Cyrus Mistry's Actions Hurt Tata Group Interests, Tata Sons Tells SC in Petition

Appealing the NCLAT's judgment, Tata Sons said that in restoring Cyrus Mistry, the order failed to consider the implications.

Mumbai: In its petition to the Supreme Court, Tata Sons, the holding company of the Tata group, has said the Mistry camp had at no point sought any prayer regarding the quashing of the appointment of present Tata group chairman, N. Chandrasekaran as the executive chairman of Tata Sons and yet, the NCLAT has declared Chandra’s appointment as illegal. This NCLAT order, Tata Sons appeal says, needs to be reversed and set aside.

In its petition filed in the SC today, Tata Sons said the NCLAT order needs to be set aside in view of the fact that former Tata Sons chairman Cyrus Mistry actions as a director of Tata Sons were causing grave threat to the integrity of the Tata Sons Board apart from causing prejudice to Tata Sons’s interests. The SC will hear the petition next week.

Tata Sons said several actions taken by Mistry after his removal from the Tata group hurt its interests.

“This was clearly borne out from the extensive oral and written arguments rendered on behalf of Tata Sons before the NCLAT, pointing out that a purportedly confidential email addressed by Cyrus Mistry to Tata Sons Board of Directors was leaked, and confidential board minutes was put in public domain at the instance of Cyrus Mistry and he had unilaterally and in a wholly unauthorized manner corresponded with the income tax authorities (holding himself out to be a Principal Officer of Tata Sons) and submitted documents of Tata Sons to the income tax authorities. It was in view of these reckless and irresponsible acts that certain shareholders of Tata Sons had moved a requisition for the removal of Cyrus Mistry as the Director of Tata Sons,” the petition said.

Tata Sons said soon after Mistry was removed as the chairman of Tata Sons in October 2016, an email written by Mistry to Tata Sons directors was leaked to the media.

“Without getting into the controversy as to who was responsible for leaking the email, the fact of the matter is that the email made several unfounded, false and personal allegations against Tata Sons directors. Allegations with respect to the business of Tata Sons, as also of the operating companies, were also made in the said email. This email found widespread media coverage and resultantly led to a lot of concern and enquiry by various stakeholders of Tata companies, apart from creating sudden and unexplained volatility in the share prices of the listed Tata companies,” the Tata petition said.

Stock exchanges and other regulators also sought details from Tata companies. “It was felt necessary to bring a quietus to the chaos created by Mistry’s email dated 25 October 2016. It is for this reason that Tata Sons was constrained to issue the press statement in order to quell the uncertainty and provide comfort and an assurance of stability to various stakeholders of Tata Sons and the Tata companies. Unfortunately, the NCLAT judgment construes the press statement in an entirely bizarre fashion, Tata Sons said. It relies on the press statement to show that the decision to replace Mistry had a ‘global effect’, without making it clear as to what this purported ‘global effect’ had to do with the legality of the decision to replace Mistry as the Executive Chairman,” the petition said.

The NCLAT completely misconstrues the Tata press statement to hold that the fact that the statement was issued itself showed that the replacement of Mistry was not directorial in nature, Tata said. “Even mildly put, this is an extraordinarily unsustainable conclusion. There is no connection between issuance of th press statement by Tata Sons on 10 October 2016 and the legal issue of whether the grievance surrounding replacement of Mistry as Executive Chairman is in the nature of a directorial complaint or not. There is neither any legal nor factual connection between these two different aspects of the matter. Equally bizarre is the conclusion reached in the last line of paragraph that “The company and its Board also understood that such removal may lead to a sense of uncertainty of ‘Tata Sons Limited’ and ‘group companies’ and resulting in winding up”. It is truly perplexing as to how the impugned judgment concludes that the press statement displayed that the appellant and its board understood that the replacement of the executive chairman would result in the winding up of Tata Sons, the Tata petition said.

Supreme Court. Photo: PTI

The NCLAT judgment, the Tata group said, has been passed without appreciating the well settled position that no reasons are required to be given either by the board members or the shareholders for exercising their right to vote in any board meeting or general meeting, as the case may be.”Hence, no reasons were required to be recorded for Mistry’s replacement or removal as Chairman or Director. At any rate, such reasons were not justiciable in the present proceedings,” the petition said.

“The clear illegality in the NCLAT judgment is amplified by the fact that it orders restoration of Mistry to the position of the Executive Chairman of the Tata sons for the “rest of the tenure”. This relief had been specifically given up by Mistry companies before NCLT and, as also the NCLAT. The re-instatement is therefore, suprising,” it said.

