TATA CONSULTANCY SERVICES LIMITED v. CYRUS INVESTMENTS PVT. LTD. AND ORS.
Tools
- Court
- Supreme Court of India
- Decided
- Bench
- S.A. BOBDE (CJI), A.S. BOPANNA and V. RAMASUBRAMANIAN
- Citation
- [2021] 12 S.C.R. 903
Source PDF (original scan)
Contains information from the Indian High Court / Supreme Court Judgments dataset, licensed under CC-BY-4.0
Machine-read from a scanned report. Check the printed page before citing. Report an error.
Headnote — Supreme Court Reports (editorial summary, not part of the judgment)
Catchwords
Companies Act, 2013 – ss. 241 and 242 –
Held
The sine qua non for invoking s.241 is that the affairs of the Company should have been conducted or are being conducted in a manner oppressive or prejudicial to some of the members – In a petition u/ s.241, the Tribunal cannot ask the question whether the removal of a Director was legally valid and/or justified or not – The question to be asked is whether such a removal tantamount to a conduct oppressive or prejudicial to some members – Even in cases where the Tribunal finds that the removal of a Director was not in accordance with law or was not justified on facts, the Tribunal cannot grant a relief u/s.242 unless the removal was oppressive or prejudicial – There may be cases where the removal of a Director might have been carried out perfectly in accordance with law and yet may be part of a larger design to oppress or prejudice the interests of some members – It is only in such cases that the Tribunal can grant a relief u/s.242 – The validity and justification for the removal of a person can never be the primary focus of a Tribunal u/s.242 unless the same is in furtherance of a conduct oppressive or prejudicial to some of the members – On facts, the removal of a F person from the post of Executive Chairman cannot be termed as oppressive or prejudicial –The original cause of action for the complainant companies to approach NCLT was the removal of CPM from the post of Executive Chairman – Though the complainant companies padded up their actual grievance with various historical facts to make a deceptive appearance, the causa proxima for the complaint was the removal of CPM from the office of Executive Chairman – His removal from Directorship happened subsequent to the filing of the original complaint and that too for valid and
A justifiable reasons and hence NCLAT could not have laboured so much on the removal of CPM, for granting relief u/ss.241 and 242. Company Law –
Held
Company Tribunal is not a labour Court or an administrative Tribunal to focus entirely on the manner of removal of a person from Directorship.
Catchwords
Company Law – Winding up order on just and equitable grounds –
Held
There must lie a justifiable lack of confidence in the conduct and management of the company’s affairs, at the foundation of applications for winding up – The case on hand does not fall anywhere near the just and equitable standard, for the simple reason that it was the very same complaining minority whose representative was not merely given a berth on the Board but was also projected as the successor to the Office of Chairman – For invocation of just and equitable clause, there must be a justifiable lack of confidence on the conduct of the directors – A mere lack of confidence between the majority shareholders and minority shareholders would not be sufficient – On facts, Tata Sons is a principal investment holding Company, of which the majority shareholding is with philanthropic Trusts – The majority shareholders are not individuals or corporate entities having deep pockets into which the dividends find their way if the Company does well and declares dividends – The dividends that the Trusts get are to find their way eventually to the fulfilment of charitable purposes – Therefore, NCLAT should have raised the most fundamental question whether it would be equitable to wind up the Company and thereby starve to death those charitable Trusts, especially on the basis of un-charitable allegations of oppressive and prejudicial conduct – Finding of NCLAT that the facts otherwise justify the winding up of the Company under the just and equitable clause, was completely flawed. Companies Act, 2013 – ss. 241 and 242 – ss.241 and 242 do not specifically confer the power of reinstatement, nor there is any scope for holding that such a power to reinstate can be implied or inferred from any of the powers specifically conferred – The architecture of ss.241 and 242 does not permit the Tribunal to read into the Sections, a power to make an order (for reinstatement) which is barred by law vide s.14 of the Specific Relief Act, 1963 with or without the amendment in 2018.
Catchwords
Company Law – Law relating to oppression and mismanagement –
Held
Despite the law relating to oppression and mismanagement undergoing several changes, the object that a Tribunal should keep in mind while passing an order in an application complaining of oppression and mismanagement, has remained the same for decades – This object is that the Tribunal, by its order, should bring to an end the matters complained of – The purpose of an order both under the English Law and under the Indian Law, irrespective of whether the regime is one of “oppressive conduct” or “unfairly prejudicial conduct” or a mere “prejudicial conduct”, is to bring to an end the matters complained of by providing a solution – The object cannot be to provide a remedy worse than the disease – The object should be to put an end to the matters complained of and not to put an end to the company itself, forsaking the interests of other stakeholders.
Catchwords
Company Law – Articles of Association of a company –
Held
That Articles of Association of a company constitute a contract among shareholders, is the bedrock of Company Law – A person who willingly became a shareholder and thereby subscribed to the Articles of Association and who was a willing and consenting party to the amendments carried out to those Articles, cannot later on turn around and challenge those Articles – The same would tantamount to requesting the Court to rewrite a contract to which he became a E party with eyes wide open. Companies Act, 2013 – s.241 – s.241 is not intended to discipline a Management in respect of a possible future conduct.
Catchwords
Companies Act, 2013 – s.242 – Articles of Association of a F company –
Held
The Tribunal has the power u/s.242 to set aside any amendment to the Articles that takes away recognised proprietary rights of shareholders – But this is on the premise that the bringing up of amendment itself was a conduct that was oppressive or prejudicial – On facts, the order of NCLAT tinkering with the power available under Article 75 of the Articles of Association was wholly unsustainable. In the instant matter, Tata Sons (Private) Limited challenged a final order dated 18-12-2019 passed by the National Company Law Appellate Tribunal (NCLAT) (i) holding as illegal, H
(iv) Whether the characterisation by the Tribunal, of the A affirmative voting rights available under Article 121 to the Directors nominated by the Trusts in terms of Article 104B, as oppressive and prejudicial, is justified especially after the challenge to these Articles have been given up expressly and whether the Tribunal could have granted a direction to B RNT and the Nominee Directors virtually nullifying the effect of these Articles ? (v) whether the re-conversion of Tata Sons from a public company into a private company, required the necessary approval under section 14 of the Companies Act, 2013 or at least an action under section 43A(4) of the Companies Act, 1956 during the period from 2000 (when Act 53 of 2000 came into force) to 2013 (when the 2013 Act was enacted) as held by NCLAT ? Answering all the questions of law in favour of the Tata Group, the Court
Held
Question No.1 1.1. The real reason why the complainant companies thought fit, quite tactfully, not to press for the reinstatement of CPM is that the mere termination of Directorship cannot be projected as something that would trigger the just and equitable clause for winding up or to grant relief under Sections 241 and 242. [Para 16.21][1002-A-B] 1.2. It must be remembered : (i) that a provision for inclusion of a representative of small shareholders in the Board of Directors, is of a recent origin under Section 151 of the Companies Act, 2013 and it is applicable only to a listed company; (ii) that Tata sons is not a listed Company; (iii) that the Articles of Association of Tata sons, to which the complainant companies, CPM and his father had subscribed, do not provide for any representation; (iv) that despite there being no statutory or contractual obligation, Tata Sons inducted CPM’s father as a director on the board in the year 1980 and continued him for a period of almost 25 years; (v) that CPM himself was inducted, again without reference to any statutory or contractual obligation, H
Reporter's headnote (continued) and case details
903
(Civil Appeal Nos. 440-441 of 2020)
p. 904
p. 905
INVESTMENTS PVT. LTD. AND ORS.
p. 906
A the proceedings of the sixth meeting of the Board of Directors of TATA Sons Limited held on 24.10.2016 in so far as it related to the removal of Shri Cyrus Pallonji Mistry (“CPM”); (ii) restoring the position of CPM as the Executive Chairman of Tata Sons Limited and consequently as a Director of the Tata Companies for the rest of the tenure; (iii) declaring as illegal the appointment B of someone else in the place of CPM as Executive Chairman; (iv) restraining Shri Ratan N. Tata (“RNT”) and the nominees of Tata Trust from taking any decision in advance; (v) restraining the Company, its Board of Directors and Shareholders from exercising the power under Article 75 of the Articles of C Association against the minority members except in exceptional circumstances and in the interest of the Company; and (vi) declaring as illegal, the decision of the Registrar of Companies for changing the status of Tata Sons Limited from being a public company into a private company. D The questions of law that arose for consideration were: (i) Whether the formation of opinion by the Appellate Tribunal that the company’s affairs have been or are being conducted in a manner prejudicial and oppressive to some members and that the facts otherwise justify the winding up of the company on just and equitable ground, is in tune with the well settled principles and parameters, especially in the light of the fact that the findings of NCLT on facts were not individually and specifically overturned by the Appellate Tribunal? (ii) Whether the reliefs granted and the directions issued by the Appellate Tribunal, including the reinstatement of CPM into the Board of Tata Sons and other Tata companies, are in consonance with the pleadings made, the reliefs sought and the powers available under Sub-section (2) of Section 242 of the Companies Act, 2013?
