TMI Blog2021 (3) TMI 1181X X X X Extracts X X X X X X X X Extracts X X X X ..... pany - sections 241 and 242, Companies Act, 2013. Whether the formation of opinion by the Appellate Tribunal that the company s affairs have been or are being conducted in a manner prejudicial and oppressive to some members and that the facts otherwise justify the winding up of the company on just and equitable ground, is in tune with the well settled principles and parameters, especially in the light of the fact that the findings of NCLT on facts were not individually and specifically overturned by the Appellate Tribunal? - HELD THAT:- For invoking the just and equitable standard, the underlying principle is that the Court should be satisfied either that the partners cannot carry on together or that one of them cannot certainly carry on with the other, The advantage that the English courts have is that irretrievable breakdown of relationship is recognised as a ground for separation both in a matrimonial relationship and in commercial relationship, while it is not so in India - In the case in hand there was never and there could never have been a relationship in the nature of quasi partnership between the Tata Group and S.P. Group. S.P. Group boarded the train half way throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 996 of the English Companies Act, 2006 retained the very same wordings. The purpose of an order both under the English Law and under the Indian Law, irrespective of whether the regime is one of oppressive conduct or unfairly prejudicial conduct or a mere prejudicial conduct , is to bring to an end the matters complained of by providing a solution. The object cannot be to provide a remedy worse than the disease. The object should be to put an end to the matters complained of and not to put an end to the company itself, forsaking the interests of other stakeholders. It is relevant to point out that once upon a time, the provisions for relief against oppression and mismanagement were construed as weapons in the armoury of the shareholders, which when brandished in terrorem, were more potent than when actually used to strike with. While such a position is certainly not desirable, they cannot today be taken to the other extreme where the tail can wag the dog. The Tribunal should always keep in mind the purpose for which remedies are made available under these provisions, before granting relief or issuing directions. It is on the touchstone of the objective behind these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T and the Nominee Directors virtually nullifying the effect of these Articles? - HELD THAT:- Whether the re conversion of Tata Sons from a public company into a private company, required the necessary approval under section 14 of the Companies Act, 2013 or at least an action under section 43A(4) of the Companies Act, 1956 during the period from 2000 (when Act 53 of 2000 came into force) to 2013 (when the 2013 Act was enacted) as held by NCLAT? - HELD THAT:- The right to claim proportionate representation is not available for the S.P. group even contractually, in terms of the Articles of Association. Neither S.P. Group nor CPM can request the Tribunal to rewrite the contract, by seeking an amendment of the Articles of Association. The Articles of Association, as they exist today, are binding upon S.P. Group and CPM by virtue of Section 10(1) of the Act - Realising the fact that they have no right, statutorily or contractually or otherwise to demand proportionate representation on the Board, S.P. Group has come up with a very novel idea, namely the claim of existence of a quasi partnership between the Tata group and SP group. It is contended by S.P. Group that there existed a per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir Articles, if they so choose. There is no statutory compulsion to incorporate such a provision. The fourth question of law is also to be answered in favour of the Tata group and the claim in the cross appeal relating to affirmative voting rights and proportionate representation are liable to be rejected. Whether the re conversion of Tata Sons from a public company into a private company, required the necessary approval under section 14 of the Companies Act, 2013 or at least an action under section 43 A(4) of the Companies Act, 1956 during the period from 2000 (when Act 53 of 2000 came into force) to 2013 (when the 2013 Act was enacted) as held by NCLAT? - HELD THAT:- Once the company had become a deemed public company with effect from 1 2 1975, the privileges of a private company stood withdrawn and the company was entitled in law to allow renunciation of shares under