NATIONAL LAW UNIVERSITY ODISHA

CORPORATE LAW I -

REMOVAL OF DIRECTOR IN REFERENCE TO

CYRUS MISTRY (TATA SONS)

SUBMITTED TO: - DR KONDAIAH JONNALAGADDA

Associate professor of law

SUBMITTED BY: - NIKHIL AJMERA (2015/BA/029)

ANURAG GUPTA (2015/BA/061)

UTKARSH PANDEY (2015/BA/062)

 TABLE OF CONTENTS

Introduction 3

Research Methodology 4

Research Questions 4

Director of Company 5

Powers of the Director 5

Removal of Director 6

 Removal by Company Law Tribunal 6

 Removal by Resignation 6

 Right to Remove a Director is Legal Right of Share Holders 7

Rights of Removed Director 8

Remedies and Possible Solutions Available Against the Erroneous Removal 8

TATA Group Chairman Cyrus Mistry’s Removal 10

Reasons for removal of Mistry 10

Appeal made by Mistry to NCLT and Possible solutions 11

TATA Trusts Influence leading to Removal of Cyrus from Board of Directors 12

Conclusion 14

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 INTRODUCTION

The Articles of Association of a Corporation generally provides for a Director to preside over
the general meetings and also for the procedure to elect the Director. Section 2(34) of
Companies Act 2013 provides the definition of director as “Director means a director
appointed to the board of a company”. According to Section 175(1) of the Companies Act,
the members present at the meeting shall choose the director amongst themselves. However,
this rule does not apply when the Articles of Association (AOA) of the company provides
otherwise. Generally, it is the member of the company who chairs over the general meeting.

Section 169 of the Companies Act, 2013 and Chapter 7 of the Companies Act provides for
the removal of director before his term expires. Right to remove the director is a legal right of
the shareholder and this right cannot be taken away by MOA, AOA or any other documents
or agreement.

The word “Director’ is pretty much in trend because of Cyrus Mistry, who was a chairman of
TATA Group but was removed from director post in October, 2016. As section 169 of The
Companies Act, 2013 talks about the removal of director. Section 169 discusses that a
director can be removed by ordinary resolution, remove a director and can remove him after
giving him a reasonable opportunity of being heard. There is a tribunal made for the company
related matters i.e. National Company Law Tribunal (NCLT) where an appeal can be made if
there is a violation of any section of Companies Act.

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 RESEARCH METHODOLOGY

The present study is essentially doctrinal study; research undertaken is descriptive in nature
with an analytical approach to the topic. Secondary data has been used and examine in the
holistic manner for the purpose of the dissertation. The mode of citation followed by the
researchers is Uniform method of citation.

RESEARCH QUESTIONS

⮚ To find when director can be removed from the Company under Indian Companies
Act, 2013?
⮚ What can be possible remedies and rights available for illegally removed director?
⮚ Whether EGM held by TATA group in regards to removal of Cyrus Mistry is legal or
not?
⮚ Whether petition made by Cyrus Mistry in NCLT is Maintainable or not?
⮚ Whether there was an influence of TATA Trusts in removal of Cyrus Mistry or not?

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 DIRECTOR OF COMPANY

Section 2(34) of Companies Act 2013 provides the definition of director as “Director means
a director appointed to the board of a company”. According to Section 175(1) of the
Companies Act, the members present at the meeting shall choose the director amongst
themselves. However, this rule does not apply when the Articles of Association (AOA) of the
company provides otherwise. Generally, it is the member of the company who chairs over the
general meeting.

Any person for the office of the director shall not preside over the election of the director as
per the common law rule and the director who seeks re-election shall also vacate the chair
pending the election or as the Articles of Association provides. The manner of appointment
and election of the director should be as per the articles of the company. In case of Tamil
Nadu Water Investment Co. Ltd. v. Aidque Holdings (Mauritius) Inc. 1, the articles of the
company provided that the chairman of the Board of Directors shall be the chairman who will
preside over the general meetings as well and in case he is absent, then any other director
elected by the shareholder would chair the general meeting.

