dealings with these firms are
not the same as dealings with other partnerships, and that the parties involved
must read the statute and the settlement act. But they're not obligated to go
And the party here would discover, rather than a prohibition on borrowing,
permission to do so under specified conditions in the settlement statute.
It would have the right to infer the fact of a resolution allowing what appears
to have been properly done in the face of the document if it found that the
authority might be accomplished by a resolution.
Cyrus Investments Pvt. Ltd. & Anr. v. Tata Sons Ltd.& OrsFacts of the Case
The National Company Law Tribunal, Mumbai Bench ("NCLT") handed down a
significant ruling in the case of Cyrus Investments Private Limited & Others
("Petitioners") v. Tata Sons Limited & Others1 ("Respondents") on oppression and
mismanagement under the company law regime. Hon'ble Mr. B.S.V. Prakash Kumar,
Member (Judicial), and Hon'ble Mr. V. Nallasenapathy, Member (Judicial),
delivered the decision (Technical).
In this case, Cyril Mistry joined the board of the Shapoorji Pallonji group and
became the largest stakeholder of TATA and Sons in the year 1991.
In 1994, he was named a director of the company. Around 80% of the shares in
TATA Sons are owned by his firm.
Cyrus Mistry joined the Tata Sons Board of Directors in September 2006,
following his father's retirement from the TATA Group in November 2011.
Following Ratan Tata's retirement, Cyrus Mistry was named Deputy Chairman, then
in December 2012, Cyrus Mistry was named Chairman of Tata Sons.
N. Chandrasekhar, CEO of Tata Consultancy Services Limited, was chosen Chairman
of Tata and Sons in January 2017.
The Board called Cyrus Pallonji Mistry to be removed as a director on February
This resulted in a dispute between Cyrus Mistry and TATA, which was broadcast
throughout the world, and everyone learned of Cyrus Mistry's dismissal from his
This elimination was not made on the spur of the moment, but rather after much
thought. Ratan Tata's next move was to write a letter to the Prime Minister in
which he mentioned the termination of the group's chairman.
The reason given for Cyrus Mistry's dismissal was that he did not perform his
Cyrus Mistry filed a petition with the National Company Law Tribunal; however,
it was dismissed since the TATA Group company had no such mismanagement.
On December 18, 2019, the National Company Law Tribunal reinstated Cyrus Mistry
as chairman of TATA Sons and gave TATA a four-week period to file an appeal
against the NCLAT judgement.
The Supreme Court then issued an injunction against the NCLAT's order, stating
that it has gaps and several flaws. The Supreme Court ordered that the matter be
Cyrus Mistry won the case because he demonstrated that he had done nothing wrong
and that his dismissal was unconstitutional.
The Shapoorji Pallonji Group has stated that they are not going through any
difficulties and that no legal action against TATA Sons will be considered.
Even though TATA filed a caveat in all courts, Cyrus Mistry stated that he would
not take legal action against the corporation, but that he would consult a law
firm about possible steps ahead of his dismissal.
Because of Cyrus Mistry's dismissal from his post, the corporate sector was
stunned, and the company's stocks plunged 3.16 percent in the stock market.
According to the company's Articles of Association, the chairman can only be
removed by the board members if he is found to have committed any fraud, been
involved in any kind of internal mismanagement, or been found disloyal to the
company; however, Cyrus Mistry has not met any of the above conditions.
Finally, the National Company Law Appellate Tribunal (NCLAT) rules that Cyrus
Mistry's removal was unconstitutional.
TATA Sons' transition from public to private corporation was also halted by the
NCLAT. Also announces the return of mystery to the TATA Sons.
The NCLAT's order has been delayed by the Supreme Court because it contains
The Tribunal had approved a prayer that had not been requested, according to the
Tata Consultancy Services Limited v. Cyrus Investments Pvt. Ltd.Facts of the Case
The Sapoorji Pallonji Group (SP Group), led by Cyrus Mistry, owned 18.37 percent
of Tata Sons Limited's total paid-up share capital. Cyrus Mistry was named as
the Tata Sons' Executive Deputy Chairman for a five-year term in 2012.
By the end of the year, the Board of Directors had named Cyrus as the Executive
Chairman of Tata Sons, effective December 29, 2012, while Ratan Tata was named
On October 24, 2016, the Tata Sons Board of Directors issued a resolution
removing Cyrus from his role as Executive Chairman of the company."
Cyrus was later dismissed from the board of directors of Tata Industries Ltd.,
Tata Consultancy Services Ltd., and Tata Teleservices Ltd., after separate
Following that, Cyrus resigned from a few additional board positions. Following
that, two SP Group firms, Cyrus Investments Pvt. Ltd. and Sterling Investment
Corporation Pvt. Ltd., filed a company petition under Sections 241, 242, and 244
of the Companies Act, 2013, alleging mismanagement, oppression, and
The complainants also questioned Tata Sons' shift from a public to a private
The National Company Law Tribunal ruled that Cyrus Mistry's dismissal as
executive chairman was unconstitutional and ordered that he be reinstated.
