Tata v. Mistry: The Empire Strikes Back

The much-hyped selection of the successor of Ratan Tata as the Executive Chairman of the salt to software conglomerate Tata Sons eventually ended with Cyrus Mistry being selected as the chosen one to lead the truly global business empire for a period of 5 years. It was a spectacle unlike any other as Indian Business Houses, especially family run, are infamous for their dismal succession planning. Naturally, every step involved in the hunt for Mr. Tata’s successor was thus viewed with a magnifying glass by the Media as well as Shareholders of the multiple Tata Companies who were jittery about the possible hiccups that could arise in the post Ratan Tata era. Little did they know that their worst nightmare was about to come true with the Legacy issues of the Tata Group taking center stage and becoming a major bone of contention between the newly appointed Chairman and the empire of Tata Sons which is mostly dominated by Tata Trusts.


“Ask and it will be given to you; seek and you will find; knock and the door will be opened to you”, goes the famous verse from the Gospel of Matthew that inspires millions of followers of Christ to keep the faith during difficult times. What is that got to do with the issue at hand you ask? A lot! On 18th December 2019, the National Company Law Appellate Tribunal (hereinafter NCLAT) unintentionally lent this famous verse its signature twist and chose to give away in its order something which wasn’t even sought by the Appellant![1] Find it hard to believe? Cannot really blame you for that. After all it is not often that one of the most respected adjudicating quasi-judicial body of the land dole out the plum post of the Chairmanship of a Global Conglomerate when it was not even prayed as a relief by the Appellant. In case you have not been able to connect the dots yet then you might be surprised to know that this was in fact the eventual outcome of the proceedings in NCLAT on the petition of Cyrus Mistry on his removal from the post of Executive Chairman of Tata Sons.

The Rise of Mistry

Mistry was appointed as the Executive Chairman on Merits of Tata Sons on 28th December 2012 after much fanfare and a lengthy process adopted by the Selection Committee as per Article 118 of the Articles of Association of Tata Sons which requires the constitution of a Selection Committee for selecting a new Chairman of the Board of Directors[2].

Ratan Tata having handed over the reins of this mammoth business empire, now designated the Chairman Emeritus, clearly and unequivocally stated that he would be available only for advice and there was to be no overhang from his previous role[3]. Little did Mr. Tata know that the strategy and direction adopted by the new Executive Chairman of Tata Sons was going to put him in an ethical dilemma of astronomical proportions. But before we get to that let us try and attempt to understand the complex shareholding pattern of the Tata Group Companies.

Tata Sons is the principal investment holding company and promoter of Tata companies. Each Tata company or enterprise operates independently under the guidance and supervision of its own Board of Directors[4]. Tata Sons’ shares are in turn held by Tata Trusts (66%), Shapoorji Pallonji Group (18.5%), Tata Companies (14%) and others (1.50%)[5]. The bulk of the shares of the various Tata Companies (Tata Power 33%, Tata Steel 33.2%, Titan 25%, TCS 71.9%, Tata Global Beverages 34.5% etc.) are effectively held by Tata Sons which gets a significant share of dividends from these companies most of which command a sizable market share in the respective business spheres they operate in. Tata Trusts (comprising of Sir Dorabji Tata Trust, Sir Ratan Tata Trust, JRD Tata Trust etc.) is thus the single largest shareholder of Tata Sons (66% share).

Herding The Cats

Unbeknownst to Ratan Tata an ethical dilemma was in store for him upon his retirement. Mistry apparently did not perform as expected and did not consult the Board of Tata Sons on several critical investment and strategy related decisions (Tata Power acquiring Welspun Renewable Energy) until they became fait accompli. For instance, Mistry brought the Welspun transaction to the notice of the Tata Sons Board at a very advanced stage when the signing of definitive agreements between Tata Power & Welspun Renewable was imminent. Acquiring Welspun Renewable would require Tata Power raising debt, approval for which ought to have been first sought from the Tata Sons Board. Such an approval was never sought by Mistry.

The Perfect Storm

The trust deficit ran so high in the Board that they could not even agree on finalization of the language to be used in the Minutes of the Meeting in which the Acquisition of Welspun was discussed by the Board of Tata Sons. To break the logjam the Nominee Directors of Tata Trusts suggested consulting Ratan Tata to find a mutually agreeable language for the Minutes! Owing to various other such instances the Board of Directors of Tata Sons claimed they had lost confidence in Mistry’s ability to run a complex business empire like the Tata Group which runs over hundred companies (29 of which are listed) in 160 Countries and employs over 660,000 people. Eventually on 24th October 2016, the Tata Sons board voted for the removal of Cyrus Mistry as the Chairman and appointed Rata Tata as the Interim Chairman of the Board of Tata Sons.

