After the National Company Law Appellate Tribunal (NCLAT) restored Cyrus Mistry as Tata Sons chairman, Cyril Shroff, managing partner at Cyril Amarchand Mangaldas on Thursday said the tribunal order has shaken fundamental rules of company law.
In an interview to CNBC-TV18's Nisha Poddar, Shroff said, "I think there are three big implications of this judgement, I may be wrong but this is my opinion. The first implication is the majority rule principle. This has been settled in company law all over the world including in India. The most famous case being LIC versus Escorts. If shareholders have at a validly convened general meeting removed someone following a due process, then how can you substitute that judicially by another outcome? So, the rule of the majority, I think is one of the paramount foundations of any corporate law regime."
"The second implication is passing orders against entities which are not even parties. The potential implication of this is against entities of public listed companies who are not even in the case, how can this order stand? Put on the hat of any of the other Tata listed companies who may be asking themselves the question about what this means as they were not even party, so how can the order apply against them? So, that contradicts a fundamental principle of natural justice," he said.
"The third implication is the principle of proportionate representation. If you hold a certain percentage of shares in the company, you automatically need to have one seat on the board. There is a provision in the company law for proportionate representation. But for that, you need to have that in the Articles. If that is not in the Articles, where do you get this principle from? If you extrapolate this to the corporate sector, can not an investor holding somewhat of those number of shares in other companies now come and say this was decided in this case, can I have a seat please on the board even if you don't have the required majority? So, these are the sort of things which I feel have kind of turned company law upside down and which I am finding it hard to understand. I am not commenting on whether the judgement is right or wrong, all that I am saying is that it has blown away a lot of beliefs of company law that I had and I am struggling to understand this judgement," he added.