Tata Sons on Tuesday told the Supreme Court that the Pallonji group’s shareholding in the company was not more than Rs 80,000 crore, contrary to group head Cyrus Mistry’s claim that its value was over Rs 1.75 lakh crore.

“As per our calculations, the Pallonji Group shareholding in Tata Sons is worth not more than Rs 70,000 crore to Rs 80,000 crore. Pallonji Group claims value of over Rs 1.75 lakh crore of its 18 per cent shareholding in Tata Sons,” senior advocate Harish Salve told a bench headed by Chief Justice S.A. Bobde during the day-long inconclusive arguments.

He made the submission while asserting that the NCLAT had no power to direct Mistry’s reinstatement as the executive chairman of the company.

It is not clear as to how Salve cited the nearly Rs 1 lakh crore difference in valuation between that made by the Mistry camp and the Tatas.

However, it is learnt this has came from an internal estimate done by the Tata group. This, however, could not be confirmed as a spokesperson of the Tatas declined to make any comments.

Back in 2016, chartered accountant Y. H. Malegam had valued the Mistry stake in Tata Sons at Rs 58,000 crore.

The bench also comprising Justices A.S.Bopanna and V.Ramasubramanian was dealing with an appeal filed by Tata Sons challenging the National Company Law Appellate Tribunal’s (NCLAT) order of December 18, 2019 directing the reinstatement of Cyrus Mistry as the executive chairman of the company.

Salve said the event which triggered the present proceedings was primarily on October 24, 2016 when Cyrus Mistry was removed as the executive chairman, months before his term was to end in March 2017. “Original appointment of Cyrus Mistry as the executive chairman was to end in March 2017. It was not a lifetime appointment.”

The bench asked whether the tribunal can explore possibilities of running the company even if it concludes that there is oppression and mismanagement, under Section 242.

Salve said that in such cases the test would be whether there is lack of probity in running of company.

“Sale of Rs 1 lakh car takes downturn, or issues faced by company due to problems in distribution of spectrum by government cannot be reasons for winding up on lack of probity,” he said.

The arguments would continue tomorrow. Senior advocates C.A.Sundram, Shyam Divan and Janak Dwarkdas would be arguing for Cyrus Mistry and the Pallonji group after Salve’s submission.

The development has however, led to apprehensions that the two sides could see fresh differences crop up over valuation of the 18.37 per cent stake held by the Mistry family in Tata Sons. They had earlier ascribed a value of Rs 1.78 trillion for their shareholding

With 18 percent, in normal corporate democracy, Mistry would not even be able to get one director on the board and the 68 percent shareholder will be able to pack the board, Salve argued.

“The 18 percent (shareholder) will be entitled to get dividends. As long as TATA sons is distributing huge amounts as dividends, where is the question of winding up. That is the long and short of this matter,” he said.

The bench also comprising Justices A.S.Bopanna and V.Ramasubramanian was dealing with an appeal filed by Tata Sons challenging the National Company Law Appellate Tribunal’s (NCLAT) order of December 18, 2019 directing the reinstatement of Cyrus Mistry as the executive chairman of the company.

The controversy relates to Mistry’s removal on October 24, 2016 as Executive Chairman by the Tata Sons.

In response to Justice Bobde’ query as to whether the post of the Executive Chairman is created by the company’s board, Salve said “It is a designation. Many times companies don't have executive chairperson and senior-most director presides over board. It is not a post but only a designation.”

He explained that Tata Sons was a company created in 1917. It was never a public company. Tata Sons always had a provision in its articles which restricts the transfer of its shares and provisions relating to stringent control on shareholding.

According to Salve it also has an unusual article which empowers the Board to compel shareholder to sell his/ her share. “These articles have been in play all along even when Companies Act was amended and section 43A inserted,” the senior counsel said.

He assailed the NCLAT for arriving at the finding that Tata Sons remained a public company despite Registrar of Companies approving the change in certificate of incorporation of Tata Sons from public to private.

