STUDY OF CYRUS MISTRY – RATAN TATA CASE

A Project Submitted to:

ARMY INSTITUTE OF LAW, MOHALI

By

AYUSHI TYAGI (1820)

Under the guidance of

Dr BHUPINDER KAUR

(ASST. PROF. OF COMPANY LAW)

In partial fulfillment of the requirements for the award of degree of BALLB.

PUNJABI UNIVERSITY PATIALA (PUNJAB)

February 2021 to July 2021

DECLARATION

It is certified that the project work presented in this report entitled “STUDY OF CYRUS
MISTRY – RATAN TATA CASE” is the result of original research and work carried out by
me. All the ideas and references have been duly acknowledged.

DATE: 17TH MAY 2021

PLACE: CHANDIGARH

NAME: AYUSHI TYAGI

ROLL NO.: 1820

ACKNOWLEDGEMENT

The completion of this undertaking could not have been possible without the participation
and assistance of so many people whose names may not all be enumerated. Their
contributions are sincerely appreciated and gratefully acknowledged. However, I would like
to express my deep appreciation and indebtedness particularly to the following:

It is my radiant sentiment to place on record my best regards, deepest sense of gratitude to Dr

Bhupinder Kaur, Assistant Professor of Company Law for her endless support, kind and
understanding spirit during the making of this project. Her careful and precious guidance
were extremely valuable for my study and to explore various dimensions of the same.

I am really fortunate that I had the kind association as well as supervision of my parents, my
friends and others who in one way or another shared their support, either morally, financially
and physically, and their careful monitoring throughout the course of this project are so great,
that even my most profound gratitude is not enough.

Above all, to the Great Almighty, the author of knowledge and wisdom, for his countless
love.

I hereby express my sincerest gratitude to all who helped me in completing this project.

NAME: AYUSHI TYAGI

ROLL NO.: 182O

INTRODUCTION

Background

 Tata conglomerate is India’s largest business group running businesses in seven

sectors in more than eighty countries. Tata Sons is the holding company of the Tata
Group.
 Tata Sons is an unlisted company. Around 66 % of its shares are owned by the
various Tata trusts, most importantly Sir Dorabji Tata Trust (27.97%) and Sir Ratan
Tata Trust (23.56%). The next major chunk of 18% is controlled by Shapoorji Pallonji
Group, whose heir apparent is Cyrus Mistry. (“Mistry”)
 Mr. Mistry was appointed as the chairman of Tata Sons in the year 2011 who was the
sixth Chairman of Tata Sons.
 In the Board meeting of TATA Sons Limited held on 24th October, 2016, Mr. Cyrus
Mistry, was replaced with immediate effect and Mr. Ratan Tata was appointed as the
interim Chairman of TATA Sons.
 Further, the Board constituted a Selection Committee comprising Mr. Ratan N. Tata,
Mr. Venu Srinivasan, Mr. Amit Chandra, Mr. Ronen Sen and Lord Kumar
Bhattacharyya, as per the provisions in the Articles of Association of Tata Sons, to
choose a new Chairman within four months.
I. UNDERSTANDING THE DISPUTE

From 25.06.1980 to 15.12.2004 Shri Pallonji S. Mistry, the father of Cyrus Pallonji
Mistry was a Non-Executive Director on the Board of Tata Sons. On 10.08.2006
Cyrus Mistry was appointed as a Non-Executive Director on the Board and by a
Resolution of the Board of Directors of Tata Sons dated 16.03.2012, Mistry was
appointed as Executive Deputy Chairman for a period of five years from 01.04.2012
to 31.03.2017, subject however to the approval of the shareholders at a General
Meeting.

He was then redesignated as the Executive Chairman with effect from 29.12.2012,
even while designating Ratan Tata as Chairman Emeritus.

On 24.10.2016, the Board of Directors of Tata Sons replaced Mistry with Ratan Tata
as the interim Non-Executive Chairman.
 It is relevant to note that Mistry was replaced only from the post of Executive
Chairman and it was left to his choice to continue or not, as Non-Executive
Director of Tata Sons.