G (iii) Whether the Appellate Tribunal could have, in law, muted the power of the Company under Article 75 of the Articles of Association, to demand any member to transfer his ordinary shares, by simply injuncting the company from exercising such a right without setting aside the Article?
p. 907
INVESTMENTS PVT. LTD. AND ORS.
p. 908
A as a Director on the Board in August, 2006; and (vi) that within 6 years of such induction, CPM was identified as a successor to RNT and was appointed as Executive Deputy Chairman and elevated to the position of Executive Chairman. [Para 16.22][1002-B-E] B 1.3. It is an irony that the very same person who represents shareholders owning just 18.37% of the total paid up share capital and yet identified as the successor to the empire, has chosen to accuse the very same Board, of conduct, oppressive and unfairly prejudicial to the interests of the minorities. [Para 16.23] [1002-E-F] C 1.4. The fact that the removal of CPM was only from the Executive Chairmanship and not the Directorship of the company as on the date of filing of the petition and the fact that in law, even the removal from Directorship can never be held to be an oppressive or prejudicial conduct, was sufficient to throw the petition under section 241 out, especially since NCLAT chose not to interfere with the findings of fact on certain business decisions. [Para 16.24][1002-G-H; 1003-A] 1.5. The subsequent conduct on the part of CPM in leaking his mail dated 25-10-2016 to the Press and sending replies to the Income Tax Authorities enclosing 4 box files, even while continuing as a Director, justified his removal even from the Directorship of Tata Sons and other group companies. A person who tries to set his own house on fire for not getting what he perceives as legitimately due to him, does not deserve to continue as part of any decision making body (not just the Board of a company). [Para 16.25][1003-B-C] F 1.6. In a petition under Section 241 of the Companies Act, 2013, the Tribunal cannot ask the question whether the removal of a Director was legally valid and/or justified or not. The question to be asked is whether such a removal tantamount to a conduct oppressive or prejudicial to some members. Even in cases where G the Tribunal finds that the removal of a Director was not in accordance with law or was not justified on facts, the Tribunal cannot grant a relief under Section 242 unless the removal was oppressive or prejudicial. [Para 16.28][1003-H; 1004-A-B] 1.7. There may be cases where the removal of a Director might have been carried out perfectly in accordance with law and H
p. 909
INVESTMENTS PVT. LTD. AND ORS.
yet may be part of a larger design to oppress or prejudice the A interests of some members. It is only in such cases that the Tribunal can grant a relief under Section 242. The Company Tribunal is not a labour Court or an administrative Tribunal to focus entirely on the manner of removal of a person from Directorship. [Para 16.29][1004-B-C] B 1.8. The validity of and justification for the removal of a person can never be the primary focus of a Tribunal under Section 242 unless the same is in furtherance of a conduct oppressive or prejudicial to some of the members. In fact the post of Executive Chairman is not statutorily recognised or regulated, though the post of a Director is. CPM was removed only from the post of (or designation as) Executive Chairman and not from the post of Director till the Company Petition was filed. But CPM himself invited trouble, by declaring an all out war, which led to his removal from Directorship. [Para 16.31][1004-E-F] 1.9. It is true that as per the evidence available on record he was requested before the Board meeting, to step down from the post of Executive Chairman. That does not tantamount to the act being pre-meditated. The induction of new members on 8.8.2016 into the Board and the Board securing a legal opinion prior to the Board meeting, cannot make the act a pre-meditated one. There is a thin line of demarcation between a well-conceived plan and a pre-meditated one and the line can many times be blurred. [Para 16.32][1004-G-H] 1.10. In any event the removal of a person from the post of Executive Chairman cannot be termed as oppressive or prejudicial. The original cause of action for the complainant companies to approach NCLT was the removal of CPM from the post of Executive Chairman. Though the complainant companies padded up their actual grievance with various historical facts to make a deceptive appearance, the causa proxima for the complaint was the removal of CPM from the office of Executive Chairman. G His removal from Directorship happened subsequent to the filing of the original complaint and that too for valid and justifiable reasons and hence NCLAT could not have laboured so much on the removal of CPM, for granting relief under Sections 241 and
242. [Para 16.42][1008-B-C] H
p. 910
A 1.11. NCLAT has recorded a finding, though not based upon any factual foundation, that the facts otherwise justify the making of a winding up order on just and equitable ground. But as held by the Privy Council in Loch v. John Blackwood ,”there must lie a justifiable lack of confidence in the conduct and management of the company’s affairs, at the foundation of applications for winding B up.” More importantly, “the lack of confidence must spring not from dissatisfaction at being out-voted on the business affairs or on what is called the domestic policy of the company”. But, “wherever the lack of confidence is rested on a lack of probity in the conduct of the company’s affairs, then the former is justified by the latter.” C [Para 16.43][1008-D-F] 1.12. The case on hand will not fall anywhere near the just and equitable standard, for the simple reason that it was the very same complaining minority whose representative was not merely given a berth on the Board but was also projected as the successor D to the Office of Chairman. [Para 16.45][1009-C-D] 1.13. For invoking the just and equitable standard, the underlying principle is that the Court should be satisfied either that the partners cannot carry on together or that one of them cannot certainly carry on with the other. [Para 16.50][1011-C] E 1.14. In the case in hand there was never and there could never have been a relationship in the nature of quasi partnership between the Tata Group and S.P. Group. S.P. Group boarded the train half-way through the journey of Tata Sons. Functional dead lock is not even pleaded nor proved. [Para 16.51][1011-C-D] F 1.15. For the invocation of just and equitable clause, there must be a justifiable lack of confidence on the conduct of the directors. A mere lack of confidence between the majority shareholders and minority shareholders would not be sufficient. [Para 16.52][1011-E] G 1.16. Tata Sons is a principal investment holding Company, of which the majority shareholding is with philanthropic Trusts. The majority shareholders are not individuals or corporate entities having deep pockets into which the dividends find their way if the Company does well and declares dividends. The dividends that the Trusts get are to find their way eventually to the fulfilment H
p. 911
INVESTMENTS PVT. LTD. AND ORS.
of charitable purposes. Therefore, NCLAT should have raised A the most fundamental question whether it would be equitable to wind up the Company and thereby starve to death those charitable Trusts, especially on the basis of un-charitable allegations of oppressive and prejudicial conduct. Therefore, the finding of NCLAT that the facts otherwise justify the winding up of the B Company under the just and equitable clause, is completely flawed. [Para 16.54][1012-A-C] Question No.2 2.1. Sections 241 and 242 of the Companies Act, 2013 do not specifically confer the power of reinstatement, nor there is any scope for holding that such a power to reinstate can be implied or inferred from any of the powers specifically conferred. [Para 17.17][1024-C] 2.2. The following words at the end of sub-section (1) of 242 “the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit” cannot be interpreted as conferring on the Tribunal any implied power of directing reinstatement of a director or other officer of the company who has been removed from such office. These words can only be interpreted to mean as conferring the power to make such order as the Tribunal thinks fit, where the power to make such an order is not specifically conferred but is found necessary to remove any doubts and give effect to an order for which the power is specifically conferred. For instance, sub-section (2) of Section 242 confers the power to make an order directing several actions. The words by which sub-section (1) of Section 242 ends, supra can be held to mean the power to make such orders to bring an end, matters for which directions are given under sub- section (2) of Section 242. [Para 17.18][1024-C-F] 2.3. The architecture of Sections 241 and 242 does not permit the Tribunal to read into the Sections, a power to make an order (for reinstatement) which is barred by law vide Section 14 of the Specific Relief Act, 1963 with or without the amendment in
2018. [Para 17.19][1024-F-G]
p. 912
A 2.4. Despite the law relating to oppression and mismanagement undergoing several changes, the object that a Tribunal should keep in mind while passing an order in an application complaining of oppression and mismanagement, has remained the same for decades. This object is that the Tribunal, by its order, should bring to an end the matters complained of. B [Para 17.33][1029-B-C] 2.5. The purpose of an order both under the English Law and under the Indian Law, irrespective of whether the regime is one of “oppressive conduct” or “unfairly prejudicial conduct” or a mere “prejudicial conduct”, is to bring to an end the matters C complained of by providing a solution. The object cannot be to provide a remedy worse than the disease. The object should be to put an end to the matters complained of and not to put an end to the company itself, forsaking the interests of other stakeholders. [Para 17.34][1029-D] D 2.6. The NCLAT could not have granted the reliefs of (i) reinstatement of CPM (ii) restriction on the right to invoke Article 75 (iii) restraining RNT and the Nominee Directors from taking decisions in advance and (iv) setting aside the conversion of Tata Sons into a private company. [Para 17.35][1029-F-G] E Question No.3 3.1. The sine qua non for invoking Section 241 is that the affairs of the Company should have been conducted or are being conducted in a manner oppressive or prejudicial to some of the members. No single instance even of invocation of Article 75, F leave alone misuse, is averred in the main company petition or in the application for amendment. Therefore, NCLAT could not have and should not have made Article 75 completely ineffective by passing an order of restraint. [Para 18.3][1030-E-F] 3.2. As a matter of fact, NCLAT has agreed, on first G principles, that it has no jurisdiction to declare any of the Articles of Association illegal. After having set a benchmark correctly, NCLAT neutralised Article 75 merely on the basis of likelihood of misuse. Section 241(1)(a) provides for a remedy, only in respect of past and present conduct or past and present continuous H
p. 913
INVESTMENTS PVT. LTD. AND ORS.
conduct. NCLAT has stretched Section 241(1)(a) to cover the A likelihood of a future bad conduct, which is impermissible in law. [Para 18.4][1030-G] 3.3. That Articles of Association of a company constitute a contract among shareholders, is the bedrock of Company Law. In fact, Article 75 was not an invention of the recent origin in B Tata Sons. It has been there for nearly a century in one form or the other. The Company was incorporated in the year 1917 and S.P. Group acquired shares nearly after 50 years in the year 1965. Even at that time Article 75 was in existence in a different form. After 1965, Article 75 underwent several rounds of amendments, to which the S.P. Group, CPM’s father and CPM were parties. C CPM himself was a party to an amendment made to Article 75 on 13.09.2000. The Article in its present form was made only on 13.09.2000 and the amendment was unanimously carried through in the presence of and with the consent of CPM. [Para 18.5] [1030-H; 1031-A-C] D 3.4. A person who willingly became a shareholder and thereby subscribed to the Articles of Association and who was a willing and consenting party to the amendments carried out to those Articles, cannot later on turn around and challenge those Articles. The same would tantamount to requesting the Court to rewrite a contract to which he became a party with eyes wide open. [Para 18.6][1031-C-D] 3.5. It is not as though CPM or his father who was also a Director for nearly 25 years, were not aware of or blind to the existence of Article 75. The pleading on the part of the complainant companies was sufficient to throw the challenge to Article 75 out, as it did not correlate to an actual conduct but the possibility of a future conduct. Section 241 is not intended to discipline a Management in respect of a possible future conduct. [Para 18.7][1031-D-G] G 3.6. It is no doubt true that the Tribunal has the power under Section 242 to set aside any amendment to the Articles that takes away recognised proprietary rights of shareholders. But this is on the premise that the bringing up of amendment itself was a conduct that was oppressive or prejudicial. [Para 18.8] [1031-G-H] H
p. 914
A 3.7. The order of NCLAT tinkering with the power available under Article 75 of the Articles of Association is wholly unsustainable. [Para 18.11][1032-D] Question No.4
4. The fourth question of law - whether the characterisation B by the Tribunal, of the affirmative voting rights available under Article 121 to the Directors nominated by the Trusts in terms of Article 104B, as oppressive and prejudicial, is justified especially after the challenge to these Articles have been given up expressly and whether the Tribunal could have granted a direction to RNT C and the Nominee directors virtually nullifying the effect of these Articles - is also to be answered in favour of the Tata group and the claim in the cross appeal relating to affirmative voting rights and proportionate representation are liable to be rejected. [Para 19.1 and 19.50][1032-F; 1052-B] D Question No.5
5. The 5 th question of law formulated - whether the re- conversion of Tata Sons from a public company into a private company, required the necessary approval under section 14 of the Companies Act, 2013 or at least an action under section 43- E A(4) of the Companies Act, 1956 during the period from 2000 (when Act 53 of 2000 came into force) to 2013 (when the 2013 Act was enacted) as held by NCLAT – is answered in favour of Tata Sons and as a consequence, all the observations made against the appellants and the Registrar of companies in Paragraphs 181, 186 and 187 (iv) of the impugned judgment are set aside. F [Para 20.1 and Para 20.44][1052-C-D; 1069-C-D] Central Bank of India Ltd. v. Hartford Fire Insurance Co. Ltd. AIR 1965 SC 1288; M.I. Builders Pvt. Limited v. Radhey Shyam Sahu & Others (1999) 6 SCC 464: [1999] 3 SCR 1066 and Vodafone International G Holdings BV v. Union of India (2012) 6 SCC 613: [2012] 1 SCR 573 – distinguished. Hanuman Prasad Bagri & Ors. v. Bagress Cereals Pvt. Ltd. (2001) 4 SCC 420: [2001] 2 SCR 811; Rajahmundry Electric Supply Corpn. Ltd. v. H
p. 915
INVESTMENTS PVT. LTD. AND ORS.
