PROJECT

ON
REMOVAL
OF
DIRECTORS
WITH
SPECIAL REFERENCE
TO
CYRUS MISTRY
SUBMITTED TO: SUBMITTED BY:

Dr. Rajinder Kaur Chirag

Professor Roll Number-131/19

University Institute of Legal Studies Semester-8

Panjab University, Chandigarh BA.LLB(Hons.), Section-C

 ACKNOWLEGEMENT

I would like to acknowledge my indebtedness and render my warmest thanks to my class teacher
who gave me this golden opportunity to do this project on “Removal of Directors with Special
Reference to Cyrus Mistry”. Her friendly guidance and expert advice have been invaluable
throughout all stages of this work. I would like to thank the almighty God for his grace and my
parents who helped me a lot for the final outcome of this project.

With the completion of this project, I discovered various aspects of this topic and learn new
things about the topic
 INDEX

TITLE PAGE NUMBER

Introduction 1

Timeline of Events and Legal Conflict 2

between Tata & Sons and Cyrus Mistry

Matter Before National Company Law 3-4

Tribunal
Matter Before National Company Law 4
Appellate Tribunal
Decision of the Supreme Court 4-6

Conclusion 7
 PROJECT TOPIC :- REMOVAL OF DIRECTORS WITH SPECIAL
REFERENCE TO CYRUS MISTRY

Introduction

Tata Group is an Indian multinational conglomerate founded in 1868 by Jamsetji Tata. The company gained
international recognition after purchasing several global companies. One of the India`s largest
conglomerates, Tata Group is owned by Tata Sons. The group operates in more than 100 countries across
six continents, with a mission “To improve the quality of life of the communities we serve globally, through
long-term stakeholder value creation based on leadership with trust.

Tata Sons is the principal investment holding company and promoter of Tata Companies. Approximately
66% of the equity share capital of Tata Sons is held by philanthropic trusts, which supports education,
health, livelihood generation, art, culture etc. The next major chunk of approximately 18% is controlled by
Shapoori Pallonji Group, whose heir apparent is Cyrus Mistry. Mr. Cyrus Mistry was appointed as the
Chairman of Tata Sons in the year December 2012 who was 6th chairman of Tata Sons1.

Section 2(10) of The Companies Act, 2013 defines “Board of Directors” or “Board” , in relation to a
company , means the collective body of directors of the company. Section 2(34) further defines the term
director as a director appointed to the Board of a company. The Chapter XI of the act deals with appointment
and qualifications of directors. The project examines removal of directors with reference to Cyrus Mistry.

TIMELINE OF EVENTS

• In the Board meeting of Tata Sons Limited held on 24th October 2016, Mr. Cyrus Mistry
was replaced from the post of Executive Chairman with the immediate effect on ground
of growing trust deficit and repeated departures from the culture and ethos of the Tata
group and Mr. Ratan Tata was appointed as the interim Chairman of Tata Sons and a
committee was formed to hunt for a new chairman in four months.
• On 25th October 2016, Tata Sons filed caveats in Supreme Court , Bombay High Court and
National Company Law Tribunal to prevent ousted Tata Sons Chairman Cyrus Mistry from
getting an ex-parte order against his sacking. They don`t want any court to pass any ex-
parte orders without hearing their side of the story.

1. NCLAT order on Cyrus Investments Pvt. Ltd. vs. Tata Sons Ltd & Ors.- A case Study, available at :
https://www.icsi.edu/edu/media/webmodules/NCLAT-ORDER-CYRUSINVESTMENTSPVTTD-VS-
20%TATASONSLTD&ORS-CASESTUDY.pdf (Visited on:-19 April,2023).
 LEGAL CONFLICT BETWEEN GROUPS OF TATA & SONS AND CYRUS MISTRY