As a follow up, certain things happened and by separate Resolutions passed at the
meetings of the shareholders of Tata Industries Limited, Tata Consultancy
Service Limited and Tata Teleservices Limited, Mistry was removed from
Directorship of those companies.

Mistry then resigned from the Directorship of a few other operating companies such
as the Indian Hotels Company Limited, Tata Steel Limited, Tata Motors Limited, Tata
Chemicals Limited and Tata Power Company Limited, after coming to know of the
impending resolutions to remove him from Directorship.

Thereafter, two companies by name, Cyrus Investments Private Limited and Sterling
Investment Corporation Private Limited, in which CPM holds a controlling interest,
filed a company petition before the National Company Law Tribunal under Sections
241 and 242 read with 244 of the Companies Act, 2013, on the grounds of unfair
prejudice, oppression and mismanagement.

Here’s a timeline of the events in the legal battle:1

 December 2012: Cyrus Mistry is appointed Chairperson of Tata Sons Limited.
 October 2016: He is sacked from the post by most of the Board of Directors.
 Jan 12, 2017: Tata Sons names N Chandrashekaran as Chairman, the then TCS Chief
Executive Officer and Managing Director. Feb 6: Mistry removed as a director on the
board of Tata Sons, holding company of Tata group firms.
 February 2017: The shareholders vote for Mistry’s removal from the board of Tata
Sons during an extraordinary general meeting. Mistry, subsequently, files a suit under
various sections of the Companies Act, 2013, alleging oppression and
mismanagement in Tata Sons.
 July 2018: The Mumbai Bench of the National Company Law Tribunal (NCLT)
dismisses Mistry’s plea against Tata Sons. While rejecting his allegations, NCLT
rules that the Board of Directors are competent enough to remove him as Chairman.

1
https://www.cnbctv18.com/legal/tata-vs-cyrus-mistry-ahead-of-sc-verdict-today-here-are-key-facts-and-
timeline-of-legal-battle-8730861.htm
 The tribunal also states that it found no merit in the arguments on mismanagement in
Tata Sons.
 December 2019: The National Company Law Appellate Tribunal (NCLAT)
overturns the NCLT judgment, and states that Mistry’s removal as Chairman of Tata
Sons was illegal.
 January 2020: Tata Sons and Ratan Tata challenge the NCLAT decision before the
Supreme Court. Subsequently, the Supreme Court stays the NCLAT judgment to
reinstate Mistry as the executive chairman of Tata Sons.
 February 2020: Mistry files cross-appeal in the Supreme Court against NCLAT
judgment, says his family—Shapoorji Pallonji—deserved more relief from the
tribunal.
 September 2020: The Supreme Court restrains Mistry’s Shapoorji Pallonji Group
from pledging its shares in Tata Sons to raise funds.
 December 2020: Final hearing commenced before the three-judge Supreme Court
bench headed by Chief Justice SA Bobde.
 26 March 2021: The Supreme Court ruled in favour of Tata Sons and Ratan Tata, by
upholding the ouster of Cyrus Mistry as the Executive Chairman.2
II. CRITICAL ANALYSIS OF LEGAL ISSUES
1) There is no provision in Companies Act 2013 (“Act”) with regard to position of
chairman of a Board. The Rules made under the Act although refer Chairperson, his
authority, so on, but they are silent on the subject as to who and how a director
becomes chairperson of the Board.
2) The Act lays down procedure for electing a chairperson for shareholders meeting. The
Chairman of the general meeting shall be appointed as per section 104 of the Act. In
terms of the section mentioned herein, the chairman of General Meetings of
Shareholders, if any, is created based on the provisions laid down in the Articles of
Association (“AoA”).
3) NCLT on Mistry’s removal
 The removal of CPM as Executive Chairman of Tata Sons on 24.10.2016 and his
removal as   Director on 06.02.2017, were on account of trust deficit and there was no
question of a Selection Committee going into the issue of his removal.

