NEW DELHI : The Supreme Court on Friday stayed a National Company Law Appellate Tribunal (NCLAT) order that reinstated Cyrus Mistry as executive chairman of Tata Sons.
"Our first impression is not good about the order of the tribunal. The tribunal granted the prayer which was not prayed". The bench headed by Chief Justice SA Bobde said.
A bench of Chief Justice S A Bobde and Justices B R Gavai and Surya Kant said the National Company Law Appellate Tribunal (NCLAT) decision suffers from "basic errors and we have to hear the matter in detail".
The bench issued notices to Cyrus Investment Pvt Ltd, Mistry and others and posted the matter after four weeks. The apex court also ordered that the Tatas will not exercise power under Article 75 of the Company Law for pushing out shares of minority holders in the company.
Article 75 of the Tata Sons articles of association says: “The company may at any time by Special resolution resolve that any holder of ordinary shares do transfer his ordinary shares. Such member would thereupon be deemed to have served the company with a sale notice in respect of his ordinary shares."
Harish Salve counsel appearing on behalf of Tata Sons said that would not use the controversial article 75 of the Articles of Association (AoA). The article gave Tata Sons power to force Mistry to sell their stake.
"The NCLAT order was against the principles of corporate democracy and corporate rules that governed private and public companies. The Supreme Court observation that there was an error in judgement as it gave reliefs not asked for in the original petition shows the order may could not withstand the scrutiny of apex court in its entirety," said Mohit Saraf, Senior Partner, L&L Partners( formerly Luthra & Luthra, Law Offices).
"SC observed that their first impression about the NCLAT Order was not good as it was untenable in law and inconsistent with companies Act. Unless there are proper facts and figures which shows serious mismanagement and oppression at Tata Sons, mere conversion of public company to a private company in accordance with law may not classify as an oppressive act and therefore may not withstand SC scrutiny," he added.
"Even though Cyrus Mistry has issued a statement against pursuing the Chairmanship as granted in the NCLAT order, the Tata Sons were fearing whether they would be in contempt if they did not move to implement the order after the 4 weeks grace period," said a lawyer part of Tata Sons legal team.
The interim stay to Tata Sons against the NCLAT order comes as a big relief for its largest group company Tata Consultancy Services (TCS).
Tata Sons had challenged the December 18 decision of the NCLAT that restored Mistry as the executive chairman of Tata Sons Private Ltd and termed the appointment of his successor N. Chandrasekaran illegal. The order had put at risk the holding company’s efforts to cut costs, sell assets and boost growth across Tata group companies. Tata Sons had said the NCLAT ruling “has created confusion in the working of important corporate entities, some of which are listed companies".
The conglomerate said the order restoring Mistry’s directorship in three group companies was inconsistent with corporate democracy because his removal was through shareholder approval.
Mistry was removed as chairman of Tata Sons in a surprise move on 24 October 2016. He was later ousted as a director from the holding company’s board, and then removed from several operating companies in the group.
Jayshree Pyasi from Mumbai contributed to this story.
Former Tata Sons chairman Cyrus Mistry. (HT)
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