Nageshwara Rao [1955] 2 SCR 1066; S.P. Jain v. A Kalinga Tubes Ltd. AIR 1965 SC 1535 : [1965] 2 SCR 720; Ram Parshotam Mittal v. Hillcrest Realty (2009) 8 SCC 709 : [2009] 10 SCR 1121 and Darius Rutton Kavasmaneck v. Gharda Chemicals Ltd (2015) 14 SCC 277:[2014] 11 SCR 1119 – relied on. B Needle Industries (India) Ltd. and Ors. v. Needle Industries Newey (India) Ltd. and ors. (1981) 3 SCC 333 : [1981] 3 SCR 698; Raj Kumar Dey v. Tarapada Dey (1987) 4 SCC 398 : [1988] 1 SCR 118; Mohd. Gazi v. State of Madhya Pradesh (2000) 4 SCC 342: [2000] 2 SCR 871 and Dr. S.B. Dutt v.University of Delhi C [1959] SCR 1236 – referred to.
Scottish Cooperative Wholesale Society v. Meyer 1959
A.C.324; Loch v. John Blackwood [1924] AC 783; Baird v. Lees, (1924) SC 83 Scottish Supreme Court; Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 WLR D 1289; Lau v. Chu [2020] 1 WLR 4656; In Re Sailing Ship Kentmere Co. [1897] WN 58; Nelson v. James Nelson 1914-2 K.B. 770; Central Bank of Ecuador and others v. Conticorp SA and others (Bahamas) (2015) UKPC 11 Judicial Committee of the Privy council E (UK) and Re: Neath Rugby Limited (2010) B.C.C. 597 – referred to. Case Law Reference [2001] 2 SCR 811 relied on Para 16.21 F AIR 1965 SC 1288 distinguished Para 16.40 [1999] 3 SCR 1066 distinguished Para 16.41 [1955] 2 SCR 1066 relied on Para 16.52 [1965] 2 SCR 720 relied on Para 16.52 G [1981] 3 SCR 698 referred to Para 16.53 [1988] 1 SCR 118 referred to Para 17.11 [2000] 2 SCR 871 referred to Para 17.11 [1959] SCR 1236 referred to Para 17.16 H
p. 916
Footnotes
p. 917
INVESTMENTS PVT. LTD. AND ORS.
Judgment
The following Judgment of the Court was delivered : A JUDGMENT
11. Lis in the Appeals 1.1 Tata Sons (Private) Limited has come up with two appeals in Civil Appeal Nos.13-14 of 2020, challenging a final order dated 18-12- 2019 passed by the National Company Law Appellate Tribunal B (“NCLAT” for short) (i) holding as illegal, the proceedings of the sixth meeting of the Board of Directors of TATA Sons Limited held on 24.10.2016 in so far as it relates to the removal of Shri Cyrus Pallonji Mistry (“CPM” for short); (ii) restoring the position of CPM as the Executive Chairman of Tata Sons Limited and consequently as a Director C of the Tata Companies for the rest of the tenure; (iii) declaring as illegal the appointment of someone else in the place of CPM as Executive Chairman; (iv) restraining Shri Ratan N. Tata (“RNT” for short) and the nominees of Tata Trust from taking any decision in advance; (v) restraining the Company, its Board of Directors and Shareholders from exercising the power under Article 75 of the Articles of Association D against the minority members except in exceptional circumstances and in the interest of the Company; and (vi) declaring as illegal, the decision of the Registrar of Companies for changing the status of Tata Sons Limited from being a public company into a private company. 1.2 RNT has come up with two independent appeals in Civil Appeal E Nos.19-20 of 2020 against the same Order of the NCLAT, on similar grounds. 1.3 The trustees of two Trusts namely Sir Ratan Tata Trust and Sir Dorabji Tata Trust have come up with two independent appeals in Civil Appeal Nos.444-445 of 2020, challenging the impugned order of F the Appellate Tribunal. A few companies of the Tata Group, which were referred to in the course of arguments, as the operating companies or downstream companies, such as the Tata Consultancy Services Limited, the Tata Teleservices Limited and Tata Industries Limited have come up with separate appeals in Civil Appeal Nos.440-441 of 2020, 442-443 of 2020 and 448-449 of 2020. The grievance of RNT as well as the G Trustees of the two Trusts, is as regards the injunctive order of the Appellate Tribunal restraining them from taking any decision. The grievance of the three operating companies which have filed 6 Civil Appeals is that CPM has been directed to be reinstated as Director of these companies by the impugned Order, for the rest of the tenure. H
p. 918
A 1.4 The original complainants before the National Company Law Tribunal (“NCLT”for short), who initiated the proceedings under Sections 241 and 242 of the Companies Act, 2013 namely (i) Cyrus Investments Private Limited (ii) Sterling Investment Corporation Private Limited, have come up with a cross appeal in Civil Appeal No.1802 of 2020. Their grievance is that in addition to the reliefs already granted, the B NCLAT ought to have also granted a direction to provide them proportionate representation on the Board of Directors of Tata Sons Limited and in all Committees formed by the Board of Directors. They have one more grievance namely that the Appellate Tribunal ought to have deleted the requirement of an affirmative Vote in the hands of select Directors under Article 121 or at least ought to have restricted the affirmative vote to matters covered by Article 121A. 1.5 In addition to C.A.Nos. 13 and 14 of 2020, Tata Sons have also come up with 2 more appeals in C.A.Nos. 263 and 264 of 2020. These appeals arise out of an order passed by NCLAT on 06-01-2020 in two interlocutory applications filed by the Registrar of Companies, Mumbai, seeking amendment of the final order passed by NCLAT in the main appeals. The reason why the Registrar of Companies was constrained to file 2 interlocutory applications in the disposed of appeals, was that in the final order passed on 18-12-2019 by NCLAT in the 2 company appeals, there were some remarks against the Registrar of E Companies for having issued an amended certificate of incorporation to Tata Sons by striking off the word “Public” and inserting the word “Private”. NCLAT dismissed these 2 applications by an order dated 06- 01-2020, not merely holding that there were no adverse remarks against the Registrar of Companies but also giving additional reasons to justify its findings in the disposed of appeals, in the purported exercise of the power available under section 420 of the Companies Act, 2013. Therefore, Tata Sons have come up with these 2 appeals in C.A.Nos. 263 and 264 of 2020. 1.6 Thus we have on hand, 15 Civil Appeals, 14 of which are on one side, assailing the Order of NCLAT in entirety. The remaining appeal is filed by the opposite group, seeking more reliefs than what had been granted by the Tribunal. 1.7 For the purpose of easy appreciation, we shall refer to the appellants in the set of 14 Civil Appeals as “the Tata Group” or “the H
p. 919
INVESTMENTS PVT. LTD. AND ORS.
Appellants”. We shall refer to the other group as “SP Group” (Shapoorji A Pallonji Group) or “the respondents”. Similarly we shall refer to Tata Sons Limited (or Tata Sons Private Limited) merely as ‘Tata Sons’, as there is a controversy regarding the usage of the word “Private” before the word “Limited”.
22. Background of the Litigation B 2.1 On 08.11.1917, Tata Sons was incorporated as a Private Limited Company under the Companies Act, 1913. 2.2 Two companies by name Cyrus Investments Private Limited and Sterling Investment Corporation Private Limited, forming part of the SP Group respectively acquired 48 preference shares and 40 equity C shares of the paid-up share capital of Tata Sons, from an existing member by name Mrs. Rodabeh Sawhney. Over the years, the share-holding of SP Group in Tata Sons has grown to 18.37% of the total paid-up share capital. 2.3 The shareholding pattern of Tata Sons Limited is as follows: D
The balance is held by RNT and a few others. E
2.4 From 25.06.1980 to 15.12.2004 Shri Pallonji S. Mistry, the father of CPM was a Non-Executive Director on the Board of Tata Sons. On 10.08.2006 CPM was appointed as a Non-Executive Director on the Board. F 2.5 By a Resolution of the Board of Directors of Tata Sons dated 16.03.2012, CPM was appointed as Executive Deputy Chairman for a period of five years from 01.04.2012 to 31.03.2017, subject however to the approval of the shareholders at a General Meeting. The General Meeting gave its approval on 01.08.2012. G 2.6 By a Resolution dated 18.12.2012, the Board of Directors of Tata Sons redesignated CPM as its Executive Chairman with effect from 29.12.2012, even while designating RNT as Chairman Emeritus.
p. 920
A 2.7 By a Resolution passed on 24.10.2016, the Board of Directors of Tata Sons replaced CPM with RNT as the interim Non-Executive Chairman. It is relevant to note that CPM was replaced only from the post of Executive Chairman and it was left to his choice to continue or not, as Non-Executive Director of Tata Sons. B 2.8 As a follow up, certain things happened and by separate Resolutions passed at the meetings of the shareholders of Tata Industries Limited, Tata Consultancy Services Limited and Tata Teleservices Limited, CPM was removed from Directorship of those companies. CPM then resigned from the Directorship of a few other operating companies such as the Indian Hotels Company Limited, Tata Steel Limited, Tata C Motors Limited, Tata Chemicals Limited and Tata Power Company Limited, after coming to know of the impending resolutions to remove him from Directorship. 2.9 Thereafter, 2 companies by name, Cyrus Investments Private Limited and Sterling Investment Corporation Private Limited, belonging D to the SP Group, in which CPM holds a controlling interest, filed a company petition in C.P No.82 of 2016 before the National Company Law Tribunal under Sections 241 and 242 read with 244 of the Companies Act, 2013, on the grounds of unfair prejudice, oppression and mismanagement. E 2.10 But these two companies, hereinafter referred to as ‘the complainant-companies’, together had only around 2% of the total issued share capital of Tata Sons. This is far below the de-minimus qualification prescribed under Section 244(1)(a) to invoke sections 241 and 242. Therefore, the complainant companies filed a miscellaneous application F under the proviso to Sub-section (1) of Section 244 seeking waiver of the requirement of Section 244(1)(a), which requires atleast one hundred members of the company having a share capital or one-tenth of the total number of fixed members or any member or members holding not less than one-tenth of the issued share capital of the company alone to be entitled to be the applicant/applicants. G 2.11 Along with the application for waiver of the requirement of Section 244(1)(a), the complainant companies also moved an application for stay of an Extra-ordinary General Meeting (“EGM” for short) of
p. 921
INVESTMENTS PVT. LTD. AND ORS.