2
Tata Group wins, Cyrus Mistry’s appeal dismissed; Supreme Court sets aside NCLAT order - The Financial
Express
  There was no material to hold that CPM was removed on account of purported legacy
issues. CPM created a situation where he is not accountable either to the majority
shareholders or to the Trust nominee Directors and hence his removal.
 The letter dated 25.10.2016 issued by CPM could not have been leaked to the media
by anyone other than CPM and hence his removal from Directorship on 06.02.2017
became inevitable.
4) NCLAT on Mistry’s removal
 Ratan Tata was determined to remove Mistry even prior to the meeting of the board
and the majority shareholders of Tata Trust knew that there was a requirement of
advance notice before the removal.
 There is nothing on the record to suggest that the Board of Directors or any of the
trusts, namely— Sir Dorabji Tata Trust or the Sir Ratan Tata Trust at any time
expressed displeasure about the performance of Mistry.
 The record suggests that the removal of CPM had nothing to do with any lack of
performance. On the other hand, the material on record shows that the Company
under the leadership of Mistry performed well which was praised by the ‘Nomination
and Remuneration Committee’ a Statutory Committee under Section 178, on 28th
June, 2016 i.e., just few months before he was removed.
III. INTERPRETATION OF STATUTES INVOLVED

Was the Board meeting called properly?

 Under Section 173 of the Act, a seven-day notice should be given to every director at
his registered address, however, this notice condition may be exempted if at least one
independent director is present in the board meeting or if the decision is ratified by at
least one independent director if any.
 From the above it is clear that as per the Act, the board meeting can be called at a
short notice. Therefore, as far as the Act is concerned, it appears that the Board
meeting was called properly.
 Article 114 of AoA of Tata Sons provide that Notice of Board meeting shall be given.
It prescribes minimum 7-day notice to any director resident out of India, it does not
prescribe any minimum notice period for director resident in India. Therefore, if any
of the director is resident outside India, in that case it can be held that the meeting was
not called properly.
Removal of Directors Law and Rights of Director
 As Section 169 of the Act prescribes a procedure for removal of director, the law does
not distinguish between independent, non-independent, executive and non-executive
directors in so far as Removal of Directors is concerned.
 For the objective of fairness law prescribes the copy of notice to be sent to the director
being removed. The law also entitles the director proposed to be removed to make a
representation and the representation must be made available to all shareholders. The
director also has a right to be heard at the meeting
Alteration of Articles of Association
 Article 104B states about nomination of directors by Tata Trusts. Prior to change, the
AoA have given power to these trusts to nominate up to 1/3rd directors. The
appointment was within the domain of the board, indicating that board had the right to
accept or reject the nomination. In the EGM held in April 2014, a clause was added to
indicate that “The directors so nominated by the trust shall be appointed”.
 This has clearly indicated that the board did not have the right to reject such directors
appointed by the trusts any more. Effectively even if a person so appointed was
conflicted or may be unwanted, he would still have to be appointed and the board
could not do anything with regard to the same. We view such rights with shareholder
as poor governance practice.
 Surprisingly, Mistry side did not criticize the alteration of Article 104B but on the
other hand, criticized Article 121 which we found was amended favorably for all
shareholders as it diluted the power of nominee directors. Prior to amendment, the
Articles required affirmation of all directors to any proposal, however, post
amendment affirmation of majority of nominee directors was required. Therefore,
there is no reason to criticize this amendment.
 Removal of incumbent chairman is also covered under Article 118 of the AoA. The
construction of the relevant clause in AoA is not very clear and is rather confusing, as
it states that “the same process shall be followed for removal of incumbent chairman”.
 Does this mean that a search committee will be formed as per the provisions of AoA
to remove existing chairperson (seems highly illogical) or does it refer to affirmative
votes of all directors appointed by two trusts under Article 104B and 121.
 Note: Tata Sons has omitted to amend Article 118 and align it with the provisions of
amended Article 121, which provides for affirmative vote of Majority of directors
appointed under section 104B.

SUPREME COURT’S VIEWS

Tata Consultancy Services Ltd. v. Cyrus Investments Private Ltd., 2021 SCC Online SC 272,
decided on 26.03.2021.

