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Commentary: Mistry allegations may not affect Tata management, but will help to reach a settlement
December 29, 2016 / 10:53 AM / a year ago

Commentary: Mistry allegations may not affect Tata management, but will help to reach a settlement

As an outsider, I remarked on October 24 that the Tatas had strategically picked a good time and place to wage their battle with Cyrus Mistry, who was ousted as chairman of Tata Sons on that day. The question has always been whether there is enough cause for Mistry to dispute this majority action and successfully litigate against the Tatas. Also, what could he achieve by litigation? If the courts were to agree that Mistry was unfairly dismissed from office, what kind of relief can they offer? Is he likely to achieve a measure of success in claiming that he had either lost money (more money than other shareholders) or had been otherwise unfairly prejudiced? And should he either be reinstated as chairman of the Tata conglomerate’s holding company or offered some other relief, possibly monetary, through the legal process?

Ratan Tata (R) and Cyrus Mistry attend the launch of a new website for tech superstore Croma, managed by Infiniti Retail, a part of the Tata Group, in Mumbai, April 23, 2012. REUTERS/Vivek Prakash/File Photo

The favoured route following all the company actions taken from October 24 onwards would appear to be through the petitioner (i.e. a Mistry company) filing a petition before the new National Company Law Tribunal, which has taken over the Company Law Board’s powers under sections 397 & 398 of the old Companies Act using the new section 241 of the Companies Act, 2013. Why do these sections matter? Because section 241 has a wider mandate and admits a new and hence unpredictable factor into the equation – public interest. If the company’s affairs are conducted in a manner prejudicial to the public interest, then almost any petitioner can approach the NCLT for redressal. Under the earlier law, only allegations of oppression (by the company practiced against the petitioner’s interests) were available as avenues for relief, though this could include “mismanagement” as a category of oppression.

Looking at the old and time-honoured principles set out by the Supreme Court - from 1981 (Needles case) and more recently in 2008 (V.S. Krishnan case) - it would seem that the former chairman of the Tata group has a steep hill to climb to prove his allegations of oppression. His petition/s and lawyers must demonstrate that the relevant Tata companies (each one separately considered) were run in such a way that minority shareholders were adversely affected and oppressed.

In this regard, the questions of fact to be decided should have one of two ingredients:  (1) An alleged cause of action (say 3 or 4 years before Mistry was “asked to step down” on October 24, 2016) should have been raised and taken up against the majority, naturally raising the question as to why the former chairman, himself at the helm of affairs since 2012, did nothing to redress the situation or record his objections. ‎(2) If the complaint relates to the period after October 24, 2016, then the petitioner must demonstrate actual prejudice noticeable from a series of actions taken only in the past two months against the interests of the minority shareholders, and not through simple democratic exercise of voting rights to elect a new chairman but through provable mismanagement and decisions that would (by the time the petition was filed) have hurt the economic interests of the petitioner/shareholder. The courts may be hard-pressed to find prejudice given these contradictory situations before and after Mistry’s ouster.

For those who feel now is the time to redress an old situation created by a public trust controlling a public company, the answer seems clear: It is hardly possible for any court to fix a historical governance situation arising from a public trust running a company or group. There is little scope for adversarial adjudication there. Though the government may do so in the future, it is difficult to imagine any rule or ruling that will restrict existing trusts (primarily Tata & Birla trusts) and hence there appears to be little chance of altering the status quo.

The NCLT’s refusal to grant interim relief to Mistry on December 22 seems perfectly reasonable and predictable in this scenario. Whilst avoiding the merits of the challenge placed before the NCLT, it is difficult to expect radical change through broadly framed relief orders, other than ones that may encourage both the parties to resolve their differences amicably.

About the Author

Amir Singh Pasrich is managing partner of ILA Pasrich and Company, a commercial and company law firm in New Delhi.

The views expressed in this article are not those of Reuters News.

Our Standards:The Thomson Reuters Trust Principles.
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