rights issue. In any case, the validity of what was done in 1995 was not in question. That they accepted deposits from public till September 2002, is the reason why they were not reconverted as a private company at that time. Once a new definition of the expression private company came into force with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) declaring as illegal the appointment of someone else in the place of CPM as Executive Chairman; (iv) restraining Shri Ratan N. Tata (“RNT” for short) and the nominees of Tata Trust from taking any decision in advance; (v) restraining the Company, its Board of Directors and Shareholders from exercising the power under Article 75 of the Articles of Association against the minority members except in exceptional circumstances and in the interest of the Company; and (vi) declaring as illegal, the decision of the Registrar of Companies for changing the status of Tata Sons Limited from being a public company into a private company. 1.2 RNT has come up with two independent appeals in Civil Appeal Nos.1920 of 2020 against the same Order of the NCLAT, on similar grounds. 1.3 The trustees of two Trusts namely Sir Ratan Tata Trust and Sir Dorabji Tata Trust have come up with two independent appeals in Civil Appeal Nos.444445 of 2020, challenging the impugned order of the Appellate Tribunal. A few companies of the Tata Group, which were referred to in the course of arguments, as the operating companies or downstream companies, such as the Tata Consultancy Services Limited, the Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeals, in the purported exercise of the power available under section 420 of the Companies Act, 2013. Therefore, Tata Sons have come up with these 2 appeals in C.A.Nos. 263 and 264 of 2020. 1.6 Thus we have on hand, 15 Civil Appeals, 14 of which are on one side, assailing the Order of NCLAT in entirety. The remaining appeal is filed by the opposite group, seeking more reliefs than what had been granted by the Tribunal. 1.7 For the purpose of easy appreciation, we shall refer to the appellants in the set of 14 Civil Appeals as “the Tata Group” or “the Appellants”. We shall refer to the other group as “SP Group” (Shapoorji Pallonji Group) or “the respondents”. Similarly we shall refer to Tata Sons Limited (or Tata Sons Private Limited) merely as ‘Tata Sons’, as there is a controversy regarding the usage of the word “Private” before the word “Limited”. 2. Background of the Litigation 2.1 On 08.11.1917, Tata Sons was incorporated as a Private Limited Company under the Companies Act, 1913. 2.2 Two companies by name Cyrus Investments Private Limited and Sterling Investment Corporation Private Limited, forming part of the SP Group respectively acquired 48 preferenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terling Investment Corporation Private Limited, belonging to the SP Group, in which CPM holds a controlling interest, filed a company petition in C.P No.82 of 2016 before the National Company Law Tribunal under Sections 241 and 242 read with 244 of the Companies Act, 2013, on the grounds of unfair prejudice, oppression and mismanagement. 2.10 But these two companies, hereinafter referred to as ‘the complainantcompanies’, together had only around 2% of the total issued share capital of Tata Sons. This is far below the deminimus qualification prescribed under Section 244(1)(a) to invoke sections 241 and 242. Therefore, the complainant companies filed a miscellaneous application under the proviso to Subsection (1) of Section 244 seeking waiver of the requirement of Section 244(1)(a), which requires atleast one hundred members of the company having a share capital or onetenth of the total number of fixed members or any member or members holding not less than onetenth of the issued share capital of the company alone to be entitled to be the applicant/applicants. 2.11 Along with the application for waiver of the requirement of Section 244(1)(a), the complainant companies also m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer under Article 75 since inception, will not exercise its power under Article 75 against Appellants and other minority member. Such power can be exercised only in exceptional circumstances and in the interest of the company, but before exercising such power, reasons should be recorded in writing and intimated to the concerned shareholders whose right will be affected. (iv) The decision of the Registrar of Companies changing the Company (‘Tata Sons Limited’) from ‘Public Company’ to ‘Private Company’ is declared illegal and set aside. The Company (‘Tata Sons Limited’) shall be recorded as ‘Public Company’. The ‘Registrar of Companies’ will make correction in its record showing the Company (‘Tata Sons Limited’) as ‘Public Company’.” 