December , 2019
NCLAT rules reinstatement of Mistry as Tata Sons chairman
17:31 pm

Arun Kumar Shrivastav

Just when India’s corporate world seemed to conclude the year without recording anything significant, a National Company Law Appellate Tribunal (NCLAT) ruling staged one of the biggest upsets in India’s corporate history. On December 18, NCLAT pronounced its judgment on the removal of Cyrus Mistry as the chairman of Tata Sons, and also as one of the directors on its board, in October 2016.

Tata Sons is the holding company of the Tata Group, with annual revenue of $110.7 as of March 2019. Though public memory is short, the unceremonious exit of Cyrus Mistry from the Tata Sons headquarters (Bombay House) is still fresh in the minds of corporate leaders. It was one of the rare occasions when the brand Tata was in for some negative publicity. Its senior most executive was summarily dismissed and also removed from the all-powerful board of directors that controlled nearly 100 Tata Group companies. To the surprise of many, Mistry did not take things lying down. Instead, he hit out at the board of directors alleging oppression of minority stakeholders, carrying out actions prejudicial to the interest of the company and for mismanagement.

In its December 18 decision, NCLAT reinstated Cyrus Mistry as the executive chairman of the Tata Sons, terming his removal as illegal. The judgment has a direct bearing on the salt-to-software conglomerate’s current chairman, the soft-spoken Natarajan Chandrasekaran. The quasi-judicial appellate body for corporate cases also struck down Tata Sons’ decision to transform itself into a private company, stating that it has not followed due procedure while accepting Mistry’s argument that Tata Sons and its directors as well as shareholders acted with a prejudicial motive towards minority shareholders.

That NCLAT judgment has come as a serious setback for the Tata Sons management. In a statement, the company opined, “It is not clear how the NCLAT order seeks to overrule the decisions taken by shareholders of Tata Sons and listed Tata operating companies at validly constituted shareholders meeting. The NCLAT order even appears to go beyond the specific reliefs sought by appellant.”

In a letter to his employees, Chandrasekaran has assured them that Tata Sons will take recourse to appropriate legal remedies and asked them to stay focused on their businesses. Tata Sons is expected to move the Supreme Court against the NCLAT order, which has given the company four weeks to seek judicial review from the apex court.

The legal team pursuing Mistry’s case is upbeat but keeping the pitch for Mistry’s reinstatement low. They claim that Mistry never clamoured for the chairmanship of the Tata Sons but are of the opinion that his reinstatement has come as a major vindication for his reputation. He can now expect to be back on the Tata Sons board. 

Nusli Wadia, the 75-year-old chairman of Bombay Dyeing and the only independent director on the Tata Sons board who had opposed Mistry’s removal said he stands vindicated.  In a statement Wadia said, “I am proud that I was the only independent director who believed in Cyrus and was opposed to his unjust removal. Cyrus proved his capabilities to grow the institution and correct all the unprofitable and ill-advised forays and investments made by the companies prior to his becoming chairman. It’s this that was the cause of his uncalled for, unjust, vengeful removal. Cyrus stands vindicated.”

The NCLAT judgment has categorically upheld Mistry’s allegation of corporate mis-governance in Tata Sons. It makes a case for transparency in management besides protecting all stakeholders’ interests, said C. Aryama Sundaram, senior legal counsel for Mistry.

Since Tata Sons holds shares in and controls a large number of companies with investments from public shareholders, it’s all the more imperative that high standards of corporate governance are adhered to in order to ensure that interests of the public investors at large are not jeopardised. Taking offence to the way Mistry was ousted and the set norms were overlooked in the process, NCLAT went on to say that it would have ordered the winding up of Tata Sons had it not been for the economic implications of such an order.

The road ahead for both Tata Sons and Mistry is full of speculations. In anticipation of Tata Sons moving the Supreme Court, Mistry has already filed a caveat seeking to be heard before any order is passed against him. While experts have been talking about all the possibilities in the aftermath of the NCLAT order, one of the possibilities that look more probable is that after the moral victory that NCLAT order has brought for Mistry, he is likely to stop playing the hard ball and agree to a compromise that a brings a win-win situation for both the sides.

Add new comment

Filtered HTML

  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <blockquote> <code> <ul> <ol> <li> <dl> <dt> <dd>
  • Lines and paragraphs break automatically.

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.