Cyrus Investments Pvt Ltd v. Tata Sons Ltd and Ors.

In the National Company Law Tribunal

Case NameCyrus Investments Pvt Ltd v. Tata Sons Ltd and Ors.
CitationsCompany Appeal (AT) No. 254 of 2018
BenchS.J Mukhopadhaya Chairperson, Bansi Lal Bhat
Relevant ActCompanies Act, 2013
Sections ReferredSection 241-242, Section 244, Section 118(10), Section 2 (68)

Introduction

The ouster was humiliating, never before had the head of such a large company been treated this way. Four years earlier, in April 2012 the big man Ratan Tata himself had appointed his successor after having helmed the group for 21 years. 

TATA Group is a huge conglomerate of over 100 companies,  28 of them listed, manufacturing salt to software having revenues of $113 billion and rupees ₹8,00,000 cr., employing 720000 people. Cyrus Mistry family company Shapoorji Pallonji themselves are reasonably large with interest in construction, water purifiers and a turnover in excess of $4 billion rupees ₹28000 crore. They also happen to be Tata Groups’ largest individual shareholder at 18.4 percent shareholding. The Mistry family occupies a very large shareholding in the TATA group. The Mistry family has shares of TATA sons,18% individual ,66% and in the charitable trust of TATA sons.

TATA controls all their companies through their holding company, TATA Sons which holds shares in them and thus exercises control. But Tata had better days when they owned and ran iconic properties like the Mumbai Taj Mahal Hotel. 75% of the TATA profit comes from one company, TCS, India’s largest software company.

Facts of the case 

Cyril Mistry joined the board of Shapoorji Pallonji group and he was the biggest shareholder of the TATA and sons in the year 1991. He was appointed as a director of the group in 1994. His company holds around 80% of the shares of TATA Sons company. 

In September 2006, Cyrus Mistry joined the Board of Tata Sons as his father retired from the TATA Group in November 2011. Cyrus Mistry was appointed as the Deputy Chairman and in December, 2012 Cyrus Mistry was appointed chairman of Tata Sons post the retirement of Ratan Tata. 

In January 2017, Tata and Sons named N. Chandrasekhar, CEO of Tata Consultancy Services Limited as its Chairman. On February 6, 2017 the Board summoned for the removal of Cyrus Pallonji Mistry as director.

This led to a fight between Cyrus Mistry and TATA, flashed across the whole world and all the people across the world came to know about the removal of Cyrus Mistry from his office. This removal was not sudden, as it was done after deliberating it for a long time. The next move of Ratan Tata was that he wrote a letter to the Prime Minister in which he mentioned the removal of the chairman of the group. The excuse provided for the removal of Cyrus Mistry was that he does not do the work accordingly.

Background

A petition was filed by Cyrus Mistry in National Company Law Tribunal but they rejected stating that there was no such mis-management in the TATA Group company.

On 18 December 2019, the National Company Law Tribunal decided to bring Cyrus Mistry back to his post of chairman of TATA Sons and give a time period of 4 weeks to TATA to file an appeal against NCLAT order. Then the Supreme Court put a ban on the order of NCLAT and said that the order from the NCLAT has gaps in it and also a lot of errors. The Supreme Court ordered to look into the matter in detail. 

On October 24, 2006 the board of TATA Group holding company, TATA sons voted to remove Mistry from the post of the chairman. Former Chairman, Ratan Tata returned as interim Chairman. In December 2016 two investment companies backed by the Mistry family moved the National Company Law Tribunal alleging Oppression of minority shareholders and mismanagement.

Arguments and Reasoning

The removal of Cyrus Mistry was legal as per the provision of the Indian law because the removal of Cyrus Mistry was executive by getting a majority from the office and for this a notice has to be served of 7 days before the meeting as party Section 173 of the Companies Act. But it could also be waived if one independent director is present in the meeting at which the decision has been made by the majority of directors.

 TATA sons filed a caveat in the Supreme Court, High Court and the NCLT. This was their strategy so that no ex-parte order can be passed against the decision they made, of removal of Cyrus Mistry. 

 Cyrus Mistry argued and negotiated that the Nano project of the company become a burden on the company itself but it was continued by Ratan Tata only due to some emotional reasons. He also alleged that there is a lot of fraud in the matter of money being invested. But on this, the Securities and Exchange Board of India made a track on the case and made sure that there was no fraud in the stock market in relation to shares of TATA Sons.

 Cyrus Mistry also filed his reply along with an affidavit to the National Company Law Tribunal in which he said that he was not allowed to completely take over the company or to organize the company in his manner. In fact, Ratan Tata interfered a lot of times with his decisions and he also proved the same by giving about 555 WhatsApp chat messages. 

Judgement

On 24 October 2016, Mr Cyrus Mistry who was the chairman of TATA Sons was removed from the post. A board meeting was held by the directors of the TATA Group. The meeting was held by nine directors in which 7 voted to dismiss Cyrus and one voted as neutral and one in the favour of Cyrus Mistry for not removing him, which was Cyrus himself.

On 24 October 2015, removal of Cyrus Mistry and then his two investment firms:-

  • Cyrus investments Sterling investment Private Limited.
  • National Company Law Tribunal

 The judgment was in the favour of Cyrus Mistry as he proved that he has not done anything wrong and the removal from his position was illegal. Shapoorji Pallonji group made a statement that they are not going through any circumstances and there will be no consideration for any legal action against TATA Sons.

Even after TATA filed caveat before all Courts, Cyrus Mistry said that he was not willing to take any legal action against the company but he will consult a law firm regarding their actions which could be taken ahead of his removal. The corporate sector was shocked and the company’s stocks fell by 3.16% in the stock market because of the removal of Cyrus Mistry from his office which also created a lot of panic in the market.

 But Cyrus Mistry came out with the point that he is not getting any such appropriate condition or attempt to defend himself that is mentioned under the law.  He wrote a letter that he was shocked when he was removed from his position as the allegations were that he was not performing well but in fact the board has never given him the opportunity to work. He also argued about the Nano project. 

Cyrus Mistry provided all the documents as evidence and proved that there was considerable interference while he worked in the company. The company never gave him the opportunity to work according to his will. He was always burdened and they interfered in every task in every field that he performed. Furthermore he also argued that he was not the only one with whose work they interfered but some of the senior members also faced the same difficulty.

 It was also declared that according to the Article of Association of the company, the chairman can only be removed by the board members if he has ben found to have done any fraud, involved in any kind of mismanagement inside the company, or found disloyal to the company; but here Cyrus Mistry has not met any of the above conditions.

Lastly the National Company Law Appellate Tribunal (NCLAT),  declares that the removal of Cyrus Mistry was illegal. NCLAT also stayed the change of TATA Sons from public to private company. Also announces to restore mysteries position in the TATA Sons.

The Supreme Court has found the order of the NCLAT to be suffering from “basic errors” and has stayed the execution of the same. The Court held that the Tribunal had granted a prayer that was not requested. 

Conclusion 

The judgment was not the victory of only Cyrus Mistry but it was a victory for all the principles of good governance and for those shareholders those are Minority. However, the final decisions remain pending as the Supreme Court is yet to decide on the matter. The vigorous fight of Mistry to protect the rights of minority shareholders therefore continues.

References

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