TATA CONSULTANCY SERVICES LIMITED v. CYRUS INVESTMENTS PVT. LTD. AND ORS.

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shareholder in 1965, namely after 50 years. A berth on the Board of A Tata Sons was granted only in the year 1980 to CPM’s father. Therefore, there is nothing on record in the form of pleadings or proof, to show that there was either (i) a pre-existing relationship before the incorporation of the company or (ii) a living in relationship picked up half way through, by entering into an agreement in the nature of a partnership. B 19.47 In fact, CPM’s father was inducted into the Board in 1980, after 15 years of acquisition of shares and such induction was not in recognition of any statutory or contractual right. After his father’s exit in 2004, CPM was inducted in 2006, neither in recognition of a contractual right nor in recognition of a hereditary or statutory right. C 19.48 The claim for proportionate representation can also be looked at from another angle. RNT who was holding the mantle as the Chairman of Tata Sons for a period of 21 years from 1991 to 2012, actually conceded a more than proportionate share to the S.P. Group by nominating CPM as his successor. Accordingly CPM was also crowned as Executive Deputy Chairman on 16.3.2012 and as Chairman later. CPM continued as Executive Chairman till he set his own house on fire in 2016. If the company’s affairs have been or are being conducted in a manner oppressive or prejudicial to the interests of the S.P. group, we wonder how a representative of the S.P. Group holding a little over 18% of the share capital could have moved upto the top most position within a period of six years of his induction. Therefore, we are of the considered view that the claim for proportionate representation on the Board is neither statutorily or contractually sustainable nor factually justified. 19.49 Placing reliance upon section 163 of the Companies Act, 2013, it was contended that proportionate representation is statutorily recognised. But this argument is completely misconceived. Section 163 of the 2013 Act corresponds to section 265 of the 1956 Act. It enables a company to provide in their Articles of Association, for the appointment of not less than two-thirds of the total number of Directors in accordance with the principle of proportionate representation by means of a single transferable vote. First of all, proportionate representation by means of a single transferable vote, is not the same as representation on the Board for a group of minority shareholders, in proportion to the percentage of shareholding they have. It is a system where the voters exercise their franchise by ranking several candidates of their choice, with first preference, second preference etc. Moreover, it is only an H

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A enabling provision and it is upto the company to make a provision for the same in their Articles, if they so choose. There is no statutory compulsion to incorporate such a provision. 19.50 Therefore, the fourth question of law is also to be answered in favour of the Tata group and the claim in the cross appeal relating to B affirmative voting rights and proportionate representation are liable to be rejected.

20Copy pinpoint20. Question No.5 20.1 The 5th question of law formulated for consideration is as to whether the re-conversion of Tata Sons from a public company into a C private company, required the necessary approval under section 14 of the Companies Act, 2013 or at least an action under section 43-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 ? D 20.2 As we have pointed out elsewhere, Tata Sons was actually incorporated as a Private Limited Company, but was deemed to have become a Public Limited Company, with effect from 01.02.1975, by virtue of Section 43-A (1A) of the Companies Act, 1956. However, by virtue of the proviso to Sub-section (1A), the Articles of Association of the Company, continued to retain the provisions relating to the matters specified in sub-clauses (a), (b) and (c) of Clause (iii) of Sub-section (1) of Section 3 of the 1956 Act. 20.3 By Act 53 of 2000, the deeming fiction in section 43A was removed and the whole concept of private companies becoming public companies disappeared from the date of coming into force of this Act 53 of 2000. 20.4 The Companies Act, 2013 did not include any provision similar to section 43A. Therefore, Tata Sons passed a resolution in its 99th Annual General meeting held on 21-09-2017 to alter the Memorandum and Articles so as to insert the word “private” in between the words “Sons” G and “Limited” in its name. 20.5 On 09.07.2018, the complaint under sections 241 and 242 was dismissed by NCLT and hence Tata Sons approached the Registrar of Companies on 19.07.2018 seeking an amendment to the Certificate of Incorporation. It appears that S.P. Group filed objections with the H