Powers of the Director

There are few important powers of the Director have been discussed below:

⮚ Casting Vote
This is often known as the second vote and is used when there is a deadlock over an issue and
this power is given to the director. This right is provided under the AOA and not under
the common law system.
⮚ Power of Adjournment and Postponement
The power of Adjournment can be exercised when there is an unruly conduct which interferes
with the functioning of the business. In John v. Rees 2, it was held that when there is no
conclusion and it is demanded, then the director can suspend the meeting to a later date
until the result of the poll is known.
⮚ Power of Expulsion
It is the duty of the director to maintain decorum in the meetings so it shall be the power of the
director to expel any member from the meeting if he/her interferes with the conduct of the
business.

1 Tamil Nadu Water Investment Co. Ltd. v. Aidque Holdings (Mauritius) Inc., 2008 142 CompCas 497.
2 John v. Rees, [1970] 1 Ch 345.

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 ⮚ Power to order Poll
Section 179(1) of the Companies Act provides the discretionary power to the director to order
poll or any resolution. This right should be in the interests of the whole body and should
not be exercised as personal right.

REMOVAL OF DIRECTOR

Section 169 of the Companies Act, 2013 and Chapter 7 of the Companies Act provides for the
removal of director before his term expires. Right to remove the director is a legal right of the
shareholder and this right cannot be taken away by MOA, AOA or any other documents or
agreement. In Khetan Industries Pvt. Ltd. v. Manju Ravindra Prasad Khetan 3, the court
held that shareholders have a right to remove director in general meeting through a ordinary
resolution and further that section 284 provides a mechanism which is inbuilt for the
enforcement of the right and no civil court has jurisdiction to entertain the suit for the
removal of director. As per a milestone judgement given in LIC of India v. Escorts Ltd.4, it
was held that it is not necessary to give explanatory statement for removal of director.

⮚ Removal by Company Law Tribunal

Under Section 242(2) (h), the tribunal can terminate any agreement of the company with the director
or the managing director when it receives an application for prevention of oppression or
mismanagement.

⮚ Removal by Resignation

Under Section 168 of the Companies Act, a director can resign by giving a notice of resignation of
his office to which he is not entitled to withdraw unless by the consent of the company. On
receiving the resignation, the board has to take notice of the same. The Director has to send a
copy to the Registrar within 30 days of his resignation in the prescribed manner. The
resignation takes effect on the date on which it is received by the company or the date
specified in the notice whichever is later.

⮚ Right to Remove a Director is Legal Right of Share Holders:

Section 169 and Chapter 7 of Companies Act, 2013 Right of Shareholders to remove a
director in the General Meeting through Ordinary Resolution is a Legal Right. This legal

3 Khetan Industries Pvt. Ltd. v. Manju Ravindra Prasad Khetan, AIR 1995 Bom 43.
4 LIC of India v. Escorts Ltd., AIR 1986 SC 1370

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right cannot be damaged or taken away by MOA, AOA or any other documents or
Agreement.

Section 169 and Chapter 7 details the procedure of removal of director by shareholders as
follows: –

A company MAY, by ordinary resolution, remove a director,

● Not being a director appointed by the Tribunal under section 242, before the expiry of
the period of his office after giving him a reasonable opportunity of being heard.
● The provision relating to removal shall not apply where the company has availed
itself of the option to appoint not less than two – thirds of the total number of
directors according to the principle of proportional representation.
● A special notice shall be required of any resolution, to remove a director, or to appoint
somebody in place of a director so removed.

As per Section- 1155 of Companies Act, 2013:-

● Special notice to Company-There is a criteria, who can send the notice to the
Company. Only shareholder/s holding not less than 1% of total voting power or
holding shares on which an aggregate sum of not less than Rs. 5, 00,000 has been paid
up as on the date of notice, can send special notice to the Company for removal of
director. The same should be signed by the concerned shareholder/s.
● Date of meeting-Shareholders have the right to decide the date of meeting. However,
the special notice shall not be sent earlier than three months from the date of meeting
but at least 14 clear days before the date of the meeting, at which the resolution is to
be moved.
● On receipt of notice of a resolution to remove a director, the company shall
immediately send a copy thereof to the director concerned, and the director, whether
or not he is a member of the company, shall be entitled to be heard on the resolution
at the meeting.

