Three years after Cyrus Mistry was suddenly removed as the chairman of Tata Group, his position has been restored by the National Company Law Appellate Tribunal, in a big blow to the salt to software conglomerate and chairman emeritus Ratan Tata. The company has said it will take legal recourse.
It was on December 18, 2012, that the Tata Group had announced Cyrus Mistry would take over chairman after Ratan Tata’s retirement on December 28, 2012. However, on October 24, 2016, a little over four years, since he was handed over the charge of Tata Group, Mistry was sacked. Later, on February 20, 2017, Natarajan Chandrasekaran, then MD and CEO of Tata Consultancy Services, was appointed as the chairman of Tata Group.
On Wednesday, the NCLAT struck down the two decisions by declaring the October 24, 2016 board meeting itself illegal, and thus consequently restoring Mistry’s position.
“The proceedings of the sixth meeting of the board of directors of Tata Sons Limited held on Monday, 24th October 2016, so far as it relates to removal and other actions taken against Mr Cyrus Pallonji Mistry is declared illegal and set aside. In the result, Mr Mistry is restored to his original position as Executive Chairman of Tata Sons and consequently as director of the Tata Companies for the rest of the tenure. As a sequel thereto, the person who has been appointed as Executive Chairman in place of Mr Mistry, his consequential appointment is declared illegal,” the NCLAT order read.
However, on the request of Tata Group’s counsel Abhishek Manu Singhvi, the appellate tribunal suspended the part of the judgement relating to the replacement of the present executive chairman and reinstatement of Mistry for a period of four weeks.
However, it also directed that the rest of the judgement, including the direction to reinstate Mistry as director of the company and director of three Tata Companies, shall be complied forthwith, added the tribunal.
NCLAT further ruled that Ratan Tata and the nominee of the Tata Trusts shall desist from taking any decision in advance, which requires majority decision of the board of directors or in the Annual General Meeting.
It also observed that the company, the board and shareholders were “prejudicial” to minority shareholders.
The Mistry family holds 18.5 per cent stake in the company.
In another major setback for the Tata Sons, the tribunal also set aside the decision of the Registrar of Companies changing Tata Sons from public company to private company as illegal and set it aside.
Nirmalya Kumar, who had served as a member of then Tata Sons chairman Mistry’s group executive council and is now at the Singapore Management University, told a TV channel that truth had prevailed.
“Everybody knew the truth and the truth was that what was done that day in October 2016 was an illegal act by the board,” he said, adding that the board of Tata Sons should now resign if they had any corporate governance credentials.
Tata Sons in a statement issued by Shuva Mandal, Group General Counsel, said that it strongly believes in the strength of its case and will take apropriate legal recourse.
“It is not clear as to how the NCLAT order seeks to over-rule the decisions taken by shareholders of Tata Sons and listed Tata operating companies at validly constituted shareholder meetings. The NCLAT order appears to even go beyond the specific reliefs sought by the Appellant,” it said.
It is also uncertain if Mistry would want to return as the chairman after all this. If were to indeed return as the chairman of Tata Sons, then the various decisions taken under the chairmanship of Chandrasekaran could also be then reviewed.
The battle between Tatas and Mistrys is clearly not over yet and all eyes will now look to the Supreme Court, where the next phase is likely to play out.
Investors don’t like uncertainty and sold shares of several Tata Group companies post-Wednesday's judgement. Tata Chemicals closed 1.7 per cent lower, Tata Motors tumbled 3 per cent and Tata Global Beverages slumped over 4 per cent.