• In December 2016, two investment firms backed by Mistry family in the names – ‘Cyrus Investments
Private Limited’ and Sterling Investment Corporation Private Limited’, the minority group of
shareholders / ‘Shapoorji Pallonji Group’ holding 18.37% of equity share capital “hereinafter referred
to as petitioner” has filed a suit in National Company Law Tribunal (NCLT) Mumbai bench under
Section 241-242 of the Companies Act,2013 alleging prejudicial and oppression acts of the majority
shareholders and challenged Cyrus Mistry`s removal.
• In reply to this suit, Tata Sons alleged that Mistry family backed investments don’t have the requisite
eligibility conditions to file a suit against them. As the petitioners do not hold at least 10% of the “issued
share capital” of Tata Sons or representing at least one-tenth of the total number of members, as required
by the Companies Act, 2013. According to Tata Sons, though the petitioners hold 18.37% of the equity
share capital of the company, their holding fell to approximately 2.17% when both equity share of the
company, taken into account. With regard to the power of a tribunal to waive off such requirements if
applied for by a petitioner, Tata Sons has contended that since, the petitioners had not sought such a
waiver during the filing of the petition, such a request should not be accommodated at a later stage.
• In the application filed by Mistry family firms stated that the Tata Sons understanding of the legal
provision is not correct. They hold 18.37% of equity shares in the Company and if preference
shareholding is considered none of the groups would have the requisite 10% issued and paid up share
capital and would lead to an absurdity as none of them would be able to maintain an application.
Further, it requested the tribunal to waive off the 10% minimum shareholding norm requirement stating
that there are enough facts, circumstances and sufficient reasons, which warrants the tribunal to exercise
it powers so that the petition can be heard on its merits. If not done so “the grave issues raised in the
petition would go entirely un-investigated.
• Meanwhile during pendency of the case in NCLT, Tata Sons issued a notice in month of January calling
for Extraordinary General Meeting of the company on 6 th February 2017 with subject business being
removal of Mr. Cyrus Mistry as director of Tata Sons.
• On 6th February, 2017 shareholders of Tata Sons removed Mr. Cyrus Mistry as director of Tata Sons
and with effect from 21st February,2017 Mr. Chandrasekaran took the charge as Executive Chairman
of Tata Sons. Hence, this raise legal conflict between them and matter went to National Company Law
Tribunal2.

2. ibid at 1.
 MATTER BEFORE THE NATIONAL COMPANY LAW TRIBUNAL(NCLT)
(CYRUS INVESTMENTS (P) LTD. v. TATA SONS. LTD., CP No. 82 (MB) of 2016)

The petitioner’s who held over 18% equity shares in Tata Sons Ltd., were propelled to file the company
petition against Tata Sons Ltd., Ratan Tata (Chairman Emeritus) and others. The petition arose consequent
to the incident on 24-10-2016 wherein the company Board meeting, Cyrus Mistry (Chairman) was
removed from his position without giving 15 days notice. The petitioners alleged that the respondents
conducted the affairs of the company in an oppressive manner which was prejudicial to the interest of the
petitioners, the company and the public.

As per the petition, the factum of oppressive, arbitrary and prejudicial mismanagement lies in bleeding of
Corus acquisition and overpriced take over, doomed Nano car project, Ratan Tata`s relationship with C.
Sivasankaran (owner of Sterling Infotech Ltd.); DoCoMo Arbitration and unjust investment of Ratan Tata
at the cost of the company ,aviation industry misadventures , removal of Cyrus Mistry as Chairman of the
Company , loss to the company in purchase of Tata Motors. It was alleged that over a time Tata Trusts
directors had become the handmaiden of Ratan Tata and his lieutenant Noshir A. Soonawla (Vice Chairman
, Tata Sons. Ltd.); they had become a ‘Super Board’.

They were alleged to control the Trusts Nominee Directors and thereby suppress the minority shareholders,
the petitioners. It was further alleged that respondents acted as per Ratan Tata`s, violating the Articles of
Association. A grievance was also made against legacy hotspots. On the premise of these allegations
modifications in Articles of Association was prayed for, along with demand to appoint an administrator to
look after day-to-day affairs of the company and appointment of a retired Supreme Court Judge as non-
executive Chairman, direction to the board not to remove Cyrus Mistry from the post of Chairman
restriction on the role of Soonawala, investigation into the affairs of the company.

