#TataMistry: NCLAT dismisses Mistry’s appeal, case bounces back to NCLT

After allowing an elaborate hearing to both sides, Justice Mukhopadhaya, Chairperson of the National Company Law Appellate Tribunal (NCLAT) dismissed the appeal filed by Cyrus Mistry..Mistry had filed an appeal against all three orders passed so far, by the National Company Law Tribunal (NCLT) in the case of Cyrus Investments Pvt. Ltd. & Anr. vs. Tata Sons Ltd. & Ors..First order.In the case of oppression and mismanagement filed by Mistry’s investment entities against Tata Sons, the first order was passed on December 22, 2016, in the nature of a ‘consent order’ prohibiting either sides from ‘filing any interim application or initiating any action or proceedings’ till the completion of the final hearings..Second order.The second order delivered on January 18, 2017, was a result of the contempt petition filed by Mistry alleging violation of the above-mentioned consent order. This petition was filed immediately after the issuance of a notice, for convening an extraordinary general meeting (EGM) for removal of Mistry as a director from the board of Tata sons..This contempt petition was dismissed, while giving Mistry the liberty to file an affidavit limiting it to the EGM issue, which was to be heard along with the main petition on January 31..Third order.The third order was passed on January 31, 2017. An order adjourning the matter was passed as a result of refusal by Aryama Sundaram to argue the case on merits, demanding an order on the preliminary issue of maintainability/waiver. According to Sundaram’s interpretation of the proviso to Section 244(1) of the Companies Act, 2013 required a decision on maintainability before proceeding to merits..The matter was adjourned to February 13, following which an appeal was filed by Mistry at the NCLAT against all the three orders..NCLAT Appeal.When the matter first came up for hearing before the NCLAT, it was suggested by the Chairperson to review the possibility of a ‘settlement’ between both parties, before moving on to the arguments. After fifteen minutes of discussion between the lawyers on both sides, they appeared before the court with their terms..It was Sundaram’s offer that Mistry would not attend any board meetings till the matter is disposed of fully while continuing to be director, whereas Abhishek Manu Singhvi offered the relief granted to Nusli Wadia (ousted independent director of Tata Sons) by the Bombay High Court, which was, keeping his seat vacant till a final order was passed in the matter..Neither sides agreed and lengthy arguments followed..The appeal sought relief on two broad issues i.e. restraining Tata Sons from removing Mistry as director and, to decide the preliminary issue of maintainability..On the appealability of a ‘consent order’, Sundaram argued that although the December 22 order was recorded as a consent order, it was interpreted as substantive order by the NCLT to mean something which was in fact never consented to by them..On the point of restraining Tata Sons from removing Mistry as director, Sundaram argued that the NCLT Bench had failed to apply its mind in appreciating the merits of the contempt petition, which was dismissed owing to the narrow and strict (contempt) jurisdiction. In Sundaram’s words, ‘it was a decision without a discussion’ – keeping in mind the opportunity given to Mistry to file an affidavit in the said order..Since the interim relief was not ‘denied’ by the NCLT Bench, it was Sundaram’s contention that the question of interim relief was still open and needed urgent attention due to the subsequent action taken by Tata to oust Mistry as a director on the board after passing of the consent order..Moving on to the preliminary issue of maintainability, Sundaram interpreted the proviso to Section 244(1), to mean that an application under oppression/ mismanagement could move onto merits only once the maintainability/ waiver had been dealt with..The Chairperson, however, pointed out to the incorrectness of that interpretation because many cases involve a mixed question of fact which won’t allow such an interpretation to hold true..Singhvi argued that the December 22 order only prohibited initiation of litigation and, that Mistry tried to extract from the contempt petition, what he could not from the consent order. He also argued that there was no oppression in the petitioner’s capacity as a ‘shareholder’ which is what the said Section mandates..As far as the question of convening of EGM is concerned – although in a different context – Singhvi relied on the Supreme Court judgement delivered by a Constitution Bench, given in the case of LIC vs. Escorts Ltd. & Ors. which expressly upheld the right of a shareholder to call an EGM of the company for the purpose of moving a resolution to remove some Directors and appoint others in their place..It was also argued that the articles of association did not enable petitioner companies to nominate a shareholder on board – an issue which has been raised only after Mistry’s ouster as a Chairman and never before..Appeal dismissed.NCLAT chairperson S. J. Mukhopadhaya, throughout the proceedings, was evidently not convinced with the merits of the appeal. He said that there would be no interim relief. Before dismissing the application, he denied commenting on the question of maintainability since that was the NCLT’s prerogative..A detailed order with reasoning is expected to come out on 7 February and the matter will be heard at the NCLT as scheduled.