Salve submitted that the major shareholder of Tata Sons is Tata Trusts which holds 68 percent stake. The trustees controlled Tata Sons and nominated people to Board of Tata Sons. It was a matter of prestige to be nominated to the Board of Tata Sons, he said.

Tata Sons in turn control a slew of listed companies including Tata Steel, Tata chemicals, Tata Motors, Indian Hotels and prestigious companies in Europe like Jaguar Land rover and Corus group, Salve said and remarked “It is a matter of pride that Jaguar cars are manufactured by Tata owned company,” Salve said.

He said Pallonji Mistry, Cyrus Mistry's father was included in Tata Sons as non-executive Director in 1980. Cyrus Mistry joined Tata Sons in 2006. Between 1965 and 1980 none from Pallonji group was on the Board of Tata Sons. He said appointment of Cyrus Mistry as Executive Chairman was only until March 2017 “It was not a lifetime appointment.”

“If instead of October 2016 we had reached March 2017 and he was not reappointed, then there would be no right on the part of minority shareholders to claim he shod be reappointed,” Salve said.

He submitted that Cyrus Mistry and Pallonji group had never raised issues about appointment of N Chandrasekaran who had replaced Mistry, yet the NCLAT went ahead and struck that down.

He said Ratan Tata wanted to do it in a quiet manner. So he had met Mistry and told him that Board had lost confidence in him and he should consider stepping down. But he did not and then there was leaking of letter. Eventually he was removed from Board.

According to the counsel The Articles of Association of Tata Sons was amended in 2000 which gave affirmative voting rights on “Trust nominated directors.” These amendments were voted in affirmation by Pallonji Mistry, father of Cyrus Mistry, he said.

These amendments created a structure such that resolutions etc had to be run past the trust before placing before the board. Otherwise, the nominated directors might say they will have to take instructions from nominator.

“There is nothing wrong in it. But it is for this that they (Pallonji group) have called them stooges etc…The NCLAT has also picked out these articles to say they interfere in operation of minority,” Tata’s counsel said.

He submitted that Mistry was not appointed as Executive Chairman not under any right of minority shareholder. Even otherwise, only Mistry personally can have grievance (due to removal) and not minority shareholders.

“What NCLAT has done now is vest the control of the company with minority. Minority with 18 percent holding has been effectively given power to rule over all the Tata Companies,” Salve said.

He submitted that under Section 241 of the Companies Act, the NCLAT can be moved only when the affairs of the company is conducted in a manner prejudicial to public interest or in a manner oppressive to any member of the company.

To a query from the CJI, Salve remarked: “Yes, it might at the most be a bad decision but not mismanagement. There has never been a single allegation of mismanagement of TATA Sons…

“The company has been run amazingly. During the tenure of Mr. Ratan Tata between 1991 and 2012, the market cap of Tata went up 500 times. When there is a growth story of 500 percent, there will be some winner projects and some losers,” he said.

Tata Sons said there was not a single resolution brought by Mistry, when he was Executive Chairman, which was defeated by the board. For 20 years, veto was in place but never exercised. That was how this company was run, he said.

The bench asked whether the tribunal can explore possibilities of running the company even if it concludes that there is oppression and mismanagement, under Section 242.

Salve said that in such cases the test would be whether there is lack of probity in running of company.

“Sale of Rs 1 lakh car takes downturn, or issues faced by company due to problems in distribution of spectrum by government cannot be reasons for winding up on lack of probity,” he said.

Being outvoted in board meeting or personal lives of directors cannot be reasons to invoke just and equitable ground for winding up, Salve submitted.

“The judge has to see whether oppression is of such degree and accompanied by lack of probity to such an extent that the judge has to either wind up the company or pass such orders to remedy the situation. Is that your submission?” Justice Bobde asked to which Salve answered in the affirmative.

“Can there be a finding of oppression and mismanagement on the basis of articles of association of the company or should there be acts of oppression by the management?” the CJI asked prompting Salve to say “it should come out of the acts of management.”

The arguments would continue tomorrow. Senior advocates C.A.Sundram, Shyam Divan and Janak Dwarkdas would be arguing for the Cyrus Mistry and Pallonji group after Salve’s submission.