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Cyrus Mistry saga: The story of minority shareholders' protection

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In a major victory for Cyrus Mistry in his legal battle against Tata Sons, the NCLAT reinstated him as the executive chairman of the group and ruled the appointment of N Chandrasekaran as executive chairman illegal.

Cyrus Mistry saga: The story of minority shareholders' protection
The decision of the National Company Law Appellate Tribunal, headed by chairperson Justice Mukhopadhaya, in Cyrus Mistry's case against the Tata Group will have a permanent impact on the board room moves not just in Tata Sons but in other India Inc too. This decision is now stretching all the top legal brains across the country.
Cyrus Mistry ouster
Mistry from Shapoorji Pallonji group had taken over as the sixth chairman of Tata Sons in 2012 after Ratan Tata announced his retirement. Mistry soon had a strong difference of opinion with Ratan Tata and the former was ousted from the chairman's role in October 2016. Shapoorji Pallonji group holds over 18 percent stake in Tata Sons while the balance is held collectively by Tata group companies and their family members.
Cyrus Mistry appeal in NCLAT
On being dismissed, Mistry camp appealed in the Mumbai bench of NCLT alleging that Mistry was removed illegally from the board. The NCLT by the impugned judgement dated July 9, 2018, highlighted the products of Tata Sons and observed that "The Petitioners have petitioned to this Tribunal asking to seasoning of Tata Sons functioning, which keeps seasoning our daily food with Tata Salt. The irony is salt also at times needs salt to be seasoned......" and passed stricture and derogatory observations against the Mistry camp and dismissed the petition. The Mistry camp subsequently appealed in the NCLAT against the orders of Mumbai NCLT.
NCLAT Ruling
After a prolonged hearing in the NCLAT, Justice Mukhopadhaya upheld the Mistry camp's appeal and ruled N Chandrasekaran's appointment as illegal. The NCLAT has also given a window of four weeks to Tata Sons to reinstate Cyrus Mistry as the chairman of Tata Sons.
The NCLAT also felt that the behaviour of Tata Sons' board towards the minority shareholders was “prejudicial” and “oppressive”. The Judgement criticized the NCLT that the tribunal in its opening paragraphs was not required to highlight the products of Tata Sons nor was required to appreciate its activities before deciding the case on merit.
The NCLAT ruled that in view of "Prejudicial" and "Oppressive" decision taken during last few years, the company and its board of directors and shareholders which has not exercised its power under Article 75 since inception, will not exercise its power under Article 75 against Appellants and other minority member. Such power can be exercised only in exceptional circumstances and in the interest of the company, but before exercising such power, reasons should be recorded in writing and intimated to the concerned shareholders whose right will be affected. The decision of the Registrar of Companies changing the company from Public Company to Private Company is declared illegal and set aside.
Appeal in Supreme Court
Tata Sons has four weeks to appeal against the NCLAT's order in the apex court of India. If appealed in the SC, it will be an interesting battle to see how the top court deals with the order. The legal brains will now work overtime to take it before the apex court. The Mistry camp should file a caveat to set the ball rolling in the apex court.
Protection of Minority Shareholder Interest
The NCLAT's decision is a shot in the arm for all the minority shareholders in the board room. This will also act as a wake-up call for the majority shareholders and cannot take the minority shareholders in their sway for decisions. The Companies Act 2013 has adequate protection for the minority shareholders. The Minority shareholders can file an Application to Tribunal for relief in case of oppression (Section 241).
 
K Satish Kumar is a keynote speaker, author, the Global Head of Legal and Chief Data Protection Officer of Ramco Systems. Among the many awards he has received, the coveted are “Top 50 Legal Leaders 2019” by Legal IP Gorilla in Singapore, “GC PowerList India 2018” by London based Legal 500, “Legal Counsel of the Year -2018” by INBA. He is actively involved in many pro bono activities through Chennai Lawyers. The author can be reached at getksk@gmail.com. The views expressed are personal.
Read his columns here.

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