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Registrar of Companies on the ground that they were filing appeals against A the order of the NCLT. But the Registrar of Companies issued an amended certificate on 06.08.2018. 20.6 Upon coming to know of the issue of amended Certificate of Incorporation, S.P. Group filed an additional affidavit before NCLAT on 10.08.2018 in the appeals that came up for hearing. B 20.7 While allowing the appeals of S.P. Group by a judgment dated 18.12.2019, NCLAT declared the action of the Registrar of Companies in issuing the amended Certificate of Incorporation as illegal with a further direction to the Registrar of Companies to make necessary corrections in the records showing the Company as a Public Company. C 20.8 The Registrar of Companies moved an application under Sections 420(2) and 424(1) of the Companies Act, 2013 read with Rule 11 of the NCLAT Rules, 2016, seeking removal of the observations made in Paragraphs 181, 186 and 187(iv) of the judgment. This application was dismissed by the NCLAT by an order dated 06.01.2020, not only D holding that no aspersions were cast in the judgment of the NCLAT on the Registrar of Companies warranting any review/clarification, but also providing certain additional reasons. It is under these circumstances that the 5th question of law revolving around Section 43A of the 1956 Act as amended by Act 53 of 2000, and the Companies Act, 2013 has arisen for consideration. E

20.9 A look at Section 43A would show that it was actually inserted under Companies (Amendment) Act 65 of 1960 with effect from 28.12.1960. This Section underwent two amendments, one under Act 41 of 1974 with effect from 01.02.1975 and another under Act 31 of 1988 with effect from 15.06.1988. Finally, by Act 53 of 2000, Section F 43A was made inapplicable with effect from 13.12.2000. 20.10 Section 43A, as inserted by Act 65 of 1960, together with the amendments made under Act 41 of 1974, Act 31 of 1988 and Act 53 of 2000, is reproduced as follows:- G “43A. Private Company to become a public company in certain cases.- (1) Save as otherwise provided in this section, where not less than twenty-five per cent of the paid-up share capital of a private company having a share capital is held by one or more bodies corporate, the private company shall,- H

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A (a) on and from the date on which the aforesaid percentage is first held by such body or bodies corporate, or (b) where the aforesaid percentage has been first so held before the commencement of the Companies B (Amendment) Act, 1960 (65 of 1960), on and from the expiry of the period of three months from the date of such commencement unless within that period the aforesaid percentage is reduced below twenty-five per cent of the paid-up share capital of the private company, become by virtue of this section a public company : Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven : Provided further that in computing the aforesaid percentage, account shall not be taken of any share in the private company held by a banking company if, but only if, the following conditions are satisfied in respect of such share, namely:- (a) that the share- (i) forms part of the subject matter of a trust, (ii) has not been set apart for the benefit of any body corporate, and F (iii) is held by the banking company either as a trustee of that trust or in its own name on behalf of a trustee of that trust; or G (b) that the share- (i) forms part of the estate of a deceased person, (ii) has not been bequeathed by the deceased person by his will to any body corporate, and H

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(iii) is held by the banking company either as an executor or administrator of the deceased person or in its own name on behalf of an executor or administrator of the deceased person, and the registrar may, for the purpose of satisfying himself that any share is held in the private company by a banking company as aforesaid, call for at any time from the banking company such books and papers as he considers necessary. Explanation.-For the purposes of this sub-section, “bodies corporate” means public companies, or private companies which had become public companies by virtue of this section. C (1A) Without prejudice to the provisions of sub-section (1), where the average annual turnover of a private company, whether in existence at the commencement of the Companies (Amendment) Act, 1974, or incorporated thereafter, is not, during the relevant period, less than 2 [such amount as may D be prescribed], the private company shall, irrespective of its paid-up share capital, become, on and from the expiry of a period of three months from the last day of the relevant period during which the private company had the said average annual turnover, a public company by virtue of this sub- section: E

Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven. F (1B) Where not less than twenty-five per cent of the paid- up share capital of a public company, having share capital, is held by a private company, the private company shall,- (a) on and from the date on which the aforesaid G percentage is first held by it after the commencement of the Companies (Amendment) Act, 1974, or (b) where the aforesaid percentage has been first so held before the commencement of the Companies (Amendment) Act, 1974 on and from the expiry of the period H

