Summary: The Tata Sons vs. Cyrus Mistry case is a significant ruling on corporate governance and boardroom autonomy under the Companies Act, 2013. The dispute arose after the removal of Cyrus Mistry as Chairman of Tata Sons in 2016, which he challenged as an act of oppression against minority shareholders. Initially, the National Company Law Tribunal (NCLT) ruled in favor of Tata Sons, stating no oppression had occurred. However, the National Company Law Appellate Tribunal (NCLAT) overturned this decision in 2019, reinstating Mistry and revoking Tata Sons’ conversion from a public to a private company. Tata Sons appealed the decision before the Supreme Court. In its 2021 ruling, the Supreme Court upheld the board’s authority to remove Mistry, affirming that the decision complied with corporate governance principles and the Companies Act. The Court emphasized minimal judicial interference in board decisions unless there is clear evidence of legal violations. It also upheld Tata Sons’ conversion to a private company, stating it followed due process. The ruling reaffirmed the balance between corporate democracy and governance, clarifying that majority control remains fundamental while ensuring accountability to shareholders. The case provides key insights into corporate governance, board independence, and the rights of minority shareholders in India.
LNIND 2021 SC 122
Introduction:
The case of Tata Sons Pvt. Ltd vs. Cyrus Investments Pvt. Ltd. serves as a key or landmark judgment for understanding minority oppressions and mismanagement under the Companies Act, 2013.
Section 241. [1]Application to Tribunal for relief in cases of oppression, etc.—
(1) Any member of a company who complains that
(a) the affairs of the company have been or are being conducted in a manner prejudicial to the public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or
(b) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company’s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members, may apply to the Tribunal, provided such member has a right to apply under section 244, for an order under this Chapter.
(2) The Central Government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter.
Section 242. [2]Powers of Tribunal.
(1) If, on any application made under section 241, the Tribunal is of the opinion—
(a) that the company’s affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company; and
(b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up,
the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.
These Sections are central to the case, they define the authority of a person to approach National Company Law Tribunal incase of any mismanagement in the company.
Background:
Tata Sons is the primary holding company of the Tata Group and having almost 66% shares of the company thus, having significant control over company decisions. Shapoorji Pallonji Group controlled by Cyrus Mistry’s family had almost 18% shares in Tata making them largest minority shareholders.
Cyrus Mistry held almost 185 shares in Tata Sons through Cyrus Investment Pvt. Ltd. which is one of the investment companies in Shapoorji Pallonji Group. Cyrus Mistry succeeded Ratan Tata in 2012 and was appointed as Executive Chairman of Tata Sons. Over the years many conflicts arose between Mistry and Tata Sons. Mistry was removed as the Chairman in 2016 by the Board of Directors of Tata Group. Due to the misalignment of management style with the vision of Tata Group.
Cyrus Mistry alleged oppression of minority shareholders and mismanagement.
Case History:
Cyrus Mistry challenged the Board’s decision to remove him before the National Company Law Tribunal, in 2018. NCLT gave a ruling in favor of the Tata Group and stated that there was no oppression of the minority and there was no requirement for Judicial Interference.
The decision was appealed before the National Company Appellate Law Tribunal. NCLAT overturned the decision of NCLT in 2019, reinstating Cyrus Mistry as the Executive Chairman. In 2018 the Tata Group received approval from the Registrar of companies to convert from Public to Private Company. NCLAT even revoked this conversion and asked RoC for detailed reasons to the conversion.
Section 14 [3]allows alteration of articles for conversion of companies
(1) Subject to the provisions of this Act and the conditions contained in its memorandum, if any, a company may, by a special resolution, alter its articles including alterations having the effect of conversion of
(a) a private company into a public company; or
(b) a public company into a private company:
Provided that where a company being a private company alters its articles in such a manner that they no longer include the restrictions and limitations which are required to be included in the articles of a private company under this Act, the company shall, as from the date of such alteration, cease to be a private company:
Provided further that any alteration having the effect of conversion of a public company into a private company shall not valid unless it its approved by an order of the Central Government on an application made in such form and manner as may be prescribed:
Provided also that any application pending before the Tribunal, as on the date of commencement of the Companies (amendment) Act, 2019, shall be disposed of by the Tribunal in accordance with the provisions applicable to it before such commencement.
However, the Tata Group filed an appeal from this NCLAT decision before the Supreme Court.
Supreme Court’s Decision:
The judgment was authored by the then Chief Justice of India S.A. Bobde and was decided by a three-judge bench consisting of V. Ramasubramanian, A.S. Bopanna, S.A. Bobde.
The Court held that the removal of Cyrus Mistry was well within the rights of the Company’s Board and there was no oppression of minority shareholders.
The court also set aside the order of NCLAT in reinstating Mr. Mistry as the Chairman and also upheld the conversion of Tata Group from Public to Private Company and stated that if all necessary procedures have been followed as per the Companies Act, 2013 and NCLT has approved such a change then it is legal and in compliance with all legal requirements.
The Court also emphasised that the Company decisions should be made by the board and there must be minimal judicial interference.
“We have not found any merit in the argument that Articles 75, 104B, 118, and 121 of the Articles of Association per se oppressive against the petitioners.”
“We have not found any merit in the argument that Majority Rule has taken back seat by introduction of corporate governance in Companies Act, 2013, it is like corporate democracy is genesis, and corporate governance is species. They are never in conflict with each other; the management is rather more accountable to the shareholders under the present regime. Corporate governance is collective responsibility, not based on assumed freehand rule which is alien to the concept of collective responsibility endowed upon the Board.”
“The real reason why SP group and CPM are aggrieved by the conversion is, that most of their arguments are traceable to provisions which apply only to public and listed public companies. If re-conversion goes, they may perhaps stand on a better footing. But that would be tantamount to putting the cart before the horse.”[4]
It was held that the Company followed all legal due processes in removing Cyrus Mistry as chairman, so the Board’s Decision was upheld.
Conclusion:
The case serves as a landmark case in Company law, shedding light on Corporate Governance. Corporate governance is the principles through which a company is run ensuring fairness, accountability, and protection of stakeholders in the company. The case answers important questions of boardroom autonomy and what constitutes minority shareholder oppression
[1] India Code: Home, https://www.indiacode.nic.in/.
[2] India Code: Home, https://www.indiacode.nic.in/.
[3] India Code: Home, https://www.indiacode.nic.in/.
[4] Tata Consultancy Service Ltd v. Cyrus Investment Pvt. Ltd, AIR (SC 2021).
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