• On the matter of Corruption at AirAsia: ‘We hereby dismiss this allegation against the answering respondents holding no case is made out against Mr Tata or Mr Venkat.’

For the allegations against AirAsia India and R. Venkatramanan, the judges snubbed Mistry. ‘I can say that the petitioners miserably failed to at least set up a case basing on this allegation, all are abominably baseless allegations thrown at a reputed person and not knowing what consequences follow when such scurrilous allegations are not supported by any material paper.’

• On the matter of meddling in company affairs at Tata Motors: ‘We have not found any merit either to say it is maintainable.’

• On the matter of Tata Steel: ‘These petitioners as well as Mr Cyrus have come out with unfounded allegations against Mr Tata so as to settle their score for Mr Cyrus who was removed as executive chairman of the company.’

For Tata Motors and Tata Steel, the court said it was not its place to ascertain whether a business investment was correct. The court could not be sure of how Ratan Tata had felt about shutting the Nano project, but Tata had never articulated that it should not be shut down.

Even though Mistry identified Corus as a ‘hotspot’, he had not challenged the actual acquisition. The order said perhaps Mistry could not challenge it because he was on the board of Tata Sons when the acquisition was made. Once again, without going into the financial merits of it, even if there was a problem with Corus, Mistry failed to highlight it to the Tata Sons board. The judges said, ‘We are of the view that we are not required to deal with as to whether Corus acquisition is a [good] business decision or not.’

On the matter of the Trusts seeking inside information and Ratan Tata’s investment in Jayem Auto: ‘We have not found any merit either to say it is maintainable or to say that there is material proving the actions of Mr Tata are prejudicial to the interest of either the company or the petitioners [Mistry’s investment firms].’

The judges also concurred with the argument that Ratan Tata and Noshir Soonawala, by virtue of their long association with the Tata Group, made material contribution to business notwithstanding their age. Mistry’s argument that they had acted as ‘shadow groups’ or were interfering was rejected. The judges pointed out that there were a number of instances when Group executives had reached out to Tata for support. ‘We have also found no merit in saying that Mr Tata and Mr Soonawala giving advices and suggestions amounted to interference in administering the affairs of the company.

The order turned the tables on the charge of insider trading and sharing of confidential information. It held that Mistry was responsible for leaking information. The order said that there was no need for Mistry to forward hoards of information to the tax department. The judge reprimanded Mistry on his move to send papers to the tax department regarding the charitable status of the Trusts.

This, along with the leaked letter to the board of directors was indicative of the untenable position Mistry was in. Mistry ‘leaked the company information to media and openly came out against the board and the Trusts, which hardly augurs well for smooth functioning of the company . . . The burden lies upon Mr Cyrus to prove that it was not leaked from his side, but no such efforts has been made’.

In a big win for Cyrus Mistry, the National Company Law Appellate Tribunal (NCLAT) on Wednesday restored him as executive chairman of Tata Sons and ruled that the appointment of N. Chandrasekaran as the head of the holding company of the salt-to-software conglomerate was illegal.

The NCLAT, however, stayed the operation of the order with respect to reinstatement for four weeks to allow Tatas to appeal.

In her book Tata vs Mistry - The Battle for India’s Greatest Business Empire, Deepali Gupta gives details of the NCLT (National Company Law Tribunal) July 2018 order which rejected Mistry’s claims completely. It was against that order that Mistry appealed in the NCLAT.

An excerpt from the book:

If Mistry’s retaliation to his firing and the support he garnered from independent directors of operating companies in November came as a surprise to Tata, the NCLT order left Cyrus Mistry and his team shocked. Mistry had hoped the court would be sympathetic towards his arguments on at least some counts. Instead, the final order, passed in July 2018, was disparaging and rejected Mistry’s claims completely.

The judges thought the suit was motivated by personal hurt. They opined that Tata was in the clear, while Mistry was wrong to pursue court action. The order, nearly 400 pages long, said that Mistry had laid too much emphasis on having a ‘free hand’ in managing affairs of the Tata Group. A ‘free hand’ as company’s management in itself was ‘incongruous with corporate governance’, said the order. The Indian Companies Act defines a pecking order in enterprises with the shareholders as the apex body, followed by the board of directors and to these is subservient the management. And the judges concluded that Mistry was management. He was not selected as chairman because of his shareholding in Tata Sons, but rather as a suitable candidate to run Tata Sons professionally. Mistry had not presented or produced any document that proved he was promised complete discretion to take decisions and actions at the Tata Group. So, for him to assume that he would have a ‘free hand’ was wrong. Mistry was an employee, and was answerable to his board and shareholders as any management would be. As such, his hiring and firing was in line with the change shareholders could effect within any company.