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A of three months from the date of such commencement, unless within that period the aforesaid percentage is reduced below twenty-five per cent of the paid-up share capital of the public company, become, by virtue of this sub-section, a public company, and thereupon all other provisions of this section shall apply thereto: Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven. (1C) Where, after the commencement of the Companies (Amendment) Act, 1988, a private company accepts, after an invitation is made by an advertisement, or renews, deposits from the public other than its members, directors or their relatives, such private company shall, on and from the date on which such acceptance or renewal, as the case may be, is first made after such commencement, become a public company and thereupon all the provisions of this section shall apply thereto: E Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be, reduced below seven. F (2) Within three months from the date on which a private company becomes a public company by virtue of this section, the company shall inform the Registrar that it has become a public company as aforesaid, and thereupon the Registrar shall delete the word “Private” before the word “Limited” in G the name of the company upon the register and shall also make the necessary alterations in the Certificate of Incorporation issued to the company and in its memorandum of association. (2A) Where a public company referred to in sub-section H (2) becomes a private company on or after the commencement

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of the Companies (Amendment) Act, 2000, such company shall inform the Registrar that it has become a private company and thereupon the Registrar shall substitute the word ‘private company’ for the word ‘public company’ in the name of the company upon the register and shall also make the necessary alterations in the Certificate of Incorporation issued to the company and in its memorandum of association within four weeks from the date of application made by the company. (3) Sub-section (3) of section 23 shall apply to a change of name under sub-section (2) as it applies to a change of name under section 21. C (4) A private company which has become a public company by virtue of this section shall continue to be a public company until it has, with the approval of the Central Government and in accordance with the provisions of this Act, again become a private company. D (5) If a company makes default in complying with sub- section (2), the company and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues. E (6) & (7) omitted by Act 31 of 1988 (8) Every private company having a share capital shall, in addition to the certificate referred to in sub-section (2) of section 161, file with the Registrar along with the annual return a second certificate signed by both the signatories of the return, stating either- (a) that since the date of the annual general meeting with reference to which the last return was submitted, or in the case of a first return, since the date of the incorporation of the private company, no body or bodies corporate has or have held twenty-five per cent or more of its paid-up share capital, (b) … (c) that the private company, irrespective of its paid-up share capital, did not have, during the relevant period, an H

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A average annual turnover of such amount as is referred to in sub-section (1A) or more, (d) that the private company did not accept or renew deposits from the public.] (9) Every private company, having share capital, shall file with the Registrar along with the annual return a certificate signed by both the signatories of the return, stating that since the date of the annual general meeting with reference to which the last return was submitted, or in the case of a first return, since the date of the incorporation of the private company, it did not hold twenty-five per cent or more of the paid-up share capital of one or more public companies. Explanation.- For the purposes of this section,- (a) “relevant period” means the period of three consecutive financial years.- D (i) immediately preceding the commencement of the Companies (Amendment) Act, 1974, or (ii) a part of which is immediately preceded such commencement and the other part of which immediately, followed such commencement, or E (iii) immediately following such commencement or at any time thereafter; (b) “turnover”, of a company, means the aggregate value of the realization made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year; (c) “deposit has the same meaning as in section 58A (10) Subject to the other provisions of this Act, any reference in this section to accepting, after an invitation is made by an advertisement, or renewing deposits from the public shall be construed as including a reference to accepting, after an invitation is made by an advertisement, or· renewing deposits from any section of the public and the provisions of section 67 shall, so far as may be, apply, as if the reference to

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invitation to the public to subscribe for shares or debentures A occurring in that section, includes a reference to invitation from the public for acceptance of deposits. (11) Nothing contained in this section, except sub-section (2A), shall apply on and after the commencement of the Companies (Amendment) Act, 2000.” B 20.11 In its inception, Section 43A contained only one stipulation namely that a private company in which not less than 25% of the paid up share capital was held by one or more bodies corporate, shall become a public company. But by Act 41 of 1974, two additional stipulations were included. They are (i) that a private company whose average turnover during the relevant period is not less than an amount prescribed, shall become a public company, irrespective of its paid up share capital; and (ii) that a private company which holds not less than 25% of the paid up share capital of a public company, shall become a public company. 20.12 By Act 31 of 1988, the benchmark of the average annual turnover that would determine the applicability of Section 43A was prescribed as not less than Rs. 1 crore. In addition, Act 31 of 1988 also made a private company which accepts deposits from the public, other than its members or directors, to be a public company. 20.13 Two important prescriptions, which continued without any change, from the date of insertion of Section 43A, namely 28.12.1960, till the coming into force of Act 53 of 2000 namely 13.12.2000, were Sub-sections (2) and (4) of Section 43A. Sub-section (2) imposed an obligation upon a private company which became a public company by virtue of section 43A, to inform the Registrar. Upon receipt of such information, the Registrar was ordained to delete the word “private” in the name of the company upon the register and also to make necessary alterations in the Certificate of Incorporation and its Memorandum of Association. 20.14 Sub-section (4) declared that the status of such a company as a public company would continue until such time it becomes a private company (i) with the approval of the Central Government; and (ii) in accordance with the provisions of the Act. 20.15 In Needle Industries (India) Ltd vs Needle Industries Newey (India) Ltd24, this court pointed out (A) that there are 3 distinct 24 (1981) 3 SCC 333 H