The Supreme Court delayed the NCLAT order in January 2020, and the verdict was
postponed until December 17, 2020.
The Supreme Court has now ruled that Tata Sons' conduct did not amount to
minority shareholder persecution or mismanagement.
The judgement went in the Tata Group's favour.
The bench dismissed all of Cyrus Mistry's allegations of persecution and
mismanagement levelled against Tata Sons Limited. A Supreme Court bench led by
Chief Justice S A Bobde, Justice V Ramasubramanian, and Justice A S Bopanna made
On December 18, 2019, the Supreme Court postponed the ruling of the National
Company Law Appellate Tribunal (NCLAT) to reinstate Cyrus Mistry as executive
chairman of Tata Sons.
The Supreme Court held that the Company Law Tribunal cannot intervene in the
removal of a person as a Chairman of a Company in a petition filed under Section
241 of the Companies Act, 2013, unless the removal is oppressive, mismanaged, or
done in a prejudicial manner harming the company, its members, or the public at
The court decided that removing a person as Chairman of the Company is not a
subject matter under Section 241 of the Companies Act unless it is proven to be
"oppressive or harmful." Sections 241 and 242 of the Companies Act of 2013 do
not specifically give reinstatement authority, according to the court.
As a result, on December 18, 2019, the Supreme Court overturned the National
Company Law Appellate Tribunal's (NCLAT) order to reinstate Cyrus Mistry as
executive chairman of Tata Sons.
AK Bindal vs Union of IndiaFacts of the Case
In 1961, two fertilizer businesses, Hindustan Fertilizers Limited and Sindri
Fertilizers and Chemicals Limited, merged to form Fertilizer Corporation of
India (hence referred to as FCI).
FCI had seventeen fertilizer units under its control from 1961 to 1977, seven of
them were operational and the other ten were in various phases of
The Government of India established a committee in 1978 to figure out the
mechanisms for reorganizing the fertilizer business, and the committee suggested
that FCI and National Fertilizer Ltd be split up (hereinafter referred to as the
FCI and NFL were split into five new enterprises as a result of the
recommendation, and the units were dispersed among the new undertakings.
The Hindustan Fertilizer Corporation ltd was one of the newly established
businesses (hereinafter referred to as HFC).
Haldia, Namrup, Durgapur, and Barauni were the four units assigned to HFC.
Sindri, Gorakhpur, Ramagundam, Talcher, Korba, and Jodhpur were among the six
units preserved by FCI. Rashtriya Chemicals and Fertilizers Ltd, National
Fertilizers Ltd, and Project and Development India Ltd were the other companies
formed as a result of the split.
Following the reorganization, a new pattern of industrial payment and dearness
allowance was implemented, beginning September 1, 1977.
On September 3, 1979, the Government of India's Department of Chemicals and
Fertilizers published a circular announcing that the pay scale and fringe
benefits of all FCI/NFL personnel will be revised at the same time.
Hence, all five firms' officers were to be treated the same in terms of
compensation raises and fringe perks.
It's safe to say that the September 3, 1997 circular established the principle
of uniform treatment, which the petitioner later claims.
The pay scale modification was due on August 1, 1986, but it was not implemented
since the government did not pursue it.
Nonetheless, the administration decided to provide ad hoc aid to all
public-sector officers. The relief was paid to all officers at a uniform rate
beginning August 1, 1986, and was based on the pattern of the industrial DA and
related pay grades.
The Bureau of Public Officers proposed a second ad hoc relief to the officers
because the government had made no decision on revising the pay scales and
benefits of all officers working in public sector enterprises (hence referred to
as PSEs) across the country.
As a result, on January 24, 1990, FCI and HFC issued circulars providing for the
payment of ad hoc relief to its officers.
Until this point, the officers of the five corporations were treated in the same
way when it came to compensation revisions and other fringe benefits.
It's worth noting that the updated pay scales that went into effect on January
1, 1987 stayed in effect for the next five years.
The next pay scale change was due on August 1, 1992. The salary schedule and
fringe perks for FCI and HFC officers, however, were not changed because the two
companies were losing money.
What's crucial to notice here is that the improved pay scale was extended to the
remaining enterprises of the former FCI/NFL group.
Following that, the Department of Public Enterprises issued an office memorandum
on wage policy for the fifth round of wage negotiations in public sector
enterprises in April 1993, which directed PSE management to begin wage
negotiations with trade unions and associations while also notifying that under
the new wage policy, management had the liberty to negotiate wage structure
subject only to the generation of resources and profits by the individual ente.
