Tata Sons vs Cyrus Mistry: NCLAT seeks explanation from RoC for allowing Tata Sons to convert into private company

New Delhi: Tata Sons Private Limited (TSPL) moved the Supreme Court on Thursday, challenging the December 18 decision of the NCLAT restoring Cyrus Mistry as the executive chairman of the group and saying the verdict had "undermined corporate democracy" and the "rights" of its board of directors. NCALT on Thursday asked the Registrar of Companies (RoC) to explain the rationale behind allowing Tata Sons to convert into a private company.

TSPL, formerly known as Tata Sons Limited, has sought "setting aside of the impugned judgment in toto" of the National Company Law Appellate Tribunal (NCLAT), alleging that it was "completely inconsistent with the annals of corporate law" and reflected "non-appreciation of facts", which was "untenable in law".

NCALT on Thursday asked the Registrar of Companies (RoC) to explain the rationale behind allowing Tata Sons to convert into a private company.

A two-member bench headed by NCLAT Chairman Justice S.J. Mukhopadhaya also sought an explanation on the due process for allowing the conversion from public to a private company.

The NCLAT, in a big relief to Mistry and Cyrus Investment Pvt Ltd, had restored the former as the executive chairman of TSPL and ruled that the appointment of N Chandrasekaran as the head of the holding company of the over-USD-110 billion salt-to-software conglomerate was illegal.

It had held that the group's chairman emeritus Ratan Tata's actions against Mistry were oppressive and the appointment of a new chairman was illegal.

It, however, had stayed the operation of its order with respect to Mistry's reinstatement for four weeks to allow TSPL to file an appeal in the top court.

In its appeal, filed through Karanjawala & Co., TSPL has also sought a stay of the NCLAT's verdict as an interim relief.

"In other words, far from putting an end to the alleged acts complained of, the judgment (of the NCLAT) has sown the seeds for a never-ending discord and conflict between the shareholders of the appellant (TSPL), creating a recipe for an unmitigated disaster," it said.

"The impugned judgment allows company appeals and grants the respondent...various reliefs in a manner that is completely inconsistent with the annals of corporate law, reflects non-appreciation of facts and is untenable in law.

"In setting aside the NCLT's aforesaid judgment without even discussing its findings and reasoning, the impugned judgment has granted reliefs..., which set a dangerous legal precedent, is detrimental to the interests of the appellant (TSPL) and its members...," it said.

The plea, which is likely to be mentioned for an urgent hearing in the top court on its re-opening on January 6, raised questions of law and said the order restoring Mistry to his "original position" as the executive chairman of TSPL for the "rest of the tenure" was illegal as his tenure "stood extinguished in March, 2017".

The plea termed as "illegal" the NCLAT's declaration that Chandrasekaran's appointment as the chairman of TSPL was wrong and claimed that he was appointed "in accordance with the articles and duly approved by the board and shareholders".

It alleged that the NCLT granted reliefs to Mistry which were not even sought.

"Respondent nos 1 (Cyrus Investment Pvt Ltd) and 2 specifically pleaded before the NCLAT that they are not seeking reinstatement of Mistry. The tenure of Mistry as the chairman and director of Tata Sons expired in March 2017 and thus, for good reason, the respondents did not seek such reinstatement," the plea said.

The direction allowing Mistry to continue as a functionary "beyond the term would be contrary to the articles and the established principles of company law" and the NCLAT lacked "jurisdiction to grant any such relief", it added.

"Mistry was replaced as the chairman of Tata Sons on October 24, 2016 by the majority of its board of directors (all directors voted in favour of the replacement, except one who abstained from voting and the remaining one was Mistry himself) for loss of confidence and the impugned judgment, by restoring Mistry to the position as chairman, has undermined corporate democracy and rights of the board of directors," the plea said.

It said Mistry was removed following the procedure applicable to corporate appointments, as envisaged in law.

"Instead of bringing to bear an approach that would be consistent with corporate democracy and the right of the shareholders to exercise their votes in the manner they consider appropriate, the NCLAT took upon itself to go into various issues alien to such consideration," it said.

The plea alleged that it was nobody's case that Mistry's removal had resulted in any serious prejudice being caused to the working of Tata Sons and it "violated law or any contract".

"The NCLAT has imported principles from the realm of public law and eschewed relevant principles that apply to corporate democracy, which are based upon the right of the shareholder to cast a vote. No reasons were given by the NCLAT on how the process of replacement and removal was wrong and illegal," the plea alleged.

The NCLAT had also quashed the conversion of Tata Sons into a private company from a public firm.

It had also directed Tata Sons not to take any action against Mistry, whose family owned some 18 per cent interest in the company.

The remaining 81 per cent is held by Tata Trusts and Tata Group companies, along with Tata family members.

Mistry, the scion of the wealthy Shapoorji Pallonji family, had in December 2012 succeeded Ratan Tata as the executive chairman of Tata Sons, a post that also made him the head of all Tata group-listed firms such as Tata Power and Tata Motors.

In an overnight coup, he was removed as the chairman of Tata Sons in October 2016. Along with him, the entire senior management too was purged and Ratan Tata was back at the helm of affairs, four years after he took retirement.

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