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A types of companies, namely Private companies, Public Companies and deemed to be public companies which occupy a distinct place in the scheme of the Act (B) that private companies, which become public companies, but which continue to retain in their articles those matters mentioned in section 3(1)(iii) of the Act are also broadly and generally subjected to the rigorous discipline of the Act and (C) that though section B 43A companies cannot claim the same privileges to which private companies are entitled, there are certain provisions of the Act which would apply to public companies, but not to Section 43A companies. An important observation found in Needle Industries, is that “the policy of the Act if anything, points in the direction that the integrity and C structure of section 43A proviso companies should, as far as possible, not be broken up”. 20.16 Keeping the above stipulations in mind, let us now come to the amendments made to Section 43A under Act 53 of 2000, with effect from 13.12.2000. By this Act, two sub-sections namely Sub-section (2A) D and Sub-section (11) were inserted in Section 43A. 20.17 By virtue of sub-section (11), all the provisions of Section 43A except sub-section (2A) were made inapplicable on and after the commencement of Act 53 of 2000. This meant that with effect from 13.12.2000, the whole of Section 43A except Sub-section (2A) got E washed out. 20.18 Sub-section (2A) prescribes the procedure to be followed by a company, which has earlier become a public company by virtue of Section 43A, but which has later become a private company after the commencement of Act 53 of 2000, to have necessary changes effected. F The procedure prescribed by sub-section (2A) for such re-conversion (or Ghar Wapsi) is as follows:- (i) The company shall inform the Registrar that the company has again become a private company; and G (ii) The Registrar shall thereupon substitute the word “Private Company” for the word “Public Company” upon the register and also make necessary alterations in the Certificate of Incorporation and its Memorandum of Association.” H

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20.19 But Act 53 of 2000 did not stop with section 43A. It also amended section 3(1)(iii) by inserting an additional sub-clause, namely “(d)” along with sub-clauses (a), (b) and (c). Under this sub-clause (d) of clause (iii) of sub-section (1) of section 3, the articles of association of a private company should also contain a prohibition on any invitation or acceptance of deposits from persons other than its members, directors or their relatives. Section 3(1)(iii) after amendment under Act 53 of 2000 read as follows: “3 (1) In this Act, unless the context otherwise requires, the expressions “company”, “existing company”, “private company” and “public company”, shall, subject to the provisions of sub-section (2), have the meanings specified below:- (iii) “private company” means a company which has a minimum paid-up capital of one lakh rupees or such higher paid-up capital as may be prescribed, and by is articles, - D (a) restricts the right to transfer its shares, if any ; (b) limits the number of its members to fifty not including - (i) persons who are in the employment of the company ; and (ii) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased ; and (c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company ; (d) prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives: Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this definition, be treated as a single member;” 20.20 Sub-clause (d) was what was added to section 3(1)(iii) by G Act 53 of 2000, even while scrapping the concept of a deemed public company. But this sub-clause (d) is nothing but sub-section (1C) of section 43A. Though section 43A was being scrapped in effect, the Parliament wanted to retain the prescription contained in sub-section (1C) of section H