RIGHTS OF REMOVED DIRECTOR

Power to remove directors has always been bestowed on shareholders, as we all know that at
the end of the day, directors are answerable to shareholders. Shareholders can remove any
director before the expiry of his tenure, except any director appointed by Tribunal for
5 Section 115, The Companies Act, 2013.

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prevention of oppression and mismanagement under section 242 and a director appointed
under principle of proportional representation under section 163.

⮚ Intimation to Director–

The Company shall forthwith send a copy of the notice to the concerned director.

⮚ Reasonable Opportunity of being heard–

The director concerned may make representation in writing to the company and requests its
notification to members of the company. The Director may request to send his representations
along with the notice to the members and to be heard at the meeting. However, the rights may
not be available, if on the application either of the Company or of any other person who
claims to be aggrieved.

⮚ Director who is a shareholder -

Note that if the director is removed from office as a director, this will not usually affect the
director's position (if he/she has one) as a shareholder in the company. This is often a relevant
consideration in private companies, where often a director is also a shareholder. In most
circumstances the only solution is for there to be negotiations for the purchase of the ex-
directors shares. In some circumstances, the removal of the director may be grounds for
petition under CA 2006, sec994 (the unfairly prejudicial conduct provision) under which the
court may order the remaining shareholders (or indeed, The Company itself) to buy the ex-
directors shares. Some companies' articles contain a clause that a shareholder who ceases to
be a director is deemed to have given the company a transfer notice in respect of his or her
shares, so that the shares can, in effect, be compulsorily acquired.

REMEDIES AND POSSIBLE SOLUTIONS AVAILABLE AGAINST

THE ERRONEOUS REMOVAL

There is no specific legal provision under the Companies Act, 2013 for removal of Chairman
of the Board. The removal process relating to Chairman is governed either by Articles of
Association of the Company or the terms of the contract by virtue of which he is appointed.
The board has power to remove the Chairman by passing a resolution if Articles of Company
does not provide otherwise.

As per such practices, the board should discuss the matter and provide the reason for removal
and give necessary opportunity to the chairman to represent his case.

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For private companies and unlisted public companies, the chairman does not have any
statutory right to represent his case before the board or to assert a defence. If the director
thinks that he has been removed erroneously then, decision of removal can be challenged if it
is not in consonance with terms of his appointment contract or if it violates the provisions of
AoA of the company.

Moreover, an action can be brought for oppression and mismanagement under section 241-
246 of the Companies Act, 2013. Any shareholder holding 10% of the shares of a company
can bring an action before the National Company Law Tribunal (NCLT) on the ground that
the affairs of the company are being conducted in a manner “prejudicial or oppressive” to a
shareholder, or that a material change has taken place in the management or control of a
company, which is likely to cause prejudice to shareholders. The NCLT possesses wide-
ranging powers to pass various kinds of orders in an action involving oppression and
mismanagement.

Section 2446 states “Right to apply under Section 241” as –

244. Right to apply under section 241. — (1) The following members of a company
shall have the right to apply under section 241, namely:—
(a) in the case of a company having a share capital, not less than one hundred
members of the company or not less than one-tenth of the total number of its
members, whichever is less, or any member or members holding not less than one-
tenth of the issued share capital of the company, subject to the condition that the
applicant or applicants has or have paid all calls and other sums due on his or their
shares;
(b) In the case of a company not having a share capital, not less than one-fifth of the
total number of its members: 153
Provided that the Tribunal may, on an application made to it in this behalf, waive all
or any of the requirements specified in clause (a) or clause (b) so as to enable the
members to apply under section

 In addition to that, it is no longer remains the matter only about the same company but
involves the interest of every stakeholder of all the listed companies falling within its
umbrella. Therefore, the conduct of affairs by the parent company (the said company) board
has a massive impact on the governance of all of those listed companies. Keeping this in

6 Section 244, The Companies Act, 2013.

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mind, even if the board of it did legally replace the chairman, the manner in which this was
achieved is certainly not in consonance with basic principles of corporate governance.