This was followed by the Department of Public Enterprises' disputed office
memorandum dated July 19, 1995, which stated that pay revisions and other
benefits would be granted to sick PSEs registered with the Board for Industrial
and Financial Reconstruction only if the unit was decided to be revived, and the
revival package would include the increased liability on this account.
The present writ petitions were filed in the Delhi High Court and transferred to
the Supreme Court to be disposed of by a common order because of the
differential treatment meted out to the officers of HFC and FCI in terms of
payment of wages and fringe benefits based on profits and losses incurred by the
The decision has its roots principally in corporate and labour law.
The petitioners also included fundamental rights in the form of a right to
livelihood, but the court's decision clearly delineated the rights' bounds.
The parameters thus established are appropriate for the case's unique
circumstances and do not depict a dismal scenario in which the court has
abandoned the cause of justice.
The court took into account the government's ongoing attempts to resuscitate the
ill units as well as non-budgetary assistance supplied by the government. Given
the tremendous losses both companies have been experiencing, the fact that the
employees were paid remuneration is due to the government.
All attempts to resurrect the ill units failed. The government's voluntary
retirement scheme effectively addressed the problems of both companies'
When using this decision as a precedent, however, the individual facts and
circumstances of the case must be considered before pressing for its adoption.
Because the many concepts developed in this judgement are unique to the facts
and circumstances of this case, it must be read in context.
Would employees have a claim if the benefits under the voluntary retirement
arrangement were woefully inadequate, for example?
Would the court have gone one step further in the interests of justice and
permitted payment of the claim for 60% of the benefits due, as requested in the
Another concern is whether the verdict would have been different if the sick
units had been given a fair chance to recover.
Finally, would the court have recognised the employees' right to livelihood if
the petitioners had presented evidence that the wages paid to the employees were
insufficient to meet their fundamental needs?
It cannot be denied that the courts have applied stringent laws and precedents
to the current case, but they have also highlighted the case's unique
Sri Gopal Jalan & Co. v. Calcutta Stock Exchange Association LtdFacts of the Case
In this case, the appellant, who was accepted as a shareholder in the respondent
Company for the purposes of the proceedings, claimed that the company had failed
to file a return of the allotment of his shares with the registrar as required
by law, and filed a complaint with the High Court in Calcutta.
The definition of the word allocation as defined under Section 75(1) of the
Companies Act, 1956 was challenged in court. The Court determined that
re-issuing a forfeiture share is not the same as an allotment of a share as
defined by Section 75 (1).
The term "allotment" refers to the company's acceptance of a share offer.
Seth Mohan Lal v. Grain Chambers LtdFacts of the Case
The respondent corporation was established to conduct specific operations in the
area of commodity exchange, which included jaggery.
The company's AOA made it mandatory for all of the company's members to engage
in the company's commercial transactions.
These transactions were carried out under the 1913 Companies Act, which did not
restrict a director from conducting business with the corporation.
In 1936, the Act was revised to make it illegal for directors to engage in
business with the corporation.
However, the Company's business model remained unchanged. The appellant company
had entered into a transaction with the respondent and had made significant
financial deposits in the respondent's account in connection with the
The appellant company had entered into a transaction with the respondent and had
made significant financial deposits in the respondent's account in connection
with the transaction.
On February 15, 1950, the Indian government issued a decree prohibiting anyone
from engaging in 'future' in jaggery transactions or making or receiving
payments relating to any futures after that date.
Filing a petition against the corporation following such resolution and closing
down their business for settling all outstanding transactions before the closing
day at the prevailing rate.
The appeal court ruled that the notification voids any outstanding guts and
As a result, no case was made out from the company's closure, and the
notification against futures trading in the gut was to function in the
Shanti Prasad Jain v. Kalinga Tubes LtdFacts of the Case
The current problems are a dispute between two parties for the company's
management, notably M/s Kalinga Tubes.
The appellant's main claim is that the majority of shareholders are oppressing
minority shareholders and mismanaging the company's activities. Patnaik and
Loganathan, two sets of owners, were in charge of the corporation.
The appellant, Patnaik, and Loganathan entered into an arrangement under which
the appellant was awarded the same number of shares as the current shareholders,
giving him equal power and voice in the company's finances and management.
This agreement was made in the personal capacity of the stockholders, with the
firm being excluded as a party.
However, the AOA was not updated to reflect the subsequent revisions. The
corporation was turned into a publicly traded company by the three groups of
A notice of general meeting was issued for the goal of raising capital and
allotting extra equity shares to outsiders rather than current shareholders.
Following that, the appellant filed an application under sections 397, 398, 402,
and 403 of the Companies Act, 1956, to stop the majority shareholders from
oppressing smaller shareholders.