Tata Sons, in which a proposal for removing CPM as a Director of Tata A Sons had been moved. The NCLT refused stay, as a consequence of which the EGM proceeded as scheduled and CPM was removed from the Directorship of Tata Sons, by a Resolution dated 16.02.2017. 2.12 Subsequently, by an Order dated 06.03.2017, NCLT held the main company petition to be not maintainable at the instance of persons holding just around 2% of the issued share capital. This was followed by another order dated 17.4.2017, by which NCLT dismissed the application for waiver. 2.13 The complainant companies filed appeals before NCLAT against both the Orders dated 06.03.2017 and 17.04.2017. These appeals were allowed on 21.09.2017, granting waiver of the requirement of Section 244(1)(a) and remanding the matter back to NCLT for disposal on merits. Tata Group did not challenge this order. 2.14 Thereafter, NCLT heard the company petition on merits and dismissed the same by an Order dated 09.07.2018. D 2.15 Challenging the order of the NCLT, the two complainant companies filed one appeal. CPM filed another appeal. Both these appeals were allowed by the Appellate Tribunal by a final Order dated 18.12.2019 granting the following reliefs: (i) The proceedings of the sixth meeting of the Board E of Directors of ‘Tata Sons Limited’ held on Monday, 24 th October, 2016 so far as it relates to removal and other actions taken against Mr. Cyrus Pallonji Mistry (11th Respondent) is declared illegal and is set aside. In the result, Mr. Cyrus Pallonji Mistry F (11th Respondent) is restored to his original position as Executive Chairman of ‘Tata Sons Limited’ and consequently as Director of the ‘Tata Companies’ for rest of the tenure. As a sequel thereto, the person who has been G appointed as ‘Executive Chairman’ in place of Mr. Cyrus Pallonji Mistry (11 th Respondent), his consequential appointment is declared illegal.
p. 922
A (ii) Mr. Ratan N. Tata (2nd Respondent) and the nominee of the ‘Tata Trusts’ shall desist from taking any decision in advance which requires majority decision of the Board of Directors or in the Annual General Meeting. B (iii) In view of ‘prejudicial’ and ‘oppressive’ decision taken during last few years, the Company, 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 C 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. D (iv) The decision of the Registrar of Companies changing the Company (‘Tata Sons Limited’) from ‘Public Company’ to ‘Private Company’ is declared illegal and set aside. The Company (‘Tata Sons Limited’) shall be recorded as ‘Public Company’. E The ‘Registrar of Companies’ will make correction in its record showing the Company (‘Tata Sons Limited’) as ‘Public Company’.” 2.16 After NCLAT disposed of the appeals by its order dated 18- 12-2019, the Registrar of Companies moved 2 interlocutory applications seeking the deletion of certain remarks made by NCLAT against them. These applications were dismissed by NCLAT by order dated 06-01-
2020. Therefore, as against the final Order of NCLAT dated 18-12- 2019, (i) Tata Sons Private Limited (ii) RNT (iii) the Trustees of the two Tata Trusts and (iv) three operating companies of Tata Group have come up with 2 Civil Appeals each (totalling to 12 appeals) and the complainant companies have come up with one Civil Appeal. In addition, Tata Sons have also come up with 2 more appeals against the order dated 06-01-2020 passed by NCLAT on the applications of the Registrar of Companies.
p. 923
INVESTMENTS PVT. LTD. AND ORS.
33. Case set up by the complainants in their petition under sections 241 and 242, Companies Act, 2013 and Reliefs sought 3.1 In the company petition as it was originally filed by S.P. Group in December, 2016 before the NCLT, the complainant-companies claimed that the affairs of Tata Sons, are carried out as though it was a proprietary concern of RNT and that the oppressive conduct of the respondents was such that it would be just and equitable to wind up Tata Sons, but such winding up would unfairly prejudice the interest of the petitioners and that therefore the Tribunal should pass such orders so as to bring to an end, the acts of oppression and mismanagement. 3.2 The acts of oppression and mismanagement complained against C Tata Sons revolved around (i) alleged abuse of the Articles of Association, particularly Articles 121, 121A, 86, 104B and 118, to enable the trusts and its nominee Directors to exercise control over the Board of Directors; (ii) alleged illegal removal of CPM as Executive Chairman without any notice and an all out attempt to remove him from the Directorship of all the operating companies of the Tata group; (iii) alleged dubious transactions in relation to Tata Teleservices Limited, alongwith one Mr. C. Sivasankaran; (iv) RNT allegedly treating Tata Sons as a proprietorship concern with all others acting as puppets, resulting in the Board of Directors failing the test of fairness and probity (v) acquisition of Corus Group PLC of UK at an inflated price and then jeopardising the talks for its merger with Thyssen Krupp (vi) Nano car project becoming a disaster with losses accumulating year after year and the conflict of interest that RNT had in the supply of Nano gliders to a company where he had stakes; (vii) providing corporate guarantee to IL & FS Trust Company for the loan sanctioned by Standard Chartered Bank to Sterling (viii) making Kalimati Investments Ltd, a subsidiary of F Tata Steel to provide an inter corporate bridge loan to Sterling; (ix) the dealings with NTT DoCoMo and Sterling resulting in an arbitration award for a staggering amount; (x) leaking information to Siva of Sterling that resulted in Siva issuing legal notices to Tata Teleservices and Tata Sons (xi) RNT making a personal gain for himself through the sale of a flat G owned by a Tata group company to Mehli Mistry; (xii) companies controlled by Mehli Mistry receiving favours due to the personal relationship that RNT had with him; and (xiii) fraudulent transactions in the deal with Air Asia which led to financing of terrorism.
p. 924
A 3.3 On the foundation of the above, the complainant-companies contended before NCLT:- (i) that the directors of Tata Sons are not carrying out their fiduciary responsibilities for and on behalf of the shareholders, but have become mere puppets controlled by RNT and the Trustees of the two Trusts; (ii) that the powers contained in the Articles of Association are being exercised in a malafide manner B prejudicial to the interest of the petitioners and to public interest; (iii) that various operating decisions are taken either for emotional reasons or for pampering the ego of RNT; (iv) that attempts are made to shield persons responsible for fraudulent transactions at Air Asia; (v) that attempts are made to ensure that no legal action is initiated against Siva C who owes Rs. 694 crores; (vi) that Ratan Tata enabled his associates to unjustly enrich themselves at the cost of Tata Sons; and (vii) that the present directors of Tata Sons are not promoting the interests of shareholders of Tata Sons and the interests of the shareholders of various operating companies of the Tata group. D 3.4 In the light of the above pleadings and contentions, the petitioners before the NCLT sought a set of about 21 reliefs, whose abridged version is as follows: “(A) Supersede the existing Board of Directors of Respondent No. 1 and appoint an administrator; E (B) In the alternative to prayer (A) above, appoint a retired Supreme Court Judge as the non-executive Chairman of the Board of Directors of Respondent No. 1 and appoint such number of new independent directors; F (C) restrain the so-called “Interim Chairman” i.e Respondent No. 2 from attending any meeting of the Board of Directors; (D) restrain Respondent No. 14 from interfering in the affairs of Respondent No. 1; G (E) direct Respondent No. 1 not to issue any securities which results in dilution of the present paid-up equity capital;
p. 925
INVESTMENTS PVT. LTD. AND ORS.
(F) direct the Respondents not to remove Respondent A No. 11 as a director from the Board of Respondent No. 1; (G) restrain the Respondents from making any changes to the Articles of Association of Respondent No. 1; (H) order an investigation into the role of the Trustees B of the Tata Trusts in the operations of Respondent No. 1 and/or Tata Group companies and prohibit the Trustees from interfering in the affairs of Respondent No. 1 and/or Tata Group companies; (I) appoint an independent auditor to conduct a C forensic audit into transactions and dealings of Respondent No. 1 with particular regard to all transactions with C.Sivasankaran and his business entities and all transactions involving Mr. Mehli Mistry and his associated entities and such findings of the audit and investigation should be referred to the Serious Fraud Investigation Office; (J) Appoint an inspector (under applicable law) to investigate into the breach of the SEBI (Prohibition of Insider Trading) Regulations, 2015 and/or refer the findings of such investigation to the Serious Fraud Investigation Office of the Ministry of Corporate Affairs, Government of India. (K) direct Respondent No.2 to pay Respondent No. 1 the amount of unjust enrichment that has accrued to Respondent No. 2 on account of surrender of the sub-tenancy of the Bakhtawar flat; (L) appoint a forensic auditor to re-investigate the transactions executed by AirAsia with entities in India and Singapore and such findings of the audit should be referred by the Hon’ble Tribunal to the Serious Fraud Investigation Office of the Ministry of Corporate Affairs, Government of India;
p. 926
A (M) strike of Articles numbered 86, 104(B), 118, 121 and 121A in their entirety and in so far as Article 124 of the Articles of Association of Respondent No. 1 is concerned, the following portion of the said Article, which is offending and/or repugnant, should be deleted: “… Any committee empowered to decide on B matters which otherwise the Board is authorised to decide shall have as its member at least one director appointment pursuant to Article 104B. The Provisions relating to quorum and the manner in which matters will be decided contained in Articles C 115 and 121 respectively shall apply mutatis mutandis to the proceedings of the committee. “from the Articles of Association of Respondent No. 1; and substitute these articles with such articles as the nature and circumstances of this case may require; D (N) direct the Respondents (excluding Respondent Nos. 4, 10 &11) to bring back into Respondent No. 1, the funds used by Respondent No. 1 for acquiring shares of Tata Motors; (O) restrain Respondent No. 1 from initiating any new line of business or acquiring any new business; (P) restrain the trustees of the Trusts from interfering in the affairs of Respondent No. 1 and in the various companies; (Q) restrain the existing Selection Committee from acting any further. (R) direct that no candidate selected by the Selection Committee constituted pursuant to Article 118 of the Articles of Association of Respondent No. 1 to be appointed without leave of this Hon’ble Tribunal; G (S) direct Respondent No. 1 not to demand and/or procure any unpublished price sensitive information from any listed operating companies within the Tata Group;
p. 927
INVESTMENTS PVT. LTD. AND ORS.