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A 43A and which is why sub-clause (d) was inserted under section 3(1) (iii). 20.21 But while doing so under Act 53 of 2000, a major omission happened. The omission related to section 27 (3) of the 1956 Act. Section 27 of the 1956 Act contained stipulations as to what the Articles of B Association of (i) an unlimited company (ii) a company limited by guarantee and (iii) a private company limited by shares, should contain. It reads as follows: “27. REGULATIONS REQUIRED IN CASE OF UNLIMITED COMPANY, COMPANY LIMITED BY C GUARANTEE OR PRIVATE COMPANY LIMITED BY SHARES (1) In the case of an unlimited company, the articles shall state the number of members with which the company is to be registered and, if the company has a share capital, the amount of share capital with which the company is to be registered. D (2) In the case of a company limited by guarantee, the articles shall state the number of members with which the company is to be registered. (3) In the case of a private company having a share capital, the articles shall contain provisions relating to the matters E specified in sub-clauses (a), (b) and (c) of clause (iii) of sub- section (1) of section 3; and in the case of any other private company, the articles shall contain provisions relating to the matters specified in the said sub-clauses (b) and (c).” 20.22 No corresponding amendment was made to Section 27 (3), F by Act 53 of 2000, so as to make it in tune with the amended section 3(1)(iii). The result was that on and from 13-12-2000 (the date of coming into force of Act 53 of 2000), section 3(1)(iii) contained 4 requirements for a private company, but section 27(3) referred only to 3 requirements. The incongruity can be stated thus. To fall within the definition of a private company, 4 stipulations contained in section 3(1)(iii) were to be G satisfied. But under section 27(3), it is enough if the Articles of Association of a private company contained only 3 prescriptions. 20.23 Be that as it may, the consequence of the amendment to section 3(1)(iii), under Act 53 of 2000, was that a company which wanted to take the route of sub-section (2A) of section 43A, after the coming H

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into force of Act 53 of 2000 and reconvert itself into a private company, was required to satisfy the rigours of sub-clauses (a), (b) and (c) as well as (d) of clause (iii) of sub-section(1) of section 3. In other words, the Articles of Association of such a company should contain all the 4 prescriptions namely (i) restriction on the right to transfer shares (ii) limitation on the number of members (iii) prohibition of any invitation to the public to subscribe for shares/debentures and (iv) prohibition of any invitation or acceptance of deposits from persons other than members/ Directors or their relatives. 20.24 The Articles of Association of Tata Sons had the prescriptions contained in sub-clauses (a), (b) and (c), but not sub-clause (d). Therefore, they did not take any steps in terms of sub-section (2A) of section 43A after the advent of Act 53 of 2000. 20.25 But Companies Act, 2013 changed the complexion of the game. It not merely put an end to the concept of deemed public companies, but also restored the definition of the expression ‘private company” to the position that prevailed before Act 53 of 2000. Section 2(68) of the D 2013 Act which defines a “private company” incorporated only the original 3 prescriptions contained in sub-clauses (a), (b) and (c) of clause (iii) of sub-section (1) of section 3. The stipulation inserted as sub-clause (d) by Act 53 of 2000, is omitted in section 2(68). Section 2(68) of the 2013 Act reads as follows:- E Sec 2 (68) “private company” means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed, and which by its articles, (i) restricts the right to transfer its shares; F (ii) except in case of One Person Company, limits the number of its members to two hundred: Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the G purposes of this clause, be treated as a single member: Provided further that— (A) persons who are in the employment of the company; and H

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A (B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and B (iii) prohibits any invitation to the public to subscribe for any securities of the company; 20.26 But Companies Act, 2013, created one confusion. Different provisions of the Companies Act, 2013, came into force on different dates (driving people crazy). Section 2(68) which defines a private company, came into force on 12-09-2013 vide S.O. 2754 (E) dated 12- 09-2013. This notification issued under section 1(3) of the 2013 Act, fixed 12-09-2013 as the appointed date for the coming into force of section 2(68). 20.27 But on 12-09-2013, the date appointed for the coming into force of section 2(68) of the Companies Act, 2013, the old Act, namely the Companies Act, 1956 had not been repealed. The provisions for repeal are contained in Section 465 of The Companies Act, 2013. Section 465(1) repeals the 1956 Act, subject to certain stipulations mentioned in the provisos there under. Sub-section (2) of Section 465 of the Companies E Act, 2013 provides a list of matters which will stand saved despite the repeal of the 1956 Act. Sub-section (3) of Section 465 makes it clear that the mention of particular matters in Sub-section (2) shall not be held to prejudice the general application of Section 6 of the General Clauses Act, 1897.

