2019 (12) TMI 895 - AT - Companies Law

Oppression and Mismanagement - case of appellant is that an abiding theme of Respondents conduct is the consistent and steady squeezeout of the Appellants rights and title to and interest in their ownership of 1st Respondent Company in a manner that is lacking in probity and is unfair - conversion from Public Company to Private Company - HELD THAT - It is not open to the Respondents to state or allege that loss in different Tata Companies was due to mismanagement of Mr. Cyrus Pallonji Mistry (11th Respondent). If that be so why the nominated Directors who have affirmative voting right over the majority decision of the Board or in the Annual General Meeting of the shareholders allowed the Tata Companies to function in a manner which caused loss as accepted in the press release dated 10th November 2016. The consecutive chain of events coming to fore from the correspondence referred elsewhere in this Judgment amply demonstrates that impairment of confidence with reference to conduct of affairs of company was not attributable to probity qua Mr. Cyrus Pallonji Mistry but to unfair abuse of powers on the part of other Respondents. The Press Statement of Tata Sons Limited dated 10th November 2016 facts of which were never discussed by Board is an afterthought of Respondents to put all blame on Mr. Cyrus Pallonji Mistry (11th Respondent). The Board of Directors majority decision of which is guided by the affirmative vote of the nominated members have failed to explain as to why the Board failed in its duties and not noticed the loss of any of the Tata Companies . The fact of investment of Rs. 1, 00, 000 Crores out of Rs. 6, 00, 000 Crores by Shapoorji Pallonji Group to consider the effect of absence of a nominee Director of minority group ( Shapoorji Pallonji Group ) or a Director who can take care of minority members (group). On the other hand in terms of Article 104B read with Article 121 and 121A the nominee Directors of the Tata Trusts have control over the meeting of the Board of Directors having power to annul the majority decision by refraining from exercise of affirmative vote - Even in absence of such right of minority members ( Shapoorji Pallonji Group ) because of healthy atmosphere and clear understanding between two groups i.e. Tata Group and Shapoorji Pallonji Group for last 40 years except for few years in between thereof one of the persons of Shapoorji Pallonji Group was made as the Executive Chairman or Director which includes Mr. Cyrus Pallonji Mistry (11th Respondent) and his father Mr. Pallonji Shapoorji Mistry. Shapoorji Pallonji Group minority shareholders all the time had confidence on the decision making power of the Board of Directors of the Tata Sons Ltd. as amity and goodwill prevailed inter se the two groups. The Tata Sons Limited remained silent for more than 13 years and never took any step for conversion in terms of Section 43A (4) of the Companies Act 1956. Even after enactment of the Companies Act 2013 which came into force since 1st April 2014 for more than three years it had not taken any step under Section 14. Till date no application has been filed before the Tribunal under Section 14(2) of the Companies Act 2013 for its conversion from Public Company to Private Company - In absence of any such approval by the Tribunal under Section 14 we hold that Tata Sons Limited cannot be treated or converted as a Private Company on the basis of definition under Section 2(68) of the Companies Act 2013. The Resolution dated 24th October 2016 passed by the Board of Directors of Company removing Mr. Cyrus Pallonji Mistry (11th Respondent) as the Executive Chairman of the Company ( Tata Sons ) is declared illegal; all consequential decisions taken by Tata Companies for removal of Mr. Cyrus Pallonji Mistry (11th Respondent) as Directors of such companies are also declared illegal. The impugned Judgment dated 9th July 2018 passed by the National Company Law Tribunal Mumbai is set aside - Remarks made against the Appellants Mr. Cyrus Pallonji Mistry and others stand expunged. Both the appeals are allowed - appeal allowed.

Summary

Issues Involved:
1. Removal of Mr. Cyrus Pallonji Mistry as Executive Chairman.
2. Allegations of prejudicial and oppressive acts by majority shareholders.
3. Petition for waiver under Section 244 of the Companies Act, 2013.
4. Corporate governance and interference by Tata Trusts.
5. Conversion of Tata Sons Limited from a Public Limited Company to a Private Limited Company.
6. Potential abuse of Article 75.
7. Mismanagement and financial decisions.
8. Disparaging remarks by the Tribunal against the appellants.

