NCLAT order sets dangerous legal precedent: Tata Sons moves Supreme Court against reinstatement of Cyrus Mistry as Chairman

Tata Sons has moved the Supreme Court against the order of the National Company Law Appellate Tribunal (NCLAT) which had paved the way for reinstating Cyrus Mistry as Executive Chairman of the company.

On December 18, the NCLAT had reinstated Mistry as Executive Chairman of the Tata Group, while allowing his appeal against the NCLT order passed in 2018. While doing so, NCLAT also set aside Tata Sons’ conversion from a public company to a private one.

Tata Sons has now approached the Apex Court assailing the NCLAT order on the grounds that the same sets a “dangerous legal precedent” and will be adverse to the interests of the company and its members.

It is alleged by the company that the NCLAT has set aside the order of the NCLT’s Mumbai Bench without discussing the findings and reasonings of the same. It is averred that the reliefs granted by the appellate tribunal raise serious questions of law.

Further, it is claimed that the NCLAT had granted reliefs that were not prayed for. The relief of restoring Cyrus Mistry as Executive Chairman for the “rest of the tenure” is untenable given the fact that his tenure extinguished in March 2017 itself. Declaring the appointment of the incumbent Executive Chairman as “illegal” is not a relief that was prayed for, the petition states. On the reinstatement of Mistry, the petition states,

“The consequence of the direction is to put back Mr. Cyrus Mistry as a Director of a slew of Companies and not merely Tata Sons. Any extension of the tenure available at the time of initial appointment would be ultra vires the jurisdiction of the Hon’ble NCLAT and would have to be set aside for that reason without more.”

Claiming that the decision to reinstate Mistry as Chairman could put the functioning of the company at serious risk, the petition states,

“In other words, far from putting an end to the alleged acts complained of, the Impugned Judgment has sown the seeds for a neverending discord and conflict between the shareholders of the Appellant, creating a recipe for an unmitigated disaster.”

The decision to remove Mistry as Executive Chairman was decided by the majority of the Board of Directors. Effectively, the October 2016 decision to remove Mistry from the position for loss of confidence was taken. He was removed in February 2017 after following the entire due process laid down under the Companies Act, 2013.

The petition points out that the judgment of the NCLAT therefore undermines corporate democracy and the rights of the Board members. In fact, the NCLAT has not given reasons for concluding that the removal and replacement was wrong and illegal, the petition adds.

The NCLAT’s conclusion that Tata Sons continued to be a public company and the decision of the Registrar of Companies (RoC) of recording the change of Tata Sons from a public to a private company was illegal, has also been assailed in the petition.

“[T]he Hon’ble NCLAT has travelled outside its jurisdiction by holding the Registrar of Companies’ act of revising Tata Sons’ certificate of incorporation as being “prejudicial” to Tata Sons- a concept unknown to the settled legal principles under Section 241 and 242 of the 2013 Act.”

It is further claimed that the NCLAT ruling is directly contrary to the Supreme Court’s 2015 decision in Darius Rutton Kavasmaneck v. Gharda Chemicals Limited, which settled the issue.

On these grounds, among others, Tata Sons has prayed that the NCLAT order be set aside.

The petition has been drawn and filed by Karanjawala & Co.

Mistry’s petition challenging his sacking from Tata Sons was dismissed by the Mumbai Bench of the NCLT on July 9, 2018. He had filed a suit against Tata Sons, Ratan Tata, and several others under Sections 241and 244 of the Companies Act, 2013 alleging oppression and mismanagement in Tata Sons. Mistry had alleged several irregularities in dealings with Tata Teleservices and violation of Insider Trading Rules in the Tata Group companies by Ratan Tata and other trustees of the Tata Trust.

Mistry also claimed the existence of fraudulent transactions to the tune of Rs. 22 crores entered into by Air Asia India with non-existent parties in India and Singapore.His removal was also argued to be in violation of the Articles of Associations of the Company.

He subsequently approached the NCLAT in appeal against the NCLT order.