Multi-billion salt to software conglomerate Tata Sons Private Limited submitted in the Supreme Court on Tuesday that the December 18 last decision of the National Company Law Appellate Tribunal (NCLAT) to reinstate Cyrus Mistry as its chairman effectively amounted to vesting the control of the Tata companies with a minority shareholder.
“What NCLAT has done now is vest the control of the company with minority. Minority with 18% holding has been effectively given power to rule over all the Tata Companies”, senior advocate Harish Salve for Tata Sons submitted before a Bench led by Chief Justice of India Sharad A. Bobde on the first day of the hearing.
The hearing will continue on December 9.
The Hindu Explains: NCLAT's Tata-Mistry ruling
Mr. Salve said the major shareholder of Tata Sons is Tata Trusts, which holds 68% stake. “The trustees controlled Tata Sons and nominated people to the Board of Tata Sons. It was a matter of prestige to be nominated to the Board of Tata Sons”, he stated.
The NCLAT decision had served a blow to corporate democracy and rights of the board of directors, Tata Sons argued in its appeal.
It said the Tribunal crossed its jurisdiction by terming the appointment of current incumbent N. Chandrasekaran illegal while restoring Mr. Mistry as chairman.
Expiry of Mistry’s tenure
Mr. Mistry’s tenure as chairman and director of Tata Sons expired in March 2017. The NCLAT decision to restore him to his “original position” for the “rest of his tenure” was contrary to company law, a recipe for disaster and a dangerous precedent in law. Besides, Mr. Mistry had never sought his reinstatement. The NCLAT had gone beyond its jurisdiction, the appeal by Tata Sons, filed through Karanjawala &Co, said.
A majority of board of directors at Tata Sons voted for Mr. Mistry’s replacement as chairman on October 24, 2016, after losing confidence in him. He was again removed as the director of Tata Sons on February 6, 2017, following the procedure that applied to corporate appointments.
“Instead of bringing to bear an approach that would be consistent with corporate democracy and the right of the shareholders to exercise their votes in the manner they consider appropriate, the NCLAT took upon itself to go into various issues alien to such consideration… No reasons were given on how the process of replacement and removal was wrong and illegal,” the appeal argued.
Mr. Salve submitted that the NCLAT’s conclusions were based on an error that Tata Sons continued to be a public company. The areas of the Tribunal’s enquiries were clearly beyond its realm.
Besides, the appeal said the NCLAT imposed an “unwarranted and unsolicited consultative process” upon the Tata Group by requiring it to consult minority stakeholder Shapoorji Pallonji Group before appointing anyone as executive chairman.
Mr. Mistry is a scion of the Shapoorji Pallonji Group.
“The judgment has rewritten the Articles of Tata Sons, where the majority shareholders are subject to the minority, capsizing the fundamental rule of corporate democracy,” the appeal said.