Supreme Court on NCLT and NCLAT’s approach

NCLT dealt with every one of the allegations of oppression and mismanagement and
recorded reasoned findings. But NCLAT, despite being a final court of facts, did not
deal with the allegations one by one nor did the NCLAT render any opinion on the
correctness or otherwise of 64 the findings recorded by NCLT. Instead, the NCLAT
summarised in one paragraph, its conclusion on some of the allegations, without any
kind of reasoning.

“The allegations relating to (i) over priced and bleeding Corus acquisition (ii)
doomed Nano car project (iii) undue favours to Siva and Sterling (iv) loan by
Kalimati to Siva (v) sale of flat to Mehli Mistry (vi) the unjust enrichment of the
companies controlled by Mehli Mistry (vii) the Aviation industry misadventures (viii)
losses due to purchase of the shares of Tata Motors etc., were not individually dealt
with by NCLAT, though NCLT had addressed each one of these issues and recorded
findings in favour of Tata Sons. Therefore, there is no escape from the conclusion that
NCLAT did not expressly overturn the findings of facts recorded by NCLT, on
these allegations.”

Supreme Court on NCLAT’s decision to reinstate Mistry

Sections 241 and 242 of the Companies Act, 2013 do not specifically confer the
power of reinstatement, nor is there any scope for holding that such a power to
reinstate can be implied or inferred from any of the powers specifically conferred.

The following words at the end of sub-section (1) of 242 “the Tribunal may, with a
view to bringing to an end the matters complained of, make such order as it thinks fit”
cannot be interpreted a conferring on the Tribunal any implied power of directing
reinstatement of a director or other officer of the company who has been removed
from such office.

“These words can only be interpreted to mean as conferring the power to make such
order as the Tribunal thinks fit, where the power to make such an order is not
specifically conferred but is found necessary to remove any doubts and give effect to
an order for which the power is specifically conferred.”

Hence, the architecture of Sections 241 and 242 does not permit the Tribunal to read
into the Sections, a power to make an order (for reinstatement) which is barred by law
vide Section 14 of the Specific Relief Act, 1963 with or without the amendment in
2018.

Further, NCLAT appears to have granted the relief of reinstatement gratis without any
foundation in pleadings, without any prayer and without any basis in law, thereby
forcing upon the appellant an Executive Chairman, who now is unable to support his
own reinstatement.

Not just this, but NCLAT has gone to the extent of reinstating Mistry not only on the
Board of Tata Sons, but also on the Board of Tata group companies, without they
being parties, without there being any complaint against those companies under
section 241 and without there being any prayer against them. These companies have
followed the procedure prescribed by Statute and the Articles and they have validly
passed resolutions for his removal.

For instance, TCS granted an opportunity to CPM and held a general meeting in
which 93.11% of the shareholders, including public institutions who hold 57.46% of
shares supported the resolution. In any case CPM’s tenure itself was to come to an
end on 16.06.2017 but NCLAT passed the impugned order reinstating him “for the
rest of the tenure”.

“Now by virtue of the impugned order, CPM will have to be reinstated even on the
Board of companies from which he has resigned. This is why even the complainant
companies have found it extremely difficult to support the order.”
 Interestingly, one of the grounds of challenge to the order of NCLAT, raised by
SP group in their appeal is that the Tribunal ought not to have granted the relief
of reinstatement. Mistry has himself stated clearly that he had no intent to once
again taken charge of Executive Chairman and Director of the Tata Group
companies.

CONCLUSION

The Supreme Court has found – and rightly so – that mere removal of a director or
executive chairman cannot be termed as a ground for winding up a company.
Naturally, in absence of grounds that would justify winding up, no relief for
oppression and mismanagement can be granted. Even if the removal of a director is
not as per the law unless it is shown to be oppressive or prejudicial to the
shareholders’ relief cannot be granted. Since Mr. Mistry was not “representing” any
shareholder in the Board, his dismissal would not amount to an act that is prejudicial
or oppressive to minority shareholders. Further, chairman and director are posts that
call for special personal qualification. Law does not permit to reinstate anybody who
was removed from such a post requiring personal qualification.
BIBLIOGRAPHY
1. Company Law by Avtar Singh
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