The application further claims that the majority shareholders group excluded the
minority group from the company's management by attaining 75 percent voting
rights in violation of the 1954 agreement.
The appellant further claimed a lack of fair play, a fair deal, lack of probity,
firm mismanagement, and a lack of faith and trust.
It came to the conclusion that no such oppression had been established as a
result of mismanagement of the Act under S 397 and S 398.
Even if they were friends of the majority group of shareholders, the seven
people to whom the new shares were offered were independent.
Section 81 of the Act does not prohibit the general meeting from passing
resolutions. When the public corporation was established in 1957, the agreement
on which the case of oppression was based was not binding even on the private
It was truly an agreement between a non-member and two company members, and
while the agreement was mostly followed for a while, some of its stipulations
could not be incorporated into the public company's articles of association
because the company was not obliged by it.
Recent Cases under Companies Act, 2013
The petition for oppression and mismanagement was submitted by the Government of
India in the case of Union of India v. Delhi Gymkhana Club
When the Central Government files a complaint under Section 241(2), it is
required to state its opinion as to whether the company's activities are being
conducted in a way harmful to public interest, and expressing such opinion is a
sine qua non for filing to the Tribunal under Section 241(2).
The Tribunal is unable to assess the sufficiency or otherwise of the material on
which the government has formed its opinion, particularly when no mala fide is
imputed to the Central Government.
The term 'public interest' cannot be interpreted to mean all Indian nationals.
It would be sufficient if the rights, security, economic well-being, health, and
safety of even a small segment of society - such as candidates seeking
membership in the category of common citizen - were impacted.
The NCLAT concluded in Smruti Shreyans Shah v. The Lok Prakashan Ltd. &
 that if a prima facie case is made out, the Tribunal might make interim
directions under Section 242.
It was noted that the Tribunal's entry of an interim order under Section 242(4)
presupposes that the company's affairs have not been or are not being conducted
in compliance with the provisions of law and the Articles of Association.
To establish a prima facie case, the member alleging tyranny and mismanagement
must show that he has asked reasonable questions in the Company Petition that
In Aruna Oswal v Pankaj Oswal & Ors
, the Supreme Court held that because
questions of right, title, and interest in shares as a result of nomination were
pending before a civil court, which had ordered status quo in relation to the SC
matter, it would not be open to a shareholder whose title to the shares had been
disputed and who was not eligible to maintain a petition under Section 244, to
agitate matters relating to the disputed shares by way of a petition for
oppression and mismanagement, including by seeking a waiver of the requirements
under Section 244.
The NCLAT held in Dhananjay Mishra v Dynatron Services Private Limited &
. that acts of non-service of notice of meetings, financial
discrepancies, and non-appointment of directors, all of which are specifically
dealt with under the Companies Act and fall within the Tribunal's jurisdiction
to consider grant of relief under Section 242 of the Companies Act, render the
dispute non-arbitrable, even though it cannot be disputed as a broad proposition
that the dispute arising out of breach of contractual obligations referable to
the MOUs or otherwise would be arbitrable.
The NCLAT enabled the government to imprison a company's auditors in the
instance of fraud and mismanagement in Deloitte Haskins & Sells LLP v Union of
India. The Central Government filed a petition against Infrastructure
Leasing & Financial Services ("IL&FS") and IL&FS Financial Services (IFIN)
alleging fraud, mismanagement, and conduct of affairs injurious to the public
interest, among other things, under Section 241(2).
The Central Government also sought to prosecute IL&FS and IFIN's statutory
auditing companies, as well as the auditing firms' partners (those who were
still working with the firm or who had resigned).
The auditors disputed this, claiming that they were not essential parties to the
proceedings and that they had resigned as auditors prior to the Central
Government's institution of the proceedings.
The NCLAT rejected the argument, holding that the Tribunal's powers under
Section 242 are broad, and that the Tribunal might hear any party, including the
former auditors, before issuing an order to preserve the public interest or the
We came across several issues that a company, its shareholders, or its employees
and employers encounter while at work.
Issues such as whether or not a corporation can be sued and sued in its name, or
whether or not a company's members can be held accountable for any wrongdoing.
We also noted the issue of the prospectus being published, the business being
wound up, and so on.
So, the court deals with all of these concerns by providing answers and
establishing a plausible nexus, thereby bringing clarity and understanding into
- UKHL 1, AC 22
- 6 E&B 327
- 2017 SCC OnLine NCLAT 261
- 2017 SCC Online SC 272
- (2003) 5 SCC 163
- 1964 AIR 250
- 1968 AIR 772
- AIR 1965 SC 1535
- 2021 SCC OnLine NCLAT 123
- Company Appeal (AT) No. 25 of 2018
- Civil Appeal No. 9340 of 2019
- Company Appeal (AT) 389 of 2018
- Company Appeal (AT) 190 of 2019
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