Tata Vs Mistry: Why Mistry’s Oppression Case Failed In The Supreme Court
The Supreme Court has gone so far as to suggest there never was a case to begin with.
The Supreme Court has comprehensively dismissed every charge of oppression and mismanagement made by entities owned by Cyrus Mistry against Tata Sons Pvt.
Not just that, the court has gone so far as to suggest there never was a case to begin with. That the original cause of action was Mistry’s dismissal as chairman of Tata Sons. Everything else was a dressing up of that cause.
“Though the complainant companies padded up their actual grievance with various historical facts to make a deceptive appearance, the causa proxima for the complaint was the removal of CPM (Cyrus Pallonji Mistry) from the office of executive chairman.”
But removal of a chairman, or even director of a company is not grounds enough to determine oppression or prejudicial behaviour, the apex court said whilst overturning the decision of the National Company Law Appellate Tribunal that had found oppression and mismanagement and ordered the reinstatement of Mistry.
While Mistry made several specific charges against Tata Sons in the oppression case, the Supreme Court examined only a few. The court’s explanation for this was that the National Company Law Tribunal had dismissed each of the charges whereas the NCLAT overturned only a few of the tribunal’s dismissals. Since tribunals are courts of fact and the Supreme Court of law, it limited its proceedings to the conclusions arrived at by the NCLAT.
Mistry’s Charges To Show Oppression:
Abuse of few articles and control exercised by Tata Trusts over Tata Sons board
Removal of Cyrus Mistry as executive chairman
Transactions with Siva and Sterling Group of Companies;
Air Asia
Transactions with Mehli Mistry
The losses suffered by Tata Motors Ltd. in Nano car project
The acquisition of Corus
As the NCLAT did not overturn the NCLT dismissal of the last five, the Supreme Court considered the dismissal to be final. In the context of oppression it examined
- Removal of Cyrus Mistry as executive chairman and director
- Affirmative voting rights to Tata Trusts’ nominee director on Tata Sons
- Corporate governance and other articles including Article 75
Cyrus Mistry’s Dismissal
On Mistry’s removal as executive chairman of Tata Sons, the top court noted that it is a well settled position that certain failed business decisions or a removal of a person from directorship cannot be called as acts oppressive to minority shareholders.
In such a case (under Section 241, 242 of company law) a tribunal, the court said, cannot ask whether the removal was correct/valid but it has to see whether such removal would tantamount to oppression of the minority shareholders.
...the fact that the removal of CPM was only from the executive chairmanship and not the directorship of the company as on the date of filing of the petition and the fact that in law, even the removal from directorship can never be held to be an oppressive or prejudicial conduct, was sufficient to throw the petition under section 241 out, especially since NCLAT chose not to interfere with the findings of fact on certain business decisions.Supreme Court of India
Corporate Governance
Both, with regard to Mistry’s oppression case and the NCLAT’s findings, the top court examined several aspects of the Articles of Association of Tata Sons, including rights such as affirmative votes, pre-consultation with Tata Trusts.
It dismissed each of Mistry’s arguments and stated the Tata Group was guided by corporate governance and had included many practices, such as board committees, etc., even though it was not required by law to have them.
If the idea was to run Tata Sons purely as a family business, RNT (Ratan Naval Tata) need not have stepped down from the chairmanship. Today nobody wants to step down from any office, except if afflicted by brain stroke or sun stroke.Supreme Court of India
Affirmative Rights
Article 121 of Tata Sons’ Articles of Association grants affirmative voting rights to the nominee directors of the Tata Trusts in certain matters.
The top court pointed out that such rights are a global norm and in this case they confer only a limited right on the nominee directors. Going by the shareholding, Tata Trusts with 66% could have packed the board, the court said, while noting it didn’t.
..under Article 104B, only a minimum guarantee is provided to the two Trusts, by ensuring that the Trusts will have at least 1/3rd of the directors, as nominated by them so long as they hold 40% in the aggregate of the paid up share capitalSupreme Court of India
Article 75 Uninvoked
Article 75 allows Tata Sons to resolve by special resolution the transfer of any shareholder’s shares. Mistry has termed this as coercive. The Supreme Court viewed it as an exit clause. Besides, it said Article 75 had never been invoked and future action is not covered under oppression.
Also, Article 75 has existed for decades and Mistry was himself party to an amendment in the year 2000 which gave Article 75 its present form.
A person who willingly became a shareholder and thereby subscribed to the Articles of Association and who was a willing and consenting party to the amendments carried out to those Articles, cannot later on turn around and challenge those Articles. The same would tantamount to requesting the Court to rewrite a contract to which he became a party with eyes wide open.Supreme Court of India
Pre-Consultation With Tata Trusts
The court opined that given the charitable objectives of the Tata Trusts, their nominee directors on board Tata Sons are not like any other ordinary directors. It also questioned whether the need for having independent directors on the board itself was an acknowledgment that not every director could be expected to exercise completely independent judgment irrespective of who nominated them.
A nominee director of the Trusts holds a fiduciary duty towards their beneficiaries.
We do not also know whether the prescription in Section 149(4) is a tacit acknowledgment that all the directors appointed in a general meeting under Section 152(2) may not be independent in practice, though they may be required to be so in theory.Supreme Court of India
Frequent Changes In Mistry’s Case
The top court also detailed the shifting arguments of the Mistry side through the five-year long litigation on seeking certain reliefs. The plea for reinstatement of Mistry was later amended to seek proportionate representation on the board. While challenging the affirmative voting rights of the Tata Trusts’ nominee directors on Tata Sons’ board, Mistry’s case sought the same rights for his SP Group.
The court termed the request for the same rights as “quite funny”.
The frequent change of position that SP Group has taken and the relief that they now seek, raises a doubt whether it is actually a fight on principles. If affirmative voting rights are bad in principle, we do not know how they may become good, if conferred on SP Group also.Supreme Court of India
In all, the apex court found no instance to support the oppression case and overturned all of NCLAT’s findings and reliefs.