(T) grant interim and ad-interim reliefs in terms of A Prayers (A) to (S) above; and (U) pass such further orders that this Hon’ble Tribunal may, deem necessary for bringing an end to the acts of oppression and mismanagement in the running of Respondent No. 1.” B
44. Amendment of pleadings, addition and deletion of reliefs 4.1 The contents of Chapter-3 above, are the pleadings made and the reliefs sought in the company petition, as it was originally filed on 20.12.2016. But the pleadings and the prayers underwent certain changes in the course of the proceedings, partly due to subsequent developments C and partly due to change of strategy/better counsel. 4.2 What is important to note here is that some of the changes to the pleadings and the reliefs sought, were by way of proper applications for amendment and some others were just by way of additional affidavits. We shall advert to them in this part. D 4.3 The company petition filed on 20.12.2016 was taken up on 22.12.2016 and the NCLT passed an order to the following effect:- “It has also been further agreed by all the parties more specially by the petitioner counsel, or R-11 counsel and the counsel on behalf of the answering respondents that they will not file any interim application or initiate any action or proceedings over this subject matter pending disposal of this company petition.” 4.4 Soon, the matter got precipitated. Claiming that CPM sent four box-files containing several documents relating to Tata Education Trust, to the Deputy Commissioner of Income Tax with a view to create trouble, a special notice was issued for convening the EGM of Tata Sons on 06.02.2017 for considering the proposal for the removal of CPM as a Director of Tata Sons. G 4.5 Therefore, the complainant-companies moved a contempt application. The said application was disposed of by NCLT by an order dated 18.01.2017, permitting the complainant-companies and CPM to
p. 928
A file an additional affidavit limiting to the proposal for the removal of Cyrus Pallonji Mistry from the Board. 4.6 Accordingly, an additional affidavit was filed on 21.01.2017. However, the NCLT, by an order dated 31.01.2017 rejected the prayer of S.P. Group for stay of EGM scheduled to be held on 06.02.2017. B 4.7 S.P. Group filed an appeal against the order refusing the stay of EGM. The appeal was disposed of on 03.02.2017, merely permitting the S.P. Group to file a petition for amendment, in the event of CPM being removed in the EGM. In the EGM held on 06.02.2017, CPM was removed. C 4.8 Therefore, the complainant-companies filed an amendment application dated 10.02.2017 seeking addition of two more prayers namely:- (i) to direct the respondents to reinstate the representative of the complainant-companies on the Board of Tata Sons; and (ii) to direct the amendment of Articles of Association of Tata Sons to provide for proportional representation of shareholders on the Board of Directors of Tata Sons. 4.9 But the petition for contempt, the petition for interim stay of EGM and the application for amendment to include additional prayers, all turned out to be exercises in futility, with the NCLT passing two orders, one on 06.03.2017 and another on 17.04.2017. By the first order dated 06.03.2017, NCLT held the company petition to be not maintainable, on the ground that the two complainant companies did not hold at least 10% of the issued share capital of Tata Sons. By the second order dated F 17.04.2017, NCLT rejected the application for grant of waiver filed under the proviso to Sub-section (1) of Section 244. 4.10 But the aforesaid orders of NCLT dated 06.03.2017 and 17.04.2017 were reversed by NCLAT by an order dated 21.09.2017 and the matter was remanded back to NCLT. G 4.11 Thereafter, the complainant-companies filed one additional affidavit, one application for amendment, one application for stay and one memo giving up some of the reliefs already sought.
p. 929
INVESTMENTS PVT. LTD. AND ORS.
The facts relating to these, can be compressed into a tabular column A as follows:-
p. 930
55. Response of Tata Sons to the allegations made in the Company Petition G 5.1 Tata Sons filed a reply to the company petition contending inter-alia : (i) that CPM, who was removed from the post of Executive Chairman, after having lost the confidence of 7 out of 9 Directors, has sought to use the complainant companies to besmirch the reputation of Tata Group; (ii) that even the decisions to which CPM was a party have H
p. 931
INVESTMENTS PVT. LTD. AND ORS.
been questioned in the petition; (iii) that Tata Group founded in 1868 is a A global enterprise, headquartered in India, comprising over a hundred operating companies, having presence in more than 100 countries across six continents, collectively employing over 6,60,000 people; (iv) that the revenue of Tata Group in 2015-16, was $103.51 billion; (v) that there are 29 publicly listed companies in the Tata Group with a combined B market capitalisation of about $116.41 billion; (vi) that 65.3% of the issued ordinary share capital of Tata Sons is held by philanthropic trusts which support education, health, livelihood generation and art and culture; (vii) that it was at the instance of CPM that RNT was designated as Chairman Emeritus and he was requested to attend Board Meetings as a special and permanent invitee and continue to guide the Board; (viii) C that Articles 104B and 121 were introduced through a new version of Articles of Association at the Annual General Meeting of Tata Sons held on 13.09.2000 and Article 121 was subsequently amended by Resolution dated 09.04.2014; (ix) that Shri Pallonji Shapoorji Mistry, who represented the complainant companies, was present at the General meeting held on D 13.09.2000; (x) that CPM himself was a party to the Resolution passed by the shareholders on 09.04.2014, introducing Articles 121A and 121B; (xi) that CPM’s leadership gave rise to certain issues such as insufficient detail and discipline on capital allocation decisions, slow execution on identified problems, lack of specificity and follow through in strategic plan and business plan, failure to take meaningful steps to enter new growth businesses, weak top management team and reluctance to embrace the Articles of Association that spelt out the governance structure of the company and the rights of Tata Trusts; (xii) that there was a growing trust deficit between the Board of Directors of Tata Sons and CPM due to several reasons, such as the conflict of interest in the matter of award of contracts to S.P. Group of companies and his systematic and planned reduction of the representation of Tata Sons Directors on the Boards of other major Tata Companies; (xiii) that even when the Directors of Tata Sons resolved on 24.10.2016 to replace CPM as Executive Chairman, the Board agreed to his continuance as a Director of Tata Sons; (xiv) that however CPM addressed a vitriolic mail on 25.10.2016 to the Directors making false allegations; (xv) that though the mail was marked confidential, it was simultaneously leaked to the press; (xvi) that CPM also breached his fiduciary and contractual duties by disclosing confidential information and documents pertaining to Tata Sons to third parties; (xvii) that CPM made representations to H
p. 932
A the shareholders of all operating companies, with unsubstantiated and false allegations, thereby attempting to make the operating companies vulnerable to make confidential data available for public inspection; (xviii) that the shareholders of Tata Industries Limited, Tata Consultancy Services and Tata Teleservices Limited passed Resolutions respectively on 12.12.2016, 13.12.2016 and 14.12.2016 to remove CPM from B Directorship; (xix) that, therefore, CPM resigned from the Directorship of the other companies also on 19.12.2016, when he faced the prospect of being removed in the impending meetings; (xx) that the actions and conduct of CPM after 24.10.2016 compelled Tata Sons to issue a special notice and requisition for his removal from the Directorship of Tata Sons; C (xxi) that the company petition was not about espousing the cause of corporate governance or seeking remedies for oppression and mismanagement of Tata Sons; (xxii) that prior to his removal as Executive Chairman, CPM never raised any concerns regarding any oppression or mismanagement; (xxiii) that many of the acts of oppression complained of by the complainant companies, have happened long before the date of filing of the company petition, showing thereby that the company petition was hopelessly barred by delay and laches. 5.2 On the allegations of oppression and mismanagement, the response of Tata Sons was as follows: (i) that the complainant companies have cherry picked certain business decisions to launch a vitriolic attack on the Tata Trusts; (ii) that while the complainant companies have talked about bad business deals, such as Corus acquisition and Nano Project, they have deliberately omitted to talk about Tetley acquisition by Tata Global Beverages Limited, the immensely successful Jaguar Land Rover acquisition by Tata Motors and the phenomenal success of Tata F Consultancy Services; (iii) that Corus acquisition, the Nano Project, contracts awarded to the business concerns of Mr. Mehli Mistry and the investment by Mr.C. Sivasankaran have surfaced only after the replacement of Mr. Cyrus Mistry as the Executive Chairman; (iv) that CPM has been the Director of Tata Sons since the year 2006 and was also the Executive Chairman from December, 2012 to October, 2016 G and was fully aware of how the decisions relating to these projects were taken when they were taken; (v) that courts cannot be called upon to sit in judgment over the commercial decisions of the Board of Directors of companies; and (vi) that even commercial mis-judgments of the Board of Directors cannot be branded as instances of oppression and mis- H management.
p. 933
INVESTMENTS PVT. LTD. AND ORS.
5.3 On specific acts of oppression and mismanagement, raised in A the company petition, such as (i) over priced and bleeding acquisition of Corus PLC of UK; (ii) doomed Nano car project; (iii) loan advanced by Kalimati Investments to Siva; (iv) sale of the residential flat to Mehli Mistry; (v) unjust enrichment of Mehli Mistry and the companies controlled by him, due to the personal equation of RNT with him; (vi) B aviation industry misadventures; and (vii) a huge loss due to purchase of shares of Tata Motors, the reply filed by Tata Sons contained an elaborate and graphic rebuttal. We shall take note of them later, while dealing with the question whether or not the allegations constitute the ingredients of sections 241 and 242 of the Act.