Detailed Analysis:

1. Removal of Mr. Cyrus Pallonji Mistry as Executive Chairman:
The removal of Mr. Cyrus Pallonji Mistry from the post of Executive Chairman of Tata Sons Limited was sudden and without prior notice. The decision was taken in a Board meeting held on 24th October 2016, without any prior agenda or discussion on his performance. The removal was driven by the majority shareholders' loss of confidence in Mr. Mistry, primarily represented by Tata Trusts. The Appellate Tribunal found this removal to be illegal and reinstated Mr. Mistry to his original position.

2. Allegations of Prejudicial and Oppressive Acts by Majority Shareholders:
The appellants, representing the minority shareholders (Shapoorji Pallonji Group), alleged that the majority shareholders (Tata Group) acted in a manner prejudicial and oppressive to their interests. The Tribunal noted that the majority shareholders, through their nominated directors, had significant control over the company's decisions, often overriding the majority decision of the Board. The Tribunal found that the actions of the majority shareholders were indeed prejudicial and oppressive, justifying the intervention under Section 242 of the Companies Act, 2013.

3. Petition for Waiver under Section 244 of the Companies Act, 2013:
The appellants filed a petition for waiver under Section 244, which was initially dismissed by the National Company Law Tribunal (NCLT). However, the Appellate Tribunal, considering the substantial investment by the appellants in Tata Sons Limited, found it to be a fit case for waiver and remitted the petition under Sections 241-242 to the Tribunal for a decision on merit.

4. Corporate Governance and Interference by Tata Trusts:
The Tribunal observed that the nominated directors of Tata Trusts had affirmative voting rights over the majority decision of the Board, leading to significant control over the company's affairs. This control was exercised in a manner that undermined the independence of the Board and was contrary to good corporate governance practices. The Tribunal highlighted instances where Mr. Ratan N. Tata and Mr. N.A. Soonawala interfered in the company's decisions, leading to a breakdown of corporate governance.

5. Conversion of Tata Sons Limited from a Public Limited Company to a Private Limited Company:
The conversion of Tata Sons Limited from a public limited company to a private limited company was done without following the proper legal procedure under Section 14 of the Companies Act, 2013. The Tribunal found this conversion to be illegal and set it aside, directing the Registrar of Companies to correct the records to reflect Tata Sons Limited as a public company.

6. Potential Abuse of Article 75:
The appellants expressed apprehension that Article 75, which allows the company to transfer shares of any shareholder without notice, could be used oppressively against minority shareholders. The Tribunal noted this potential for abuse and directed that such power should only be exercised in exceptional circumstances and with proper reasons recorded in writing.

7. Mismanagement and Financial Decisions:
The Tribunal found instances of mismanagement and prejudicial financial decisions taken by the Board, often influenced by the nominated directors of Tata Trusts. These decisions included significant investments and financial transactions that were not in the best interest of the company or its shareholders.

8. Disparaging Remarks by the Tribunal Against the Appellants:
The Tribunal expunged certain disparaging remarks made by the NCLT against the appellants and Mr. Cyrus Pallonji Mistry. These remarks were found to be inappropriate, unsubstantiated, and based on extraneous materials not on record. The expunged remarks included allegations of personal vendetta and unfounded accusations against Mr. Mistry.

Conclusion:
The Appellate Tribunal set aside the impugned judgment of the NCLT, reinstated Mr. Cyrus Pallonji Mistry as Executive Chairman and Director of Tata Sons Limited, and declared the conversion of Tata Sons Limited from a public company to a private company as illegal. The Tribunal also directed that future appointments of the Executive Chairman and Directors should involve consultation with the minority shareholders to ensure a healthy and cooperative corporate environment.