F 20.28 The provisions of Section 465, in so far as they relate to the repeal of the 1956 Act are concerned, came into force on 30-01-2019, vide S.O. 560 (E) dated 30-01-2019. In other words, the provisions of the 1956 Act continued to be in force till repealed on 30-01-2019. It means that the criteria for a “private company” under sub-clauses (a), (b), (c) and (d) of clause (iii) of sub-section (1) of section 3 of the 1956 G Act, did not stand repealed until 30-01-2019. But the new definition of a “private company” under section 2(68) of the 2013 Act had already come into effect on and from 12-09-2013. 20.29 As a result, we had 2 definitions of the expression “private company” from 12-09-2013 [the date appointed for the coming into force H of section 2(68) of the 2013 Act] to 30-01-2019 (the date on which

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section 3(1) of the 1956 Act became a dead letter consequent upon the A repeal of the 1956 Act through the notification of the repeal provision under section 465). 20.30 Therefore, we have to fall back upon section 465(3) of the 2013 Act to conclude that section 2(68) of the 2013 Act will prevail over section 3(1)(iii) of the 1956 Act. In other words, on and from 12-09- B 2013, the question whether a company is a private company or not, will be determined only by the definition of the expression “private company” found in section 2(68) of the 2013 Act. 20.31 The articles of association of Tata sons contain the restrictions prescribed in sub-clauses (a), (b) and (c) of Section 3(1)(iii) of the 1956 C Act, but they do not satisfy the requirement of sub-clause (d) incorporated in the year 2000. However, on and from 12-09-2013, which is the date appointed for the coming into force of section 2(68) of the 2013 Act, the articles of association of Tata Sons satisfy the requirements of Section 2(68) of the 2013 Act. Therefore, it was and it continues to be a private company. D

20.32 In other words, the status of Tata Sons- (i) was that of a private company till 31-01-1975; (ii) was that of a deemed public company under section 43A from 01-02-1975 till 12-12-2000; E (iii) was that of a company that continued to be a deemed to be public company from 13-12-2000 till 11-09-2013 by virtue of section 3(1)(iii) of the 1956 Act as amended by Act 53 of 2000 with effect from 13-12-2000; and F (iv) was that of a private company with effect from 12-09-2013 within the meaning of section 2(68) of the 2013 Act. 20.33 Interestingly, it is not disputed by anyone that today Tata Sons satisfy the parameters of section 2(68) of the 2013 Act. The dispute raised by the S.P. Group and accepted by NCLAT is only with regard to the procedure followed for reconversion. NCLAT was of the opinion G that Tata Sons ought to have followed the procedure prescribed in Section 14(1)(b) read with Sub-sections (2) and (3) of Section 14 of the Companies Act, 2013 for getting an amended certificate of incorporation. NCLAT was surprised (quite surprisingly) that Tata Sons remained silent for more than 13 years from 2000 to 2013 without taking steps for reconversion in H

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A terms of Section 43A(4) of the 1956 Act. While on the one hand, NCLAT took note of the “lethargy” on the part of Tata Sons in taking action for reconversion, NCLAT, on the other hand also took adverse notice of the speed with which they swung into action after the dismissal of the complaint by NCLT. B 20.34 But what NCLAT failed to see was that Tata sons did not become a public company by choice, but became one by operation of law. Therefore, we do not know how such a company should also be asked to follow the rigors of Section 14(1)(b) of the 2013 Act. As a matter of fact, Section 14(1) does not ipso facto deal with the issue of conversion of private company into a public company or vice versa. C Primarily, Section 14(1) deals with the issue of alteration of Articles of Association of the company. Incidentally, Section 14(1) also deals with the alteration of Articles “having the effect of such conversion”. 20.35 By virtue of the proviso to sub-section(1A) of Section 43A of the 1956 Act, Tata Sons continued to have articles that covered the matters specified in sub-clauses (a), (b) and (c) of Clause(iii) of Sub- section(1) of Section 3 of the 1956 Act. Though it did not have the additional stipulation introduced by Act 53 of 2000, namely the stipulation relating to acceptance of deposits from public, this additional requirement disappeared in the 2013 Act. Therefore, Tata Sons wanted a mere amendment of the Certificate of Incorporation, which is not something that is covered by Section 14 of the 2013 Act. NCLAT mixed up the attempt of Tata Sons to have the Certificate of Incorporation amended, with an attempt to have the Articles of Association amended. Since Tata Sons satisfied the criteria prescribed in Section 2(68) of the 2013 Act, they applied to the Registrar of companies for amendment of the certificate. The certificate is a mere recognition of the status of the company and it does not by itself create one. 20.36 As pointed out by this court in Ram Parshotam Mittal Vs. Hillcrest Realty25, “it is not the records of the Registrar of Companies which determines the status of the company”. The status of the company is determined by the Articles of association and the statutory provisions. 20.37 NCLAT was wrong in thinking that Tata Sons ought to have taken action during the period 2000-2013 and obtained approval of 25 (2009) 8 SCC 709 H