TATA GROUP CHAIRMAN CYRUS MISTRY’S REMOVAL

Tata Group is one of largest corporate group in India as well as in world. It is India's largest
conglomerate. In 2015-16, the revenue of Tata companies altogether is $103.51 billion. These
companies collectively employ over 660,000 people. Each Tata company or enterprise
operates independently under the guidance and supervision of its own board of directors and
shareholders. There are 30 publicly-listed Tata enterprises with a combined market
capitalisation of about $116 billion as of March 2016. 7 Hence, in order to manage the group,
it is important to have responsible and determined director. A Director is a person who is an
appointed or elected member of the board of directors of a company who, with other
directors, has the responsibility for determining and implementing the company's policy.8

REASONS FOR REMOVAL OF MISTRY

The word “Director’ is pretty much in trend because of Cyrus Mistry, who was a chairman of
TATA Group but was removed from director post in October, 2016. As section 169 of The
Companies Act, 2013 talks about the removal of director. Section 169 discusses that a
director can be removed by ordinary resolution, remove a director and can remove him after
giving him a reasonable opportunity of being heard. 9 There has been various citied for
Mistry’s ouster such as:-

⮚ Style of functioning,
⮚ No clear roadmap for next 5 years,
⮚ Decision to sell Tata Steel, Europe (Corus)
⮚ Legal wrangle with NTT DoCoMo
⮚ Decision to acquire Welspun Renewables Energy

In legal sense, it could be said that there was a violation of section 166(2) which defines
duties of director in the company. The section is defined as:-

“(2) A director of a company shall act in good faith in order to promote the objects of the
company for the benefit of its members as a whole, and in the best interests of the

7 Tata Group Financial Statements". Tata Group.

8 <http://www.businessdictionary.com/definition/company-director.html> Accessed February 14, 2017.
9 Section 169 (3), The Companies Act, 2013.

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company, its employees, the shareholders, the community and for the protection of
environment.”10

APPEAL MADE BY MISTRY TO NCLT AND POSSIBLE SOLUTIONS

There is a tribunal made for the company related matters i.e. National Company Law
Tribunal (NCLT) where an appeal can be made if there is a violation of any section of
Companies Act. Cyrus Mistry has appealed in NCLT in regards to Extraordinary General
meeting (EGM) held by Ratan Tata to remove him from chairman of TATA Group. He filed
case in tribunal in relation to allege oppression and mismanagement by the board of Tata
Sons under Sections 241, 242 and 244 of the Companies Act 2013.11 It was contended by
Mistry that EGM held was illegal and he discovered that there was mismanagement in
company. There has been various contention made by Mistry under which he filed an case in
tribunal but 2 of the key points of arguments were –

⮚ The Threshold Dilemma

One the key point on which the maintainability of the suit may depend is the percentage of
Tata Sons’ shares the two Mistry companies hold. According to the Companies Act, a
shareholder must own at least one-tenth of the issued share capital of a company to
file a suit of oppression or mismanagement. 12 In the tribunal, Mistry’s one of the
major backdrop will be on “percentage of Issued Share Capital” because in order for
enabling Section i.e. 244(1)(a) puts the threshold at 10% or more of the ‘issued share
capital’, Mistry’s investment entities hold 18.37% of the ‘equity share capital’ and
merely ‘2.17%’ of the ‘issued share capital’. Thus, if one were to give a strict
interpretation to the aforesaid provisions, this petition would be unmaintainable.13
Mistry’s argument is that Sections 241 and 244 need to be interpreted in this new context of
increased corporate governance standards. Also, inclusion of the term ‘class of
members’ in Section 241(1)(b), which was missing in the erstwhile law, exhibits the
legislature’s intent to expand the scope of these provisions from the Old Act. Hence,
in the way, this section must be given expanded view.
⮚ Influence Of Tata Trusts

10 Section 166 (2), The Companies Act, 2013.

11 <http://www.bloombergquint.com/business/2017/01/30/tata-mistry-dispute-five-key-arguments-at-company-
law-tribunal> Accessed February 18, 2017.
12 Section 100 (2) (A), The Companies Act, 2013.
13 <http://barandbench.com/tata-mistry-order-reserved-maintainability/> Accessed February 22, 2017.