Performance of Key Tata Stocks at the Start and End of Mistry’s Tenure

(Share Price in Rs.)28th Dec 201224th Oct, 2016% Change
Tata Steel428.55426.05-0.6
Tata Motors310.05363.617.3
Tata Power105.4383.65-20.7
Tata Chemicals349.7578.2565.4
Indian Hotels Co.63.1129.35105.0

Source: https://www1.nseindia.com/products/content/equities/equities/eq_security.htm

Mistry on the other hand claimed that the Tata Trusts (read Ratan Tata) are akin to a “Shadow Director” and a “Super Board” which supersedes the majority will of the Board of Directors through an affirmative vote as per Article 121 of the Articles of Association of Tata Sons.

Article 121 reads as follows: “121. Matters How Decided. Matters before any meeting of the Board which are required to be decided by a majority of the directors shall require *the affirmative vote of a majority of the Directors appointed pursuant to Article 104B present at the meeting and in the case of an equality of vote’s the Chairman shall have a casting vote.”[6]

Oppression & Mismanagement

What is this affirmative vote you ask? An affirmative vote means that the affirmative consent of all those voting needs to be obtained to pass a matter/resolution in a meeting. It is like a veto vote which can override what the majority has decided if the affirmative vote is not given or withheld by those entitled to the affirmative vote. An affirmative vote is usually reserved for Minority Shareholders to protect their interests in case the majority shareholders attempt to bulldoze their decisions. But in the instance of Tata Sons, it is the Nominee Directors of the Tata Trusts, a majority shareholder with 66% stake, which has the right to affirmative vote.

It is this Article 121, among other things, which the Mistry camp has claimed to be “oppressive” and “prejudicial” to the interests of the shareholders of Tata Sons including Shapoorji Pallonji Group. Mistry alleged numerous instances of abuse of Article 121 by Nominee Directors of Tata Trusts which included purchase of an overvalued company by Tata TeleServices from the Siva Group which had to be written off eventually. Other instances of not calling for bids before awarding sizable contracts are also highlighted by Mistry as examples of the Nominee Directors acting in a manner which is “Oppressive” and “prejudicial” to the interest of the members.

Suo-Moto Powers of The Tribunal

As per Section 242 of the Companies Act, the test to determine whether the Tribunal may pass appropriate orders to bring closure to a matter deemed to be oppressive is:

(i) Whether the company’s affairs have been or are being conducted in a manner ‘prejudicial’ or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company? and;

(ii) If that be so, whether to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up.

The Tribunal found that the actions of the Nominee Directors of Tata Trusts and the Tata Sons Board were indeed a case of oppression and mismanagement. Thus, the Tribunal held that the removal of Cyrus Mistry was illegal and consequently the appointment of his replacement was also held illegal. As a result, the Tribunal ordered Cyrus Mistry be reinstated as the Chairman of Tata Sons.


Tatas approached the Supreme Court against this NCLAT order, and the arguments are yet to be concluded. It remains to be seen what the Apex Court decides and who ends up on the winning side. But whichever way the Supreme Court swings, the prolonged legal battle has caused grave and irreparable damage to the Tata Brand.


1) What Was The Underlying Cause Of The Dispute Between Tata Sons And Cyrus Mistry?

Removal of Cyrus Mistry as the Chairman of the Board of Directors of Tata Sons precipitated the legal battle.

2) What Led To The Removal Of Cyrus Mistry As The Executive Chairman Of Tata Sons?

Tata Sons Board of Directors is said to have lost confidence in the capability of Cyrus Mistry to run the Tata Group which is a global business conglomerate.

3) What Was The Remedial Measures Taken By Cyrus Mistry Against His Removal?

Initially Cyrus Mistry unsuccessful approached the Bombay bench of NCLT. He did not get the respite he sought as a result he approached the NCLAT which ruled his dismissal as illegal and ordered his reinstatement as the Chairman of Board of Directors of Tata Sons.

4) What Is The Latest Position Of The Courts On The Matter?

Tatas have approached the Supreme Court against the NCLAT order holding Mistry’s dismissal as illegal. The Supreme Court has stayed the NCLAT order and is still hearing the matter. A final ruling is awaited on the matter.

[1] https://nclat.nic.in/Useradmin/upload/16449783515dfa10f6ce8fa.pdf

[2] https://www.casemine.com/judgement/in/5dfa13be9fca1922f0a02b11

[3] Ibid

[4] https://www.tata.com/business/tata-sons

[5] https://www.business-standard.com/article/companies/tata-sons-shareholders-vote-to-remove-cyrus-mistry-from-board-of-directors-117020600619_1.html

[6] https://nclat.nic.in/Useradmin/upload/16449783515dfa10f6ce8fa.pdf

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