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the Central Government to become a private company under Sub-section A (4) of Section 43A of the 1956 Act. Sub-section (11) of section 43A, inserted under Act 53 of 2000 made all sub-sections of Section 43A except sub-section (2A), inapplicable on and after the commencement of the Act. Therefore, it is clear that Sub-section (4) ceased to exist on and from 13.12.2000 and hence the question of Tata Sons seeking the B approval of the Central Government under Sub-section (4) during the period 2000-2013 did not arise. 20.38 The only provision that survived after 13.12.2000 was Sub- section (2A) of Section 43A. It survived till 30-01-2019 until the whole of the 1956 Act was repealed. There are two aspects to Sub-section (2A). The first is that the very concept of “deemed to be public company” C was washed out under Act 53 of 2000. The second aspect is the prescription of certain formalities to remove the remnants of the past. What was omitted to be done by Tata Sons from 2000 to 2013 was only the second aspect of Sub-section (2A), for which Section 465 of the 2013 Act did not stand as an impediment. Section 43A(2A) continued to be in force till 30-01-2019 and hence the procedure adopted by Tata Sons and the RoC in July/August 2018 when section 43A(2A) was still available, was perfectly in order. 20.39 As rightly held by this court in Darius Rutton Kavasmaneck vs. Gharda Chemicals Ltd 26, Parliament always recognised the possibility of a deemed public company again reverting back to the status of a private company. Though this court took note of the conflict between section 27(3) and section 3(1)(iii)(d), after the amendment by Act 53 of 2000, this court nevertheless held in Gharda Chemicals that by incorporating the requirement of sub-clause (d) of section 3(1)(iii) in the Articles of Association, a deemed public company can revert back to its status as a private company, in view of sub-section (2A) of section 43A, by incorporating necessary provisions in the Articles. In simple terms, a company which becomes a deemed public company by operation of law, cannot be taken to have undergone a process of fermentation or coagulation like milk to become curd or yogurt, having an irreversible effect. 20.40 Therefore, NCLAT was completely wrong in holding as though Tata Sons, in connivance with the Registrar of companies did 26 (2015) 14 SCC 277 [see the editor’s note in the SCC report regarding the conflict between sec.27(3) and sec. 3(1)(iii)(d)] H

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A something clandestinely, contrary to the procedure established by law. The request made by Tata Sons and the action taken by the Registrar of Companies to amend the Certificate of Incorporation were perfectly in order. 20.41 It was argued on behalf of SP group (i) that in 1995 Tata B Sons allowed renunciation of entitlement to rights issue, in favour of rank outsiders, throwing the restriction contained in section 3(1)(iii) to the wind (ii) that till September 2002, Tata Sons accepted deposits from public and hence sub-clause (d) of section 3(1)(iii) was not satisfied (iii) that as per the circular of the Department of Company Affairs, a company which does not approach the RoC for reconversion would be deemed to have chosen to remain as a public company (iv) that as per RBI circular dated 1-1-2002 private companies accepting deposits would become public companies (v) that till the year 2009, Tata Sons chose to describe itself only as a public company in the forms filed under Rule 10 of the Companies (Acceptance of Deposits) Rules, 1975 (vi) that the conversion adversely affected the ability of Tata Sons to raise funds increasing borrowing costs (vii) that Tata Sons will be required to refund the investments made by insurance companies on account of the conversion and (viii) that the act of conversion lacked probity and was also prejudicial to the interests of the minority shareholders and the company as well as independent directors. E 20.42 But we are not impressed with the above contentions. Once the company had become a deemed public company with effect from 1- 2-1975, the privileges of a private company stood withdrawn and the company was entitled in law to allow renunciation of shares under rights issue. In any case, the validity of what was done in 1995 was not in question. That they accepted deposits from public till September 2002, is the reason why they were not reconverted as a private company at that time. Once a new definition of the expression “private company” came into force with effect from 12-09-2013 under section 2(68) of the 2013 Act, the only test to be applied is to find out if the company fits into the scheme under the new Act or not. We need not go to the circulars issued by the department or the RBI when statutory provisions show the path with clarity. The description of the company in the forms filed under Rule 10, reflected the true position that prevailed then and they would not act as estoppel when the company was entitled to take advantage of the law. That the ability of the company to raise funds has now gone and H