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The Mistry petition claims that changes to the articles of association (AoA) of Tata Sons in
2012 gave Tata Trusts-appointed directors more powers in the appointment and
removal of the company’s chairman. As a result, Tata Trusts dominated the board of
Tata Sons, and Trust-nominated directors merely acted on the instructions of those
calling the shots at Tata Trusts, the petition says.
Before the AoA were amended, the selection committee for the chairman comprised five
board members of Tata Sons – including two named by the Trusts, an independent
director and two other directors. The amendment changed the structure to three Trust-
appointed directors, one independent director and one other director of Tata Sons.
Tata Sons calls the accusation “wanton and misconceived” and that it portrays the
board and management of Tata Group’s holding company as mere “yes men” of
Ratan Tata. The Tata’s have asked Mistry to explain why he chose to question the
amendment four years after it was made, and only after his removal as executive
chairman of Tata Sons. The Tata’s ask why Mistry never brought up the alleged
oppression and mismanagement earlier and if the state of affairs were indeed so dire,
he was duty-bound to bring it to the notice of the Tata Sons board.14

These were 2 important or key argument held by both parties in relation to EGM. Coming to
the court view, it is still running in the tribunal with both parties are under the contention to
won their arguments and this decision will surely become a precedent for coming cases.

TATA TRUSTS INFLUENCE LEADING TO REMOVAL OF CYRUS

FROM BOARD OF DIRECTOR
As earlier stated that TATA group is one of the oldest and largest conglomerate in India with
about $103.51 Billion of revenue.15 Cyrus Mistry was appointed as TATA Sons chairman
after Ratan Tata decided left TATA and from then, Mistry is only chairman from non-TATA
background. He was appointed as chairman in 2012 of TATA Sons Limited.

Since in the case filed in tribunal by Mistry in which he has contented about TATA Trusts
influence in TATA Sons, wherein he says that TATA Trusts was influencing the working of
TATA Sons and its holding companies. The philanthropic trusts, controlled by Ratan Tata,
own about two-thirds of Tata Sons while the Mistry family's Shapoorji Pallonji group has an
18.4% stake in the holding company.16

14 Cyrus Investments Pvt. Ltd. and Ors. v. Tata Sons Ltd. and Ors, MANU/NC/0006/2017
15 "Tata Group Financial Statements", Tata Group.

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Here comes the questions whether a charitable trust can influence the businesses of operating
companies under the law.17 TATA Trusts is registered under Maharashtra Public trust Act.
The trusts have investments in share capital of Tata Sons. To protect this major asset, the
trusts have representation on the board of Tata Sons through professionals of high repute. The
trusts act in accordance with the company's articles. But after amendment in Maharashtra
Public Trust Act, 1973 amendment, they are allowed to invest in banks and postal savings
accounts and can otherwise lose tax exemptions. However, Tata Trusts have the unique right
to hold shares in Tata Sons because the Sir Dorabji Tata Trust and Sir Ratan Tata Trust were
founded in 1932 and 1918, respectively, after the sons of Jamsetji -Dorab and Ratan Tata-
bequeathed their holdings to them. Trusts can't invest in shares, debentures, commercial
papers, certificates of deposit. But assets held prior to the amendment are allowed to continue
to hold them, but not make fresh investment. This amendment cited above restricts the Tata
Trusts from buying or increasing their stake in Tata Sons, making it impossible for them to
acquire Shapoorji Pallonji's 18.4% stake in the event of an exit. That is reason, Mistry’s
removal from TATA was a big task for Ratan Tata.

