DSK Legal Knowledge Center
August 27, 2018
After a long drawn public battle between the Tatas and Cyrus Mistry, the
unceremoniously dismissed chairman of Tata Sons, the National Company Law
Tribunal (NCLT), Mumbai bench, finally passed its order on July 12, 2018, putting an
end to this battle.
While the decision has been appealed by Cyrus Mistry, the order discusses several
concepts pertinent to Section 241 and 242 of the Companies Act, 2013, dealing with
oppression and mismanagement.
Some of the issues that the tribunal was asked to adjudicate upon, on behalf of the
petitioners, were as follows:
1. The articles of association (AoA)
The main grievance of the petitioners was that the directors of Tata Trusts
(which holds 40% of Tata Sons) had become “handmaiden” of Mr. Tata. The
articles of association (AoA) of Tata Sons had become a device for
superintendence and control of the company by the Tata Trusts. It was alleged
that the AoA had been worded in such a manner that all decisions needed the
Tata Sons vs. Cyrus Mistry – Oppression and mismanagement?
affirmative vote of the Trust’s nominee directors in Tata Sons. This meant that
Mr. Tata could control the Trust’s nominee directors and get everything done in
Tata Sons as per Mr. Tata’s wishes. The petitioners argued that, therefore the
Trust’s nominee directors acted not for the benefit of the company, but for the
benefit of the shareholder they represented.
2. The overpriced takeover of Corus
It was argued by the petitioners that 31.35% of Corus Group PLC was purchased
by Tata Sons at a substantial premium, and more than 33% of the original offer
price. This resulted in the share price of Tata Steel crashing on the Indian
exchanges. It was argued that the transaction was not in the interest of Tata
group and that Mr. Tata had abused the power vested in him as chairman of Tata
Sons.
3. The Nano car project
The Nano car project resulted in substantial losses to Tata Sons, and because of
it, the once profitable Tata Motors slipped into losses hitting the dividend payout
 that came to the petitioners every year. It was alleged that because Mr. Tata was
emotional about the project, the decision to shut it down had not been taken.
4. The DoCoMo Arbitration and his close relationship with Siva
7.
When the High Court of Delhi directed Tata Teleservices to pay DoCoMo INR
8,450 crores, Siva (a known associate of Mr. Tata), who also held shares in Tata
Teleservices (the entity that was ordered to pay was unwilling to contribute his
proportionate share of the amount.
The petitioners alleged that INR 600 crores was paid to Siva’s companies by
Tata Teleservices and its subsidiaries under various contracts purportedly for
procuring services and vendor management for Tata Teleservices and its
subsidiaries.
5. Aviation industry misadventures
8.
The partnership with Air Asia and Telstra Trade place Private Limited was put in
place with expenditure far in excess of what had been budgeted by Tata Sons
and therefore these ventures were not in the interest of Tata Sons and its
shareholders.
6. Removal of Cyrus Mistry as the chairman
Lastly, it was alleged that Mr. Mistry was removed without notice, and no
selection committee was constituted for recommending his removal. Removal of
chairman was not even in the agenda item for the board meeting. Removing
the executive chairman without asking for any explanation from him was seen
as an act of oppression and mismanagement.
All of the above issues were decided against the petitioners, and the reasons
provided by the NCLT in most of these issues was similar:
Business decisions of the board: All business decisions were taken at meetings
of the board, and it was the board that decided whether or not to go ahead
with them. This included entering the aviation industry, setting up the Nano
project, buying the Corus shares etc. At such board meetings, Mr. Mistry was
also present and did not raise any objection, nor were there any subsequent
objections from him. If he didn’t have any objections previously, how could
they become a matter of “oppression and mismanagement” only because he
had been removed as chairman?
A commercial misjudgment cannot become a ground to raise a plea of unfair
prejudice.
Decisions taken years ago: Some of the decisions that were being discussed
as having caused oppression and mismanagement had been taken years
before the removal of Mr. Mistry, in fact even the appointment of Mr. Mistry
as chairman.
The AoA of Tata Sons had also been existence in the same form, years before
Mr. Mistry became the chairman. How then could these provisions suddenly
become prejudicial, simply because he was removed? The relevant AoA had
been in place since 1975 and continued on when the petitioners acquired
shareholding in Tata Sons. They therefore became shareholders knowing fully
well about their contents.
9. No Evidence: The NCLT reiterated that “whenever there is an allegation In conclusion, the NCLT stated that it “should always remain very cautious in passing
alleging that someone’s act causes loss to the members of a company, the an order under Section 241, because it is basic principle, that whoever invested more
acts have to be shown as being unfair, prejudicial and solely aimed at the will have his say over the affairs of the company that is run on his money. Minority
members complaining. Allegations made were supported with no sailing with majority is bound by the rule of majority. Otherwise, it will curtail the right
documentary evidence whatsoever. The petitioners mostly relied on of the majority shareholders. At the most, if oppression or prejudice or
statements of third persons rather than facts. mismanagement is proved, then what right he gets is to extricate himself from the
company through exit route on fair valuation of his shares, but he will not get any
In terms of Mr. Siva’s relationship with Mr. Tata, the NCLT stated that right to impose his rule upon the shareholder who have majority in the company.
relationships of closeness by itself did not mean anything. Transactions must Even then, the person has to prove the elements mentioned in Section 241 and
be judged on whether they are at arm’s length and whether there is fraud. 242(1) of the Companies Act.”

10. Shareholders and their rights supreme: The NCLT stated that no director has Authored by Shoubhik Dasgupta
vested right to stay in office and every director is amenable to removal
under Section 169 of the Companies Act. The only director that cannot be
removed is a director appointed by the NCLT. The holders of majority of the
stock of a corporation have the power to appoint, by election, directors of
their choice and the power to regulate them by a resolution for their
removal.

The AoA did not provide for proportional representation to the shareholders
on the board, no special rights to the petitioners to have their man on the
board.

11. Forum: The NCLT went on to say that if Mr. Mistry felt his removal as
executive chairman is in violation of any of the articles or provisions of the
Companies Act, the only recourse available to him would be to proceed
against Tata Sons before Court of Civil Law to declare such action as invalid
in the eye of law. His removal could not become a ground to construe it as a
grievance of minority shareholders failing within the ambit of Section 241.
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