The Tata petition said a good review by the Nomination and Remuneration Committee (NRC) of Tata Sons overlooks the fact that the NRC is not representative of the view of the entire Board, as it only consists of three directors. “This is why the final decision of the NRC is subject to approval by the Board. The board only approved the change in the remuneration of Mistry in the ordinary course of business as per usual practice and did not make any comment on his performance as the Executive Chairman,” the petition said.

“It is submitted that whether or not a person is fit to hold the position of an Executive Chairman is a matter to be decided by the Board in its collective commercial wisdom. The NCLT or the NCLAT, as the case may be, cannot sit in judgment over the wisdom of the Board of Directors and decide the suitability and fitness of a particular person to act as the Chairman. In the present case, since the Board had overwhelmingly (7 out of 9 Directors) decided to replace Mistry as the Executive Chairman, it was wholly illegal and beyond the jurisdiction of the NCLAT to reverse this decision and to seek to foist upon an unwilling Board, its former replaced Chairman, which cannot even otherwise be done as his tenure is already over. In other words, even assuming for the sake of argument that there was any infirmity in the process adopted by the Board to replace Mistry even that did not warrant a direction of reinstatement of Cyrus Mistry as the Executive Chairman of Tata Sons,” the Tata group said.

The NCLAT judgment attributes the so-called loss in the Tata companies to the Trusts Nominated Directors (on the ground that they enjoy affirmative voting right) and casts blame on them for allowing the Tata Companies to function in a manner which caused loss. The order further holds that the impairment of confidence with reference to the conduct of Tata Sons was not attributable to probity qua Cyrus Mistry but to unfair abuse of powers on the part of others. The aforesaid findings and conclusions reached by NCLAT are plainly unsustainable and totally wrong.

“The Trusts Nominated Directors were never in charge of the affairs of the Tata Companies. The Executive Management of the Appellant vested with Cyrus Mistry, who was also the Chairman of the Tata Companies. There is no material or evidence on record to suggest that Cyrus Mistry wanted to cut the losses in the Tata companies and the same was thwarted by the Trusts Nominated Directors by using the affirmative vote or otherwise. On the contrary, one of the biggest reasons for dissatisfaction with the performance of Cyrus Mistry as the Executive Chairman was that he had failed to take appropriate action with respect to the legacy issues and bring back on track the concerned Tata Companies. In this view of the matter, the conclusion that it is the Trusts Nominated Directors which are to be blamed for the functioning of the Tata Companies while absolving Cyrus Mistry of his responsibilities, is palpably erroneous,” Tata Sons said.

The NCLAT order finds the replacement of Cyrus Mistry to have been effected “without following the normal procedure under Article 118”. However, it assigns no reason for this finding, the petition says. “It does not even notice the detailed arguments made orally, as also in writing, by Tata Sone before the NCLAT or even the reasons recorded in the Judgment of the NCLT stating that Article 118 only applied to the constitution of the Selection Committee for the purposes of appointment of a new Executive Chairman and such Selection Committee was not required to be constituted for the purpose of replacement of an Executive Chairman,” the petition said.

The Tata group said in granting the relief purporting to restore Cyrus Mistry to the position of the executive chairman of Tata Sons, the NCLAT judgment fails to consider the implications of issuing such directions which have no legal efficacy and yet which could be prejudicial to the interests of the concerned companies and their various stakeholders. The NCLAT failed to look at the issue of expiry of tenure – although it appears to have recognised that it lacked the jurisdiction to issue a direction extending tenures. “The Judgement also omits to consider the settled legal position that in case of tenure appointments, the appointment stands concluded upon completion of the respective tenure. In the present case, Cyrus Mistry’s tenure as Executive Chairman stood expired on 31.03.2017 and thus, the same cannot be restored.

Secondly, Tata Sons said the NCLAT failed to consider that any direction to restore a person to a post as sensitive as executive chairman should not be granted if it would lead to disharmony in the working of the company.

“Given the hostility of Cyrus Mistry towards the Appellant (as reflected in the actions taken by and at the behest of Cyrus Mistry against Tata Sons and its stakeholders), the reinstatement of Cyrus Mistry as the Executive Chairman of Tata Sons would not be in the interest of the companies. Further, before issuing such a direction that NCLAT should have taken into account the fact that Chandrasekaran took over as Executive Chairman almost three years ago and is now firmly in the saddle and has accelerated part of growth with significant improvement in financial parameters of Tata Sons. For instance, Respondent No. 14 has successfully initiated the process of stabilisation in the Tata Group, resolved stale issues of the past and has worked towards the fundamental strengthening of the Tata Group,” it says.

By arrangement with Business Standard.