Tata Trusts originally held 80% of Tata Sons, but due to the above restriction did not take
part in the 1996 rights issue of Tata Sons, which lowered their shareholding. Sir Dorabji Tata
Trust owns 1, 13, 067 shares, or 27.98%, of Tata Sons. SDTT remains the only Tata Sons
shareholder with an individual veto, which needs a 26% holding. Sir Ratan Tata Trust has a
23.56% stake. Combined with other smaller allied trusts, the stake is 65.29%.

From the above situation, it is clearly evident that TATA Trust has a big role to play in
TATA Sons because of its holding in the group. One of the reasons of Cyrus Mistry’s
removal was that Trust was unhappy with his working style that has led to removal of him
from board of directors of various TATA Group’s companies. In relation to that, Mistry has
filed a case in NCLT as discussed earlier in this project, so that his contention regarding
illegal EGM can be established. Since the case is still going on in the court, but till then
Mistry is no more on the board of the Directors.

16<http://economictimes.indiatimes.com/articleshow/55531554.cms?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst> Accessed February 10, 2017.
17<http://economictimes.indiatimes.com/articleshow/55531554.cms?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst> Accessed February 10, 2017.

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 CONCLUSION
A Director plays an important in functioning of a company and it has been given an
importance in Companies Act, 2013 as well. The chapter XI talks about the importance and
role of director in the company. It also discuss its responsibility and procedure for removal if
any of provisions of this chapter is violated. As section 169 of The Companies Act, 2013
talks about the removal of director. It discusses that a director can be removed by ordinary
resolution, remove a director and can remove him after giving him a reasonable opportunity
of being heard.

Cyrus Mistry’s removal from TATA Sons Chairman is one of the big question that comes in
regards to Section 169. Cyrus was removed from TATA’s chairman by citing a reason that
his Style of functioning, No clear roadmap for next 5 years, Decision to sell Tata Steel,
Europe (Corus) and etc. has led him to removal from TATA.

Coming from Act to reality, it is important from a director to work in favour of the Company.

Cyrus Mistry’s removal from TATA Sons Chairman is one of the big questions that come in
regards to Section 169. Cyrus was removed from TATA’s chairman by citing a reason that
his Style of functioning, No clear roadmap for next 5 years, Decision to sell Tata Steel,
Europe (Corus) and etc. has led him to removal from TATA. The case has been filed by
Mistry in National Company Law Tribunal (NCLT) on account that there has been a violation
of his right, wherein it has contended that EGM held by TATA Sons is illegal on account of
the violation of section 241-246 i.e. oppression and mismanagement. But there has been a lot
of lose polls from side of Mistry because as section 24418 states that

(1) The following members of a company shall have the right to apply under section
241, namely:—

(a) in the case of a company having a share capital, not less than one hundred
members of the company or not less than one-tenth of the total number of its
members, whichever is less, or any member or members holding not less than one-
tenth of the issued share capital of the company, subject to the condition that the
applicant or applicants has or have paid all calls and other sums due on his or their
shares;

18 Section 244, The Companies Act, 2013.

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Hence, case in Tribunal can only be filed by a member of a company who holds the 1/10 th or
more than that of issued share capital but as one of the contention held by TATA that out of
18.37%, only 2.17% was issued share capital. So by going out by that logic, it will be
difficult for Mistry to get relief from the tribunal because if he doesn’t fulfil this criteria then
he will not have right to apply in tribunal. But Mistry can be saved from this, if court does not
do strict interpretation of this section. As stated in tribunal by Mistry’s lawyer that “Sections
241 and 244 need to be interpreted in this new context of increased corporate governance
standards. Also, inclusion of the term ‘class of members’ in Section 241(1)(b), which was
missing in the erstwhile law, exhibits the legislature’s intent to expand the scope of these
provisions from the Old Act. Hence, in the way, this section must be given expanded view.”

So, in accordance with this project, we finally conclude it by saying that whatever may be
decision, this decision will surely set a precedent for the upcoming cases in the corporate
field. It will be difficult for Mistry to stay in TATA Sons as Chairman but it will be
interesting to see the court view because of TATA Trusts influence in TATA Sons which led
to removal of Cyrus Mistry. So, it will be head-to-head fight between Cyrus Mistry and
TATA Trusts.

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