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that the company will have to repay the investments made by insurance companies, are all matters which the shareholders and the Directors are to take care. The question before the court is whether the reconversion is in accordance with law or not. The question is not whether it is good for the company or not. 20.43 The real reason why SP group and CPM are aggrieved by the conversion is, that most of their arguments are traceable to provisions which apply only to public and listed public companies. If re-conversion goes, they may perhaps stand on a better footing. But that would tantamount to putting the cart before the horse. One may be entitled to a collateral benefit arising out of a substantial argument. But one cannot seek to succeed on a collateral issue so as to make the substantial argument sustainable. 20.44 Therefore, question of law No. 5 is accordingly 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. D

21Copy pinpoint21. Conclusion 21.1 Thus in fine, all the questions of law are liable to be answered in favour of the appellants-Tata group and the appeals filed by the Tata Group are liable to be allowed and the appeal filed by S.P. Group is liable E to be dismissed. But before we do that we should also deal with the application moved by S.P. Group before us during the pendency of these proceedings, praying for the alternative relief of directing Tata Sons and others to cause a separation of ownership interests of the S.P. Group in Tata sons through a scheme of reduction of capital by extinguishing the shares held by the S.P. Group in lieu of fair compensation effected through F a transfer of proportionate shares of the underlying listed companies, with the balance value of unlisted companies and intangibles including brand value being settled in cash. 21.2 Interestingly, such an application was filed after Tata Group moved an application for restraining S.P. Group from raising money by G pledging shares and this court passed an order of status quo on 22.09.2020. For the first time S.P. Group seems to have realized the futility of the litigation and the nature of the order that the Tribunal can pass under Section 242. This is reflected in Paragraph 62 of the application, H

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A where S.P. Group has stated that they are seeking such an alternative remedy as a means to put an end to the matters complained of. 21.3 As a matter of fact, S.P. Group should have sought such a relief from the Tribunal even at the beginning. As we have pointed out elsewhere a divorce without acrimony is what is encouraged both in B England and in India under the statutory regime. 21.4 But in an appeal under Section 423 of the Companies Act, 2013, this Court is concerned with questions of law arising out of the order of NCLAT. Therefore, we will not decide this prayer. It should be pointed out at this stage that Article 75 of the Articles of Association is nothing but a provision for an exit option (though one may think of it as an expulsion option). After attacking Article 75 before NCLT, the S.P. Group cannot ask this Court to go into the question of fixation of fair value compensation for exercising an exit option. What is pleaded in Paragraph 72 of the application for separation of ownership interests, require an adjudication on facts, of various items. The valuation of the shares of S.P. Group depends upon the value of the stake of Tata Sons in listed equities, unlisted equities, immovable assets etc., and also perhaps the funds raised by SP group on the security/pledge of these shares. Therefore, at this stage and in this Court, we cannot adjudicate on the fair compensation. We will leave it to the parties to take the Article 75 E route or any other legally available route in this regard. 21.5 In the result, all the appeals except C.A. No.1802 of 2020 are allowed and the order of NCLAT dated 18.12.2019 is set aside. The Company Petition C.P. No. 82 of 2016 filed before NCLT by the two Companies belonging to the S.P. Group shall stand dismissed. The appeal F C.A. No.1802 of 2020 filed by Cyrus Investments Pvt. Ltd., and Sterling Investments Corporation Pvt. Ltd. is dismissed. There will be no order as to costs. All IAs including the one for causing separation of ownership interests of the S.P. Group in Tata Sons namely IA No.111387 of 2020, G are dismissed.

Bibhuti Bhushan Bose Appeals disposed of.