The Tribunal, in order to decide the petition, took upon an arduous task of visiting the history
of Tata’s and the development of their corporations. In its 368-pages judgment, the Tribunal
discussed each and every point raised by the petitioners and reached a conclusion that the
petition was liable to be dismissed.

DECISION OF THE NATIONAL COMPANY LAW TRIBUNAL

The NCLT held that Board of Directors are competent to remove the Executive Chairman, the
recommendation of Selection Committee was not required. Indeed, removal of Cyrus Mistry was
because he leaked company information to the Media , IT authorities etc and there is no merit was found
on the purported legacy issues. Moreover, none of the articles of the articles of association were
oppressive against petitioners .Majority shareholders has not been taken a back seat with the introduction
of Companies Act, 2013. They are never in conflict with each other. Corporate democracy is genesis
and corporate governance is species3.
 3. No merit in Cyrus Mistry`s petition against removal as Chairman (Tata Sons):NCLT , available at :
https://www.scconline.com/blog/post/2018/07/17/no-merit-in-cyrus-mistrys-petition-against-removal –as-
chairman-tata-sons-nclt/ (Visited on 21st April,2023).

Finding no merit in the issues raised by the petitioners, it was held that all the affairs of the
company being conducted as per Articles of association which fully complied with the
Companies Act. Further, no merit was found on the role attributed to the Ratan Tata and
other Trustees of Tata Trust. Accordingly, basing its decision on the reasons as summarized
above, the Tribunal dismissed the appeal.

Accordingly, the tribunal highlighted the past and products of ‘Tata Sons Limited’ and
observed that “The petitioners have petitioned to this tribunal asking to seasoning of Tata
Sons functioning, which keeps seasoning our daily foods with Tata Salt. Irony is salt is also
at times needing salt to be seasoned...”

DECISION OF NATIONAL COMPANY LAW APPELLATE TRIBUNAL(NCLAT)

(CYRUS INVESTMENTS(P) LTD. v. TATA SONS LTD. (2019 SCC OnLine NCLAT 858)

The Petitioners approached the NCLAT against the order of the NCLT of dismissal of plea of Mr. Mistry
challenging his removal as chairman of the company. The NCLAT admitted petition filed by the petitioners
and also admitted Mr. Cyrus Mistry`s petition in his personal capacity and decided to hear along with the
main petitions filed by the two investment firms. On 6th August 2018 the Tata Sons got nod from Registrar
of Companies for conversion from public and private company. On 23 rd May, 2019, NCLAT reserves its
order after completing the hearing in the matter. On December, 2019 the NCLAT gave its judgment in
favour of petitioner and set aside the order of NCLT.

The National Company Law Appellate Tribunal reinstated Mr. Mistry as the Executive Chairperson for
Tata Sons for his remaining term, and declared that the appointment of Natarajan Chandrasekaran as
executive chairman of Tata Sons was illegal but suspended its implementation for four weeks in order to
provide time for Tata`s to appeal. The NCLAT order had also set aside Tata Son`s decision to convert itself
into private company. The NCLAT enquired the Registrar of Companies (Roc) to explain rationale behind
allowing Tata Sons to convert into a private company and also sought details of the process for the
permission.

In January 2020, Tata Sons appealed to the Supreme Court against National Company Law Appellate
Tribunal (NCLAT) decision to re-instate Mr. Cyrus Mistry as its Chairman as this decision is a blow to
corporate democracy and rights of the Board of Directors4.
 4. Tata v. Mistry | NCLAT explains why RoC cannot take advantage of Section 43-A(2-A) of Companies
Act,1956; Clarfies , no aspersion cast on RoC in earlier order, available at:-
https://www.scconline.com/blog/post/2020/01/07/tata-v-mistry-nclat-expalins-why-roc-cannot-take-
advantge-of-s-43-a2-of-companies-act-1956-clarfies-no-aspersion-cast-on-roc-in-earlier-order/ (Visited on:-
19th April,2023).

