Business

Why NCLAT Believes Cyrus Mistry Should be Reinstated as Chairman of Tata Sons

While it's unclear if Mistry actually wants to stake a claim to the chairmanship now, the NCLAT has rejected the rationale and manner in which the Tata Group fired him.

New Delhi: Cyrus Mistry’s legal battle against the Tata Group received a major boost on Wednesday after the National Company Law Appellate Tribunal (NCLAT) ruled that his unceremonious sacking as chairman in 2016 was illegal.

The NCLAT order also paves the way for his eventual return both as chairman of the board, although it has currently stayed that specific portion of its verdict in order to give time to the Tata Group to file an appeal in the Supreme Court.

Even if the apex court chooses to agree with the NCLAT’s reasoning , it’s unclear right now whether Mistry actually wants to return to Bombay House as Tata Sons Chairman after his bitter exit. Such a return would not only prove disruptive for the business but also reopen old wounds.

His statement, issued on Wednesday evening, curiously makes no mention of this, merely calling the order a victory for the “rights of minority shareholders”. It also adds that now is the appropriate time for all stakeholders to work together for the “sustainable growth and development” of the Tata Group. 

But even if he chooses to not stake a claim to the chairmanship of Tata Sons, the tribunal has left him with much ammunition, including reinstating him as a board director for several group companies. 

Also read: Cyrus Mistry’s Removal as Chairman of Tata Sons was Illegal, says NCLAT

This aside, why did the NCLAT rule completely in Mistry’s favour, including giving forms of relief, as the Tata Group’s statement points out, that he didn’t even ask for?

The appellate tribunal’s logic is as follows, with key excerpts of the order interspersed in between:

1) The Tata Trusts or Tata Sons board did not indicate to Cyrus Mistry that it was unhappy about his performance before the run-up to the fateful board meeting that sacked him.

NCLAT: “There is nothing on the record to suggest that the Board of Directors or any of the trusts, namely— Sir Dorabji Tata Trust or the Sir Ratan Tata Trust at any time expressed displeasure about the performance of Mr. Cyrus Pallonji Mistry… The proceedings of the Board of Directors dated 24th October, 2016 also show that ‘Tata Trusts’ asked its nominee Directors to bring a Company Appeal (AT) Nos. 254 & 268 of 2018 motion to request Mr. Cyrus Pallonji Mistry to step down from the post of the Executive Chairman on the ground that ‘Tata Trusts’ had lost confidence. 

Reasons have not been discussed or recorded in the proceeding of the meeting held in the afternoon of 24th October, 2016 between 2.00 p.m. to 3.00 p.m. for removal of Mr. Cyrus Pallonji Mistry.” [Emphasis added by The Wire.]

2) A press release issued by the Tata Group in November 2016  — which made allegations against Mistry and detailed reasons for his removal — appear to have been an “afterthought”.

NCLAT: If we accept the stand taken by the Contesting Respondents that the removal of Mr. Cyrus Pallonji Mistry is directorial in nature, in the interest of Company, in such case, there was no occasion to issue a ‘Press Statement’ where it is noticed that many across the globe have raised concern in the manner Mr. Cyrus Pallonji was removed. The Company and its Board also understood that such removal may lead to a sense of uncertainty of ‘Tata Sons Ltd.’ and ‘Group Companies’ and result in winding up.

The allegations as made in the ‘Press Statement’ dated 10th November, 2016 appears to be an afterthought as the aforesaid matter was not discussed in any of the meeting of the Board of Directors. No records have been placed by the Respondents with regard to the aforesaid loss nor any discussion took place in the Board Meeting of the ‘Tata Sons’ and Mr. Cyrus Pallonji Mistry to suggest that it was of serious concern. The allegations in the ‘Press Statement’ as not supported by record cannot be accepted. [Emphasis added by The Wire.]

3) Even if Cyrus Mistry’s tenure saw a decline in the performance of many Tata Group companies, not all of the blame can be laid at his door. Some of it should be accepted by the Tata Trusts, which has an “affirmative vote” when it comes to board decisions.

NCLAT: If there was a failure and loss caused to one or other Tata Company which also affected the ‘Tata Sons Limited’, the ‘Tata Trusts… the Board of Directors could not be absolved of its responsibility, particularly when the nominee Directors of the Tata Trusts who have affirmative vote to reverse the majority decision.

Record show that the ‘Tata Trusts’ were required to be informed of all the matters, in advance, on the ground that it can take advance decision to counter any action which may jeopardise their dividend flow.

4) Other material on record, particularly the thumbs-up given to Mistry by the NRC committee, effectively shows that he was not removed due to his performance.

NCLAT: The record suggests that the removal of Mr. Cyrus Pallonji Mistry had nothing to do with any lack of performance. On the other hand, the material on record shows that the Company under the leadership of Mr. Cyrus Pallonji Mistry (11th Respondent) performed well which was appraised by the ‘Nomination and Remuneration Committee’ a Statutory Committee under Section 178, on 28th June, 2016 i.e. just few months before he was removed.

5) Three of the directors who voted for Mistry’s removal joined the board only after the NRC committee gave him a good appraisal. And two directors who voted for his removal have not explained why they gave him a good performance review just four months before deciding to give him the boot.

NCLAT: It is relevant to note that three Directors who also voted for removal of Mr. Cyrus Pallonji Mistry , including Mr. Amit Chandra, who spearheaded the removal proceedings and Mr. Ajay Piramal (5th Respondent) and Mr. Venu Srinivasan (6th Respondent), had been inducted into the Board of ‘Tata Sons Ltd.’ only on 8th August, 2016 i.e. after the appraisal report of ‘Nomination and Remuneration Committee’

They attended just one Board meeting prior to the meeting held on 24th October, 2016. Two of the Directors, Mr. Ranendra Sen (8th Respondent) and Mr. Vijay Singh (9th Respondent), a Trust Nominee Director, who voted for the removal of Mr. Cyrus Pallonji Mistry (11th Respondent), were members of the ‘Nomination and Remuneration Committee’ which just four months’ prior to his removal on 28th June, 2016 praised the performance of Mr. Cyrus Pallonji Mistry (11th Respondent) as Executive Chairman. 

These two Directors also voted against Mr. Cyrus Pallonji Mistry just four months thereafter which has not been explained by Mr. Ranendra Sen (Respondents No. 8) and Mr. Vijay Singh (Respondent No. 9). Further, what is accepted is that prior to the meeting held on 24th October, 2016 between 2.00 p.m. to 3.00 p.m., in the forenoon, the ‘Tata Trusts’ in a separate meeting decided to remove Mr. Cyrus Pallonji Mistry (11th Respondent). 

Even before decision of ‘Tata Trusts’, Mr. Ratan N. Tata (2nd Respondent) in presence of Mr. Nitin Nohria (7th Respondent) called Mr. Cyrus Pallonji Mistry (11th Respondent) and asked him to resign

All of this, the NCLAT has declared, culminated into actions that were ‘prejudicial’ and ‘oppressive’ to members of the company and minority shareholders.

“We further hold that the company’s affairs have been or are being conducted in a manner ‘prejudicial’ and ‘oppressive’ to members including Appellants, Mr. Cyrus Pallonji Mistry as also ‘prejudicial’ to the interests of the company and its group companies i.e. ‘Tata Companies’…,” the order noted.