6.1 The NCLT, in its order dated 9.7.2018, went into each of the allegations of oppression, mismanagement and prejudice and recorded categorical findings. In brief, these findings, allegation-wise, were as follows: D On the allegations revolving around Siva and Sterling group of companies (i) Tata Teleservices shares were acquired in the year 2006 with the approval of the Board and hence almost after 10 years, it cannot be raised as an issue. It is also a fact that the very complainant companies had acquired same TTSL shares two months before, for Rs.15 per share. (ii) The loan taken from Kalimati Investments was already paid back by Siva Group of Companies and the company was relieved of its undertaking by Siva himself who provided personal guarantee for the loan taken from Standard Chartered Bank. (iii) As to the allegation that Siva made a big profit by selling shares to NTT DoCoMo @ Rs.117 per share, it is evident from the record that these shares were sold in the year G 2008 to NTT DoCoMo, while NTT DoCoMo was acquiring shares in bulk from TTSL as well as from some of the shareholders of TTSL including the brother and father of CPM and also from Siva. They also equally gained benefit just as Siva group gained from selling shares of TTSL to NTT DoCoMo. But this was not H
p. 934
A disclosed by the complainant companies either in their petition or in their rejoinder. The rate at which the petitioners acquired shares of TTSL is less than the rate at which Siva Group acquired and the gain that the petitioners made by selling shares to NTT DoCoMo was more than the gain Siva group got from selling shares to B NTT DoCoMo. (iv) No material has been placed either by the petitioner or by CPM to show that any information was leaked to Siva Group either by RNT or by anyone else. C (v) DoCoMo issue cropped up in 2016, when the award was passed for payment of Rs.8450 crores. The letter around which a controversy is raised, was written by RNT in the year 2013. Hence that letter cannot be linked to DoCoMo issue to show as if RNT was encouraging Mr. Siva not to pay money to the company. D On the allegations relating to Air Asia (i) Air Asia India Pvt. Ltd. is a joint venture between Air Asia Berhad (Malaysian Company) and Tata Sons, incorporated on 28.03.2013. The allegations relating to this, are mostly based on the emails sent by one Mr. Bharat Vasani, who is not a party to this proceeding and hence these allegations could not be put to test. (ii) In the meeting held on 06.12.2012, CPM did not raise any objection to the approval of the joint venture or for infusing funds in Air Asia India, until he was removed as Chairman of the company. (iii) In their desperate attempt to make a case out of nothing, the complainant companies claim on the one hand that CPM had no say in the Air Asia transaction, but on the other hand, they claim that CPM protected the interest of the company by limiting its exposure to 30% equity of USD 30 million and by ensuring that no fall back liability came on the company. (iv) A person privy to a transaction is estopped from questioning it, but the complainant companies and CPM H
p. 935
INVESTMENTS PVT. LTD. AND ORS.
have made all kinds of allegations with impunity flouting all legal principles. They have proceeded as though they did not take active part in the Air Asia incorporation and as though CPM did not preside over the meeting on 15.09.2016 for further funding it. In addition, they have made a scurrilous statement, without a shred of paper, that RNT funded one Terrorist through hawala with diversion of Air Asia India funds. On the Transactions with Mehli Mistry, including the sale of the flat (Bhakthawar) and a land (Alibaug) (i) There is nothing to indicate that RNT got enriched at the cost of the company. Forbes Golak was not made a Party and the transaction happened somewhere in the year 2002, but the allegation is raised in the year 2016. (ii) As to these allegations relating to Mehli deriving huge benefits, the only document that the Petitioners and CPM D filed and relied on, is an email Mr. Mehli addressed to Mr. Padmanabhan of TPC among others. (iii) In respect of the 1993 contract for dredging at Trombay, it was awarded by Tata Power to MpCL for 9 years after choosing them from amongst three vendors. E Thereafter it was renewed 5 times for various tenures from October 2002 to September, 2014 after obtaining requisite approvals. When these approvals were given, CPM was a Director of Tata Power. He held directorship from 1996 to 2006 and again from 2011 to 2016, but never raised any objection. F Nano car project and the losses suffered by Tata Motors (i) RNT has not been the director of Tata Motors at any point of time during which the actions complained of happened. G (ii) Tata Motors and Jayem incorporated a joint venture company by name J.T. Special Vehicle Pvt. Ltd. with 50:50 shareholdings, in July 2016. This joint venture was incorporated under the stewardship of CPM himself. It is therefore entirely incorrect to say that Jayem has benefited unduly from any patronage extended by RNT. H
p. 936
A Acquisition of Corus (i) The acquisition of Corus was a collective decision of Tata Steel and it was approved by CPM as a director of the board of Tata Steel. This entire acquisition was undertaken following the due governance process under the supervision of the board of directors of Tata Steel without any dissent from any of the shareholders of Tata Steel. (ii) Tata Steel did not buy it for an inflated price, but it so happened that Tata Steel took a unanimous decision to quote a price of GBP 608 pence per share while their competitor CSN’s final bid was GBP 603 pence per share. CPM or the complainant companies have not placed any letter or email, seeking divesting or restructuring of Corus. D Private company vs Public company (i) On the impact of Section 43A (2A) of the Companies Act, 1956 and the issue of the amended certificate of incorporation to Tata Sons, it has to be seen that Tata Sons had not altered any of the Articles of Association E so as to bring any new entrenchment to the Articles and that the management had not done anything so as to cause prejudice to the rights of the minority shareholders. On the contention that a few Articles were oppressive or that they were abused F (i) The contention that Articles 104B, 121, 121A and 75 of the Articles of Association were per se oppressive and that they have been used as tools of oppression and mismanagement, is unacceptable since CPM’s father was party to the amendments made to the Articles of Association on 13.09.2000. The amendment of Article G 118 was passed on 06.12.2012 when CPM was the Executive Deputy Chairman. CPM was also party to the Resolutions passed on 09.04.2014, in which the Articles were amended so as to confer affirmative rights in favour of the Directors of the Trusts. In so far as H
p. 937
INVESTMENTS PVT. LTD. AND ORS.
Article 75 is concerned, it was in existence throughout and hence the question whether persons who acquired shares of such a company consciously despite the presence of Article 75, can turn around later and project them as oppressive, looms large. (ii) The fact that the nominee Directors stepped out of the meeting of the Board held on 29.06.2016 to take instructions from RNT on the issue of acquisition of Welspun by Tata power, cannot be projected as an incident where Article 121 was abused, since the issue of acquisition of Welspun should have come up before the Board of Tata Sons even prior to Tata Power taking C a decision, in view of Article 121A-(h). Since Tata Power had already signed the papers for the acquisition of Welspun on 12.06.2016 itself, CPM really made the Directors of Tata Sons as fait accompli. Therefore, it was the action of CPM that was prejudicial to the D interests of Tata Sons and not the other way around. (iii) None of the Articles have ever been opposed either by the complainant companies or by CPM at any point of time in the past. And Article 75 has been in place even before the complainant companies acquired shares. E Allegation of Breach of fiduciary duties by the Directors (i) In support of their allegation that there was breach of fiduciary duties by the Trust nominee Directors and to prove that the Directors of the Company were guilty of dereliction of duties in the teeth of Sections 149 and 166 F of the Companies Act, 2013 read with schedule IV (Code for Independent Directors), the complainant companies had not placed any material other than the Minutes of the meeting held on 24.10.2016 (in which CPM was removed from Chairmanship). Also the removal of CPM G as Executive Chairman was not in deprivation of any of the rights of the complainant companies as shareholders and his removal had nothing to do with his association with the complainant companies. The removal of CPM as Executive Chairman cannot be projected as oppression of minority shareholders merely because he H
p. 938
A also happens to have controlling interest in companies that hold around 18.40% shareholding in the company. (ii) The provision in the Articles of Association entitling the two Trusts to have 1/3rd of the Directors on the Board of Tata Sons with an affirmative vote, was actually a B curtailment of their right to appoint majority of the Directors to the Board and hence it cannot be construed as oppressive of the minority. On the removal of CPM (i) The removal of CPM as Executive Chairman of Tata C Sons on 24.10.2016 and his removal as Director on 06.02.2017, were on account of trust deficit and there was no question of a Selection Committee going into the issue of his removal. (ii) There was no material to hold that CPM was removed on account of purported legacy issues. CPM created a situation where he is not accountable either to the majority shareholders or to the Trust nominee Directors and hence his removal. (iii) The letter dated 25.10.2016 issued by CPM could not have been leaked to the media by anyone other than CPM and hence his removal from Directorship on 06.02.2017 became inevitable. 6.2 What we have provided in the preceding paragraph, is an abridged version of the findings recorded by NCLT on every one of the allegations contained in the main company petition. Apart from those findings recorded in the body of the judgment, NCLT itself gave a summary of findings in paragraph 581 of its decision. It is extracted verbatim as follows: “a) Removal of Mr. Cyrus Mistry as Executive Chairman G on 24.10.2016 is because the Board of Directors and Majority of Shareholders, i.e., Tata Trusts lost confidence in Mr. Cyrus as Chairman, not because by contemplating that Mr. Cyrus would cause discomfort to Mr. Tata, Mr. Soonawala and other answering Respondents over purported legacy H
p. 939
INVESTMENTS PVT. LTD. AND ORS.
issues. Board of Directors are competent to remove A Executive Chairman; no selection committee recommendation is required before removing him as Executive Chairman. b) Removal of Mr. Cyrus Mistry from the position of Director is because he admittedly sent the company B information to Income Tax Authorities; leaked the company information to Media and openly come out against the Board and the Trusts, which hardly augurs well for smooth functioning of the company, and we have not found any merit to believe that his removal as director falls within the ambit of section C 241 of Companies Act 2013. c) We have not found any merit to hold that proportional representation on Board proportionate to the shareholding of the petitioners is possible so long as Articles do not have such mandate as envisaged under section 163 of Companies Act, 2013. d) We have not found any merit in purported legacy issues, such as Siva issue, TTSL issue, Nano car issue, Corus issue, Mr. Mehli issue and Air Asia issue to state that those issues fall within the ambit of section 247 and 242 of Companies Act 2013. e) We also have not found any merit to say that the company filing application under section 14 of Companies Act 2013 asking this Tribunal to make it from Public to Private falls for consideration under the jurisdiction of section 247 & 242 of Companies Act 2013. f) We have also found no merit in saying that Mr. Tata & Mr. Soonawala giving advices and suggestions amounted to interference in administering the affairs of the company, so that to consider their conduct as prejudicial to the interest of the company under section 241 of Companies Act 2013. H
p. 940
A g) We have found no merit in the argument that Mr. Tata and Mr. Soonawala acted as shadow directors superimposing their wish upon the company so that action to be taken under section 241 & 242 of Companies Act 2013. B h) We have not found any merit in the argument that Articles 75, 104B, 118, 121 of the Articles of Association per se oppressive against the petitioners. i) We have not found any merit in the argument that Majority Rule has taken back seat by introduction of corporate governance in Companies Act, 2013, it is like corporate democracy is genesis, and corporate governance is species. They are never in conflict with each other; the management is rather more accountable to the shareholders under the present regime. Corporate governance is collective responsibility, not based on assumed free-hand rule which is alien to the concept of collective responsibility endowed upon the Board.
j) We have observed that prejudice remedy has been included in 2013 Act in addition to oppressive remedy already there and also included application of “just and equitable” ground as precondition to pass any relief in mismanagement issues, which was not the case under old Act.”