MATTER BEFORE SUPREME COURT OF INDIA

TATA CONSULTANCY SERVICES LTD. v. CYRUS INVESTMENTS PRIVATE LIMITED
(2021 SCC OnLine SC 272)

In a long awaited verdict in the Tata-Mistry Row, the 3-judge bench of The Supreme Court
upheld the removal of Cyrus Mistry as Chairman by the Tata Sons and has also answered all
questions in favour of Tata Sons. The Court said that NCLAT has, by reinstating Mistry without
any pleading or prayer, “has forced upon the appellant an Executive Chairman, who now is
unable to support his own reinstatement.”

The Court said, The relief of reinstatement granted by the Tribunal, was too big a pill even for the
complainant companies, and perhaps Cyrus Mistry, to swallow.

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 summarized in one
paragraph, its conclusion on some of the allegations, without any kind of reasoning.

Further the court held that “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.”

Following were the observations of the Supreme Court of India:-

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 subsection (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 office5.

5. ‘Reinstatement by NCLAT “too big a pill” for perhaps even Cyrus Mistry to swallow; Here`s
why Supreme Court upheld Cyrus Mistry`s removal as Chairman by the Tata Sons, available
at :
https://www.scc.online.com/blog/post/2021/03/26/reinstatement-by-nclat-too-big-pill-
forperhaps-even-cyrus-mistry-to-swallow-heres-why-supreme-court-upheld-cyrus-mistrys-
removal-as-chairman-by-the-tata-sons (Visited on 23rd April,2023).

“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 in the opinion of the Supreme Court 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 was
unable to support his own reinstatement.

CONCLUSION

The Tata – Mistry case refers to a corporate dispute between the Tata group and its former chairman, Cyrus
Mistry. In 2012, Cyrus Mistry was appointed as the chairman of Tata Sons, the holding company of Tata
Group. However, in October 2016, he was removed from his position, leading to a legal battle between two
parties. The conflict deals with various key concepts of Company law. Later, general bodies of some of
the Tata Group companies removed him from the boards of Directors. For Mistry, the rough deal did not
end there. He was forced to resign from the Boards of some those Boards were being planned. Aggrieved
by these events, the Mistry Group had first approached the National Company Law Tribunal who dismissed
their petition. On appeal, however, the National Company Law Appellate Tribunal ordered the restatement
of Mr. Mistry. The petitioner ( Mistry Group) in NCLT alleged that the respondents(Tata Group) conducted
the affairs of the company in an oppressive manner which was prejudicial to the interest of the petitioners
the company and the public. The NCLT held that board of directors are competent to remove the executive
chairman on the recommendation of Selection Committee as per articles of association is not required and
no merit has been found on the purported legacy issues and articles of association were not oppressive
against petitioners.

On appeal National Company Law Appellate Tribunal delivered a contrasting judgment that Ratan Tata
was determined to remove Mistry even prior to the meeting of the Board and the majority shareholders of
Tata Trust knew there was requirement of advance notice before removal. When the matter went further to
Supreme Court the court held that that the relief of reinstatement granted by the Tribunal was too big a pill
even for the complainant companies, and perhaps Cyrus Mistry to swallow. In fact, NCLAT directed
reinstating of Mistry without any pleading or prayer. The Supreme Court held that Section 241 and 242 of
the Companies Act do not specifically confer the power of reinstatement, nor is there any scope for holding
that such power to reinstate can be implied or inferred from any of the powers specifically conferred.
Indeed, the Supreme Court has rightly held that mere removal of a director or executive chairman cannot
be termed as ground for winding up a company. Indeed, in the absence of grounds that would justify
winding up, no relief for oppression and mismanagement can be granted. The Supreme Court has held that
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.