Tata-Mistry Case: Tata Sons Wins, Supreme Court Sets Aside NCLAT Order

Tata Sons has won the legal battle against Cyrus Mistry and entities. The Supreme Court has set aside the NCLAT order. All petitions by Tata Group are allowed and all petitions by Mistry Group dismissed, said the three judge bench, led by Chief Justice of India SA Bobde, while pronouncing the order in court.

This means Mistry’s assertion of oppression and mismanagement at Tata Sons did not succeed at the apex court. The National Company Law Appellate Tribunal had found in his favour and reinstated him as chairman of Tata Sons. The Supreme Court has overturned the appellate tribunal decision.

While delivering the verdict the court listed the questions it had to decide on;

• Whether the NCLAT order, including reinstatement of Mistry on the Tata Sons and group company boards, is in consonance with provisions of Section 242?
• Whether the characterisation by the tribunal of the affirmative voting rights as oppressive are justified?
• Whether the tribunal could have granted a direction to Ratan Tata and the nominee directors virtually nullifying the effect of these articles?
• Whether the reconversion of Tata Sons (from public to private company) acquired the necessary approvals?

“We find all the questions of law are liable to be answered in favour of the Tata Group and appeals by the SP group are liable to be dismissed,” the bench said in its verbal order. But it left one question unanswered.

At this stage and in this court, we cannot adjudicate on fair valuation, the court also said, leaving open the issue of a potential exit of the Mistry family from its shareholding in Tata Sons. Mistry had earlier proposed a plan of separation that involved a swap of the 18.47% held by his family in Tata Sons for shares of listed Tata Group companies, namely TCS.

It’s also not clear yet, until the written order is available, whether the top court has opined on a Tata Sons board seat for the Mistry family. Nor is it known if the court has ruled on whether Mistry family can pledge the Tata Sons shares it own. In 2020, in an interim order in response to a Tata plea, the court had ordered the SP Group to maintain status quo on the shares, some of which have already been pledged.

The Tata Group said , in an emailed statement, that the judgment “vindicates the position of Tata Sons and upholds the governance standards adopted by the Tata Group over the years.”

Their main lawyer Harish Salve described the court’s decision as important and precedent-setting, vis-a-vis the new Companies Act on several issues, especially affirmative voting rights, finding of just and equitable, and buy out at fixed price, as also on conversion from public to private limited company. He said this in a comment to tax portal Taxsutra.

The Mistry team have yet to comment on the news.

The case reached the Supreme Court in January 2020 and was heard in December. The arguments in the top court touched upon the principles of board independence; what would qualify as oppression of minority shareholders; manner of removal of Cyrus Mistry in 2016 as well as the conversion of Tata Sons from a public limited company to a private limited one. The two sides also differed on the valuation of the Mistry shares in Tata Sons and the difference was to the tune of around Rs. 1 lakh crores.

It all started in 2016, when Cyrus Mistry was dismissed as chairman of Tata Sons, the group’s main holding company. He also lost his seat on the board despite his family’s 18.47% shareholding in the company. That prompted him to file a case of oppression and mismanagement against Tata Group which he lost in the NCLT but won in NCLAT.

Tata And Mistry At The Supreme Court

Was Trying To Run Tata Sons As A Board Managed Company: Mistry

The Mistry side was represented by Senior Advocates CA Sundaram, Shyam Divan and Janak Dwarkadas. Mistry argued that Tata Sons, the holding company of the Tata Group, was not being run as a board managed company.

Sundaram argued that the manner in which the company was being run was prejudicial to the interests of not just the minority shareholders but also the company itself.

Citing Tata’s transaction with Uber, the rights issue of Tata Motors Ltd., among others, the Mistry side argued that Tata Sons’ board was being undermined in taking decisions which resulted in the oppression of minority shareholders.

Sundaram further told the top court that Cyrus Mistry was trying to introduce a corporate governance document to streamline processes. The effort, Sundaram said, was to enhance governance standards and not let nominee directors of the majority shareholder, Tata Trusts, hurt board democracy.

There Was No Oppression: Tata Sons

The Tata’s arguments were presented to the bench by Senior Advocate Harish Salve who said to prove oppression there must be evidence of lack of probity in the decision making process which had not happened here.

Business decisions which did turn out as expected could not be used to question the management, Salve had told the court.

Salve compared the shareholding of the Mistry side in the Tata Sons to their representation on the board and dividend income to argue that they had been given their due and more.

The right of the minority shareholder is to get dividends which Tata Sons had been paying; and if one went strictly by the numbers, then the Mistry side did not have a right to get even one seat on the board, he argued.

The NCLT, NCLAT Decisions

Before coming to the top court,the case already saw two rounds of litigation at the National Company Law Tribunal and the National Company Law Appellate Tribunal, with both sides winning one round each. The Tata Group appealed to the Supreme Court in January last year, sparking this final round.

The Mistry Separation Plan

In Oct. 2020, the Mistry side submitted an affidavit in the top court offering to settle the dispute presenting a plan of separation and suggested a share-swap arrangement in listed entities of Tata Group in lieu of the shares held by them in the unlisted Tata Sons.

The plan of separation proposed by the SP Group included:

• A selective reduction of capital at Tata Sons thereby extinguishing shares held by them.
• In exchange, SP Group be granted shares in listed companies of the group.
• Also, cash consideration or shares for brand value, unlisted assets, etc.

In case, Tata Group didn’t want to part with stocks in a particular listed entity, say for reasons of maintaining a certain shareholding level, according to the separation proposal, SP Group was willing to accept shares of Tata Consultancy Services Ltd. or cash.

Tata Sons, during the hearings in the top court, rejected the offer. Accepting the offer would mean spilling the dispute to the other group companies, Tata Sons lawyer, senior advocate Harish Salve, told the Chief Justice of India-headed Supreme Court bench then.