77. The Approach of NCLAT F 7.1 While NCLT dealt with every one of the allegations contained in the main company petition and recorded its findings, NCLAT, curiously, focused attention only on (i) the removal of CPM (ii) the affirmative voting rights of the Directors nominated by the 2 Trusts in the decision making process and (iii) the amended certificate of incorporation issued G by the RoC, deleting the word “Public” and making it a private company once again. 7.2 The findings recorded by NCLAT are presented, to a great extent, in the language of NCLAT itself, as follows:
p. 941
INVESTMENTS PVT. LTD. AND ORS.
(i) The word ‘unfairly prejudicial’ has not been used in A Section 241. The Indian Law (Sections 241 & 242 of the Companies Act, 2013) does not recognize the term ‘legitimate expectation’ to hold any act prejudicial or oppressive. (paragraphs 101 and 102 of the impugned order) B (ii) In the general meeting of the shareholders of ‘Tata Sons Limited’ or the Board of Directors, the majority decision is fully dependent upon the affirmative votes of nominated Directors of ‘Tata Trusts’. The affirmative vote of the Directors nominated by ‘Tata Trusts’ has an overriding effect and renders the majority decision subservient to it. (paragraph 115 of the impugned order) (iii) The Tribunal/Appellate Tribunal has no jurisdiction to hold any of the Articles as illegal or arbitrary, the terms and conditions being agreed upon by the shareholders. However, if any action is taken even in accordance with law which is ‘prejudicial’ or ‘oppressive’ to any member or members or ‘prejudicial’ to the Company or ‘prejudicial’ to the public interest, the Tribunal can notice whether the facts would justify the winding up of the Company and in such case, if the Tribunal holds that it would unfairly prejudice member or members or public interest or interest of the Company, it may pass appropriate orders in terms of Section 242. (paragraph 119 of the impugned order) (iv) The email correspondence dated 18.07.2013, 28.02.2014, F 11.03.2015, 28.05.2015, 03.11.2015 etc. would show that CPM was unaware and not in a position to understand how decisions are taken by the Tata Trusts before the decision of the Board of Directors of Tata Sons and that CPM felt the need for development of a governance framework. (paragraph 126 of the impugned order) G (v) Emails dated 13th March, 2016; 30th April, 2016 and 10th May, 2016 between CPM and Mr. Nitin Nohria show that CPM formulated a governance framework after obtaining the feedback from Mr. Nitin Nohria to H
p. 942
A clarify the role of the Trustees of ‘Tata Trusts’ in the decision making process of ‘Tata Sons Limited’. It was followed by e-mail dated 15th May, 2016 sent by CPM to RNT forwarding a draft of the governance framework. (paragraph 127 of the impugned order) B (vi) The communications between the Respondents from 2013 to 2016 show that there was complete confusion in the Board about the governance framework of the Company (‘Tata Sons Ltd.’) as before deciding any matter or for taking any resolution by the Board, decision used to be taken by RNT for ‘Tata Trusts’, in which Mr. C Nitin Nohria and Mr. N.A. Soonawala, were taking active part. (paragraph 129 of the impugned order) (vii) Prior to the Board’s meeting held on 24th October, 2016 before removing CPM, on the same date decision had already been taken by RNT in presence of Mr. Nitin D Nohria to remove CPM, who asked him to step down from the post of the ‘Executive Chairman’ of the Company (‘Tata Sons Limited’). (paragraph 130 of the impugned order) (viii) RNT was determined to remove CPM even prior to the meeting of the board and the majority shareholders of Tata Trust knew that there was a requirement of advance notice before the removal of CPM. Therefore, they had taken opinion from eminent lawyers and a former Judge of the Supreme Court. (paragraph 133 of the impugned order) (ix) There is nothing on the record to suggest that the Board of Directors or any of the trusts, namely— Sir Dorabji Tata Trust or the Sir Ratan Tata Trust at any time expressed displeasure about the performance of CPM. G (paragraph 134 of the impugned order) (x) From the opening sentence of ‘Press Statement’ dated 10th November, 2016, issued by Tata Sons it is clear that sudden and hasty removal of CPM as Executive Chairman of ‘Tata Sons Limited’ raised concerns in the industrial group. (paragraph 137 of the impugned order) H
p. 943
INVESTMENTS PVT. LTD. AND ORS.
(xi) The allegations as made in the ‘Press Statement’ dated A 10th November, 2016 appears to be an afterthought as the aforesaid matter was not discussed in any of the meetings of the Board of Directors. The allegations in the ‘Press Statement’ as not supported by record cannot be accepted. (paragraph 139 of the impugned order) B (xii) Correspondence between CPM, RNT, Mr. Nitin Nohria and Mr. N.A. Soonawala show that all the time CPM had been pointing out that some of the ‘Tata Companies’ were suffering losses and if appropriate steps were not taken, it may aggravate in future. In spite of such communications no decision for the revival or C restructuring of Tata Companies was taken. (paragraph 140 of the impugned order) (xiii) If there was a failure and loss caused to one or other Tata Company which also affected the ‘Tata Sons Limited’, the ‘Tata Trusts’ or the Board of Directors D could not be absolved of its responsibility, particularly when the nominee Directors of the Tata Trusts who have affirmative vote to reverse the majority decision. (paragraph 141 of the impugned order) (xiv) If all major decisions are taken in advance by the ‘Tata E Trusts’ and for taking every decision, matters are to be placed before the ‘Tata Trusts’, the independence of the Board of Directors of the Company becomes irrelevant. (paragraph 143 of the impugned order) (xv) The suggestions made by CPM for good governance F by the Board and to take care of Tata Companies, including ‘Tata Motors’, ‘Docomo’ etc., were not taken in its letter and spirit by RNT or ‘Tata Trusts’ which resulted in no confidence on CPM. (paragraph 144 of the impugned order) G (xvi) The record suggests that the removal of CPM had nothing to do with any lack of performance. On the other hand, the material on record shows that the Company under the leadership of CPM performed well which was praised by the ‘Nomination and Remuneration H
p. 944
A Committee’ a Statutory Committee under Section 178, on 28th June, 2016 i.e. just few months before he was removed. (paragraph 146 of the impugned order) (xvii) Nominee Director Mr. Vijay Singh on behalf of ‘Tata Trusts’ was well aware that performance of CPM was satisfactory and there was need for a framework for operationalizing the Articles. (paragraph 149 of the impugned order) (xviii) The annual performance review of the ‘Nomination and Remuneration Committee’ was unanimously approved by the Board of Directors of ‘Tata Sons’ in its meeting held on the next day i.e. on 29th June, 2016. (paragraph 150 of the impugned order) (xix) Three Directors who also voted for removal of CPM, including Mr. Amit Chandra, who spearheaded the removal proceedings and Mr. Ajay Piramal and Mr. Venu Srinivasan, had been inducted into the Board of ‘Tata Sons Ltd.’ only on 8th August, 2016 i.e. after the appraisal report of ‘Nomination and Remuneration Committee’. They attended just one Board meeting prior to the meeting held on 24th October, 2016. (paragraph 151 of the impugned order) (xx) Two of the Directors, Mr. Ranendra Sen and Mr. Vijay Singh, a Trust Nominee Director, who voted for the removal of CPM, were members of the ‘Nomination and Remuneration Committee’ which just four months’ F prior to his removal on 28th June, 2016 praised the performance of CPM as Executive Chairman. These two Directors also voted against CPM just four months thereafter which has not been explained by Mr. Ranendra Sen and Mr. Vijay Singh. Further, what is accepted is that prior to the meeting held on 24th October, 2016 between 2.00 p.m. to 3.00 p.m., in the forenoon, the ‘Tata Trusts’ in a separate meeting decided to remove CPM. Even before decision of ‘Tata Trusts’, RNT in presence of Mr. Nitin Nohria called CPM and asked him to resign. (paragraph 152 of the impugned order)
p. 945
INVESTMENTS PVT. LTD. AND ORS.
(xxi) In view of what transpired, it is not open to the A Respondents to state or allege that loss in different ‘Tata Companies’ was due to mismanagement of CPM. If that be so, why the nominated Directors who have affirmative voting right over the majority decision of the Board or in the Annual General Meeting of the shareholders allowed the ‘Tata Companies’ to function in a manner which caused loss, as accepted in the press release dated 10th November, 2016. The consecutive chain of events coming to fore from the correspondence amply demonstrates that impairment of confidence with reference to conduct of affairs of company was not attributable to probity qua CPM but to unfair abuse of powers on the part of other Respondents. (paragraph 155 of the impugned order) (xxii) Even in the absence of a right of minority members (‘Shapoorji Pallonji Group’), because of the healthy atmosphere and clear understanding between two groups i.e. ‘Tata Group’ and ‘Shapoorji Pallonji Group’ for the last 40 years, except for few years in between thereof, one of the persons of ‘Shapoorji Pallonji Group’ was made as the Executive Chairman or Director, which includes CPM and his father Mr. Pallonji Shapoorji E Mistry. (paragraph 160 of the impugned order) (xxiii) ‘Shapoorji Pallonji Group’, minority shareholders, all the time had confidence on the decision making power of the Board of Directors of the ‘Tata Sons Ltd.’ as amity and goodwill prevailed inter se the two groups. F (paragraph 161 of the impugned order) (xxiv) Because of recent actions of ‘Tata Trusts’, its nominee Directors, and RNT and Mr. Nitin Nohria, taken since the year 2013, as noticed and discussed and sudden and hasty removal of CPM on 24th October, 2016, without G any basis, and without following the normal procedure under Article 118, the minority group (‘Shapoorji Pallonji Group’) (the Appellants), and others have raised no confidence and sense of uncertainty. (paragraph 162 of impugned order) H
p. 946
A (xxv) The prejudicial action, did not come to an end, after 24th October, 2016, when CPM was removed as Executive Chairman and Director of the Company (‘Tata Sons Limited’). It continued even thereafter with the removal of CPM from the Directorship of other group companies and the conversion of Tata Sons Limited B from being a public limited company into a private company, after the decision of NCLT. (paragraph 165 of the impugned order) (xxvi) Tata Sons Limited became a public company by virtue of Section 43(1A) of the Companies Act, 1956 on the basis of average annual turnover, w.e.f. 01.02.1975. (para 165) In terms of Sub-section (2) of Section 43A Tata Sons informed the Registrar and the Registrar deleted the word “private” in the name of the Company upon the Register. By virtue of Sub-section (4), such a company is to continue to be a public company until it becomes a private company with the approval of the Central Government and in accordance with the Act. (para 167) The Companies Act, 2013 repealed part of the 1956 Act. The new Act defines a “Private Company” and a “Public Company” under Clauses (68) and (71) of Section 2. E (para 169 to 172). Under the 2013 Act, there is no provision similar to Section 43A(1A), for automatic conversion of a company. Since there is no automatic conversion, Tata Sons, having become a public company long ago was required to alter its articles of Association F by following the procedure prescribed by Section 14(1)(b) read with Section 14(2) and 14(3), for converting the company as a private company.( paras 173 to 175). The General Circular No.15 of 2013 dated 13.09.2013 and Notification dated 12.09.2013 issued by the central Government cannot override Section 14 of the Act (para G 177) and hence the action taken by Tata Sons hurriedly to get the word “public” struck off in the certificate of incorporation, after the order of NCLT is absolutely illegal.
p. 947
INVESTMENTS PVT. LTD. AND ORS.
