Cyrus Investments Private Limited and Sterling Investment Corporation Private Limited -- companies of Tata Sons' ex-chairman Cyrus Mistry -- began their appeal on Thursday against orders passed by the Mumbai bench of the National Company Law Tribunal (NCLT), dismissing the companies' pleas of oppression and mismanagement in Tata Sons Limited.
Lawyer for the Mistry companies, senior advocate C A Sundaram began his arguments before the National Company Law Appellate Tribunal (NCLAT) by saying that the NCLT had erred on interpreting the provisions of the Companies Act, 2013 on oppression and mismanagement while dismissing their pleas on the grounds of maintainability.
On March 6, the NCLT had come to conclusion that the Mistry petitions were not maintainable as they had failed to satisfy the requirement under Section 244 of the Companies Act since it had not initiated by one-tenth of the total amount of members (or issued share capital), when preference shareholders were taken into account. The Mistry family owns 18.34 percent of equity shareholding in Tata Sons, but when preference shares are taken into account the total shareholding falls to 2.17 percent.
After the tribunal arrived at this conclusion, the company had made a request to the tribunal to waive this requirement according to a proviso in the relevant section, which allowed the NCLT to admit such a petition regardless of the maintainability condition. When the tribunal refused this request on April 17, the Mistry camp approached the NCLAT to challenge both these decisions on April 27.
In Thursday's hearing, Sundaram said that the Section 244 requirement only pertained to one-tenth of members from a class that had been aggrieved and could not be held to include both equity and preference shareholders in such cases, as this interpretation would undermine the purpose of the provision to curb mismanagement in a company and remedy the mischief being caused. Highlighting articles of association of Tata Sons and relevant provisions of the Companies Act, the lawyer for the Mistry companies said the rights of preference shareholders did not include making decisions on the affairs of the company and were merely akin to a debt. This distinction had not been considered by the NCLT while making its decision, he added.
On the issue of waiver, Sundaram also said that the Mistry petition had significant aspects of public and national importance, and was a fit case for waiver, regardless of the issue of maintainability. After hearing the submissions, the court said that it would look at the issue of maintainability in further detail and establish the grounds under which waiver could be allowed. The appeal will be heard again on July 3.