In order to protect the minority shareholder, the majority’s viewpoint could not be overlooked, the order argued. ‘Otherwise, it will become curtailment of the rights of the majority shareholders.

Besides neither Mistry nor other minority shareholders had been wronged by Tata Sons. Mistry’s oppression and mismanagement suit seemed pre-emptive. Documents he had presented did not show the majority shareholder, Tata Trusts, getting undue benefits to the detriment of any minority shareholders. The judges pointed out that Mistry was making a case for a potential infraction in the future.

***

The bench comprised Judge B.S.V. Prakash Kumar and Technical Judge V. Nallasenapathy. Their verdict was:

• On whether introducing the agenda to remove Mistry in the board meeting was legal: ‘Here, personal emotions or personal egos will not have any place to attribute it as grievance under Section 241. We have not found any merit to say that inclusion of agenda item for removal would become grievance under Section 241. Henceforth, this point is decided against the petitioners.’

• On barring the Trust-nominated directors from voting to remove Mistry: ‘We don’t find any merit in this argument saying that the Trust-nominated directors should have abstained themselves from the proposal moved by them. This issue has been decided against the petitioners and Mr Cyrus.

This pretty much set the tone for everything else the order ruled on.

• On the matter of changes in articles of association: ‘Argument of the petitioners in this respect is not only far-fetching and abstract but also misconceived. We have not found any merit in the argument that . . . the articles of association [are] per se oppressive against the petitioners.’

The order said that several of the articles of association Mistry was challenging, including Article 75 under which Mistry could be forced to sell his shares, had existed before the shares were bought by the Shapoorji Pallonji Group. Among those that were modified after Mistry’s induction, Mistry had most vociferously argued against the one that gave veto right to the Trust-nominated directors.

The judges noted that there had been no instance in which the directors had exercised this veto right to shoot down a proposal. In fact, the directors had found a meeting ground to allow business continuity in the case of the Welspun acquisition, where they could have used the right to reject plans. While Mistry had argued that Trust-nominated directors could prevail over the chairman and the rest of the board using veto rights, the judges found no concrete examples where this was done.

The court also rejected Mistry’s request to allow the SP Group to get board representation in proportion to its equity. The order said that if the court accorded the board seats in proportion of shareholding, it would achieve the same end as the articles of association, which gave the Trusts a veto. Tata Trusts would then have two-thirds representation on the board in relation to its shares and would always have majority say.

The SP Group with 18.4 per cent shares in Tata Sons have never historically had such special rights to nominate a director, the order further clarified its position.

***

‘For the reasons aforesaid, we hereby dismiss this company petition by closing applications if any remain pending. No costs.’

The case was closed.

The judges not only ended Mistry’s bid for corrective action against Tata Sons and Ratan Tata, but also allowed Tata Sons to convert its status from a ‘public limited’ company to ‘private’ for which shares cannot be traded or offered to the public. Mistry had sought to prevent this, saying that, should this happen, it would lock his equity in Tata Sons and by implication deny him the chance to monetize it, if he so desired.

The Tata Group had responded that the company had always been private. When a change in the prevailing law restricted the size of private companies, Tata Sons was forced to become public, but continued to operate like a private entity. Now the regulations have been rolled back and Tata Sons would like to revert to its earlier position. So, Mistry would now become the billionaire locked into his fortune and even more dependent on decisions of the Tata Sons board on what he can do with it.

A portion of the judgement also praised the work of the Tata Group and Tata Trusts. This opened the order up to challenge on the grounds of bias and Mistry was prompt to seize the opportunity. He challenged the decision in the appellate court. While accepting the appeal, the National Company Law Appellate Tribunal commented on the tone of the NCLT order, but made no observation on its logic or contents.

Juggernaut Books

Extracted from Tata vs Mistry - The Battle for India’s Greatest Business Empire by Deepali Gupta with permission from Juggernaut Books

Ratan Tata was the Chairman of Tata Sons, the holding company of the Tata group, from 1991 till his retirement in December 2012 Tatatrusts.org