(xxvii) The aforesaid action on the part of the company and its A Board of Directors to take action to hurriedly change the Company (‘Tata sons Limited’) from ‘Public Company’ to a ‘Private Company’ without following the procedure under law (Section 14), with the help of the Registrar of Companies just before the filing the appeal, B suggests that the nominated members of ‘Tata Trusts’ who have affirmative voting right over the majority decision of the Board of Directors and other Directors/ members, acted in a manner ‘prejudicial’ to the members, including minority members (‘Shapoorji Pallonji Group’) and others as also ‘prejudicial’ to the Company (‘Tata C Sons Limited’) (paragraph 181 of the impugned order) (xxviii) The affirmative voting power of the nominated Directors of the ‘Tata Trust’ over majority decision of the Board; actions taken by Mr. Rata N. Tata (2nd Respondent), Mr. Nitin Nohria (7 th Respondent) and Mr. N.A. D Soonawala (14th Respondent) and others as discussed above; the fact that the Company (‘Tata Sons Limited’) has suffered loss because of ‘prejudicial’ decisions taken by Board of Directors; the fact that a number of ‘Tata Companies have incurred loss in spite of decision making powers vested with the Board of Directors with E affirmative power of nominated Directors of the ‘Tata Trust’; the manner in which Mr. Cyrus Pallonji Mistry (11th Respondent) was suddenly and hastily removed without any reason and in absence of any discussion in the meeting of the Board of Directors held on 24th F October, 2016 and his subsequent removal as Director of different ‘Tata Companies’ coupled with global effect of such removal, as accepted by the Company in its ‘Press Statement’ form a consecutive chain of events with cumulative effect justifying the Tribunal to hold that the Appellants have made out a clear case of ‘prejudicial’ G and ‘oppressive’ action by the contesting respondents, including Mr. Ratan N. Tata (2nd Respondent), Mr. Nitin Nohria (7th Respondent) and Mr. N.A. Soonawala (14th Respondent) and other nominee Directors. (paragraph 183 of the impugned order) H
p. 948
A (xxix) The company’s affairs have been or are being conducted in a manner ‘prejudicial’ and ‘oppressive’ to members including Appellants, Mr. Cyrus Pallonji Mistry (11th Respondent) as also ‘prejudicial’ to the interests of the Company and its group Companies i.e., ‘Tata Companies’ and winding up of the Company would B unfairly prejudice the members, but otherwise the facts, as narrated above, would justify a winding up order on the ground that it was just and equitable that the Company should be wound up and thereby, it is a fit case to pass order under Section 242 of the Companies Act, 2013. C (xxx) The Resolution dated 24th October, 2016 passed by the Board of Directors of Company removing Mr. Cyrus Pallonji Mistry (11th Respondent) as the Executive Chairman of the Company (‘Tata Sons’) is illegal; all consequential decisions taken by ‘Tata Companies’ for removal of Mr. Cyrus Pallonji Mistry (11th Respondent) as Director of such Companies are also illegal. (paragraph 184 of the impugned order) (xxxi) For better protection of interest of all stake holders as also safeguarding the interest of minority group, in future at the time of appointment of the Executive Chairman, Independent Director and Directors, the ‘Tata Group’ which is the majority group should consult the minority group i.e., ‘Shapoorji Pallonji Group’ and any person on whom both the parties have trust, be appointed as Executive Chairman or Director as the case may be which will be in the interest of the Company and create healthy atmosphere removing the mistrust between the two groups, already developed and has caused global effect as admitted in the ‘Press Statement’ of the Company. (paragraph 185 of the impugned order)
88. Important difference between the approach of NCLT and the approach of NCLAT 8.1 As pointed out at the beginning of chapter 7, NCLT dealt with every one of the allegations of oppression and mismanagement and recorded reasoned findings. But NCLAT, despite being a final court of H facts, did not deal with the allegations one by one nor did the NCLAT
p. 949
INVESTMENTS PVT. LTD. AND ORS.
render any opinion on the correctness or otherwise of the findings recorded by NCLT. Instead, the NCLAT summarised in one paragraph, namely paragraph 183, its conclusion on some of the allegations, without any kind of reasoning. This Paragraph 183 reads as follows: “The facts, as noticed above, including the affirmative voting power of the nominated Directors of the ‘Tata Trusts’ over majority decision of the Board; actions taken by Mr. Ratan N. Tata (2nd Respondent), Mr. Nitin Nohria (7th Respondent) and Mr. N.A.Soonawala (14th Respondent) and others as discussed above; the fact that the Company (‘Tata Sons Limited’) has suffered loss because of ‘prejudicial’ decisions taken by Board of Directors; the fact that a number of ‘Tata C Companies’ have incurred loss; in spite of decision making power vested with the Board of Directors with affirmative power of nominated Directors of the ‘Tata Trusts’; the action in making change from ‘Public Company’ to ‘Private Company’; the manner in which Mr. Cyrus Pallonji Mistry D (11th Respondent) was suddenly and hastily removed without any reason and in absence of any discussion in the meeting shown in the Board of Directors held on 24th October, 2016 and his subsequent removal as Director(s) of different ‘Tata Companies’, coupled with global effect of such removal, as accepted by the Company in its ‘Press Statement’ form a E consecutive chain of events with cumulative effect justifying us to hold that the Appellants have made out a clear case of ‘prejudicial’ and ‘oppressive’ action by contesting Respondents, including Mr. Ratan N. Tata (2nd Respondent), Mr. Nitin Nohria (7th Respondent) and Mr. N.A.Soonawala F (14th Respondent) and other, the nominee Directors. 8.2 The allegations relating to (i) over priced and bleeding Corus acquisition (ii) doomed Nano car project (iii) undue favours to Siva and Sterling (iv) loan by Kalimati to Siva (v) sale of flat to Mehli Mistry (vi) the unjust enrichment of the companies controlled by Mehli Mistry (vii) G the Aviation industry misadventures (viii) losses due to purchase of the shares of Tata Motors etc., were not individually dealt with by NCLAT, though NCLT had addressed each one of these issues and recorded findings in favour of Tata Sons. Therefore, there is no escape from the conclusion that NCLAT did not expressly overturn the findings of facts recorded by NCLT, on these allegations. We are constrained to H
p. 950
A take note of this, even at the outset, in view of a contention raised by Shri Shyam Divan, learned Senior Counsel for the SP group, that in an appeal under Section 423 of the Companies Act, 2013, this court will not normally interfere with a finding of fact reached by NCLAT, unless it is found to be wholly perverse.
99. Contentions on behalf of Tata Sons, group companies and Trustees 9.1 Assailing the judgment of NCLAT, Shri Harish Salve and Dr. Abhishek Manu Singhvi, learned Senior counsel for Tata Sons contended as follows: C (i) The entire focus of NCLAT was only on the justification for the removal of CPM from the post of Executive Chairman of Tata Sons, despite the fact that the positive case of the complainant companies as well as CPM was that they were not seeking the reinstatement of CPM; D (ii) In focusing entirely upon the removal of CPM from Executive Chairmanship of Tata Sons, NCLAT lost track of the law that such a removal cannot be termed as oppression or mismanagement; (iii) NCLAT went completely overboard by directing the reinstatement of CPM as the Executive Chairman of Tata Sons and also annulling the appointment of the new Chairman N. Chandrasekaran; (iv) NCLAT went completely out of the way in directing the reinstatement of CPM as a Director of even the operating companies, the management of affairs of which, were not even the subject matter. The subject matter concerned only the management of the affairs of Tata Sons and not its Group Companies; (v) NCLAT failed to see that the “just and equitable clause” is triggered only in two situations namely: (a) wherever there was a functional deadlock; and (b) wherever there was a corporate quasi partnership in which there was a breakdown of trust and confidence. In the case on hand there was no pre-existing partnership between Tata Group and the S.P. Group. S.P. Group became shareholders only after 48 years of the incorporation of Tata Sons and they did not even hold any
p. 951
INVESTMENTS PVT. LTD. AND ORS.
directorial position until June-1980. Therefore S.P. Group never had any right of management nor a right that could emanate from a pre-existing relationship of trust and confidence, before the incorporation of the company; (vi) Tata sons was not a “Two Group” company with one of them being a majority and the other, a minority. S.P. Group became shareholders long after the incorporation of the company and they did not acquire any privilege, prerogative or right. S.P. Group became shareholders, accepting the rights and obligations inter se among shareholders, as spelt out by the Articles of Association. S.P. Group also accepted without any demur, all the amendments made to the Articles of Association, C when Pallonji Mistry was on the Board and also when CPM was on the Board; (vii) The removal of CPM was on account of the loss of confidence in CPM and the complete breakdown of trust between the other members of the Board and CPM. To say that his removal D required the stamp of approval of the Selection Committee, is completely amiss; (viii) NCLAT failed to appreciate in the right perspective, the effects of the Amendment Act 53 of 2000 on a ‘deemed to be a public company’ under Section 43A and the provisions of the 2013 E Act, while dealing with the question whether Tata Sons would be a private Company or a public Company. NCLAT, without any justification, made uncharitable remarks against the Registrar of Companies for issuing an amended certificate of incorporation after the judgment of NCLT, though RoC was F not a party. When RoC sought the expunction of those remarks by filing an application, NCLAT entertained the same, only for the purpose of improving upon the reasons already provided, showing thereby the mindset with which NCLAT approached the case; G (ix) NCLAT committed a serious error in whittling down Article 75 of the Articles of Association, though the said Article was not found to be illegal; (x) Curiously NCLAT did not find any actual misuse of the Articles of Association, which envisaged a crucial role for the nominee H
Report an error in this judgment →
Contains information from the Indian High Court / Supreme Court Judgments dataset, licensed under CC-BY-4.0