2.16 After NCLAT disposed of the appeals by its order dated 18122019, the Registrar of Companies moved 2 interlocutory applications seeking the deletion of certain remarks made by NCLAT against them. These applications were dismissed by NCLAT by order dated 06012020. Therefore, as against the final Order of NCLAT dated 18122019, (i) Tata Sons Private Limited (ii) RNT (iii) the Trustees of the two Tata Trusts and (iv) three operating compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd for a staggering amount; (x) leaking information to Siva of Sterling that resulted in Siva issuing legal notices to Tata Teleservices and Tata Sons (xi) RNT making a personal gain for himself through the sale of a flat owned by a Tata group company to Mehli Mistry; (xii) companies controlled by Mehli Mistry receiving favours due to the personal relationship that RNT had with him; and (xiii) fraudulent transactions in the deal with Air Asia which led to financing of terrorism. 3.3 On the foundation of the above, the complainantcompanies contended before NCLT: (i) that the directors of Tata Sons are not carrying out their fiduciary responsibilities for and on behalf of the shareholders, but have become mere puppets controlled by RNT and the Trustees of the two Trusts; (ii) that the powers contained in the Articles of Association are being exercised in a malafide manner prejudicial to the interest of the petitioners and to public interest; (iii) that various operating decisions are taken either for emotional reasons or for pampering the ego of RNT; (iv) that attempts are made to shield persons responsible for fraudulent transactions at Air Asia; (v) that attempts are made to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.2 to pay Respondent No. 1 the amount of unjust enrichment that has accrued to Respondent No. 2 on account of surrender of the subtenancy of the Bakhtawar flat; (L) appoint a forensic auditor to reinvestigate the transactions executed by AirAsia with entities in India and Singapore and such findings of the audit should be referred by the Hon’ble Tribunal to the Serious Fraud Investigation Office of the Ministry of Corporate Affairs, Government of India; (M) strike of Articles numbered 86, 104(B), 118, 121 and 121A in their entirety and in so far as Article 124 of the Articles of Association of Respondent No. 1 is concerned, the following portion of the said Article, which is offending and/or repugnant, should be deleted: “… Any committee empowered to decide on matters which otherwise the Board is authorised to decide shall have as its member at least one director appointment pursuant to Article 104B. The Provisions relating to quorum and the manner in which matters will be decided contained in Articles 115 and 121 respectively shall apply mutatis mutandis to the proceedings of the committee. “from the Articles of Association of Respondent No. 1; and substitute these a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... four boxfiles containing several documents relating to Tata Education Trust, to the Deputy Commissioner of Income Tax with a view to create trouble, a special notice was issued for convening the EGM of Tata Sons on 06.02.2017 for considering the proposal for the removal of CPM as a Director of Tata Sons. 4.5 Therefore, the complainantcompanies moved a contempt application. The said application was disposed of by NCLT by an order dated 18.01.2017, permitting the complainantcompanies and CPM to file an additional affidavit limiting to the proposal for the removal of Cyrus Pallonji Mistry from the Board. 4.6 Accordingly, an additional affidavit was filed on 21.01.2017. However, the NCLT, by an order dated 31.01.2017 rejected the prayer of S.P. Group for stay of EGM scheduled to be held on 06.02.2017. 4.7 S.P. Group filed an appeal against the order refusing the stay of EGM. The appeal was disposed of on 03.02.2017, merely permitting the S.P. Group to file a petition for amendment, in the event of CPM being removed in the EGM. In the EGM held on 06.02.2017, CPM was removed. 4.8 Therefore, the complainantcompanies filed an amendment application dated 10.02.2017 seeking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olution dated September 21, 2017 be stayed. (F1): Direct Respondent No.1 and/or Respondent No. 2 to 10 and 12 to 22 to reinstate a representative of the Petitioners on the Board of Respondent No.1 (G1): Direct that the Articles of Association of Respondent No.1 be amended to provide for proportionate representation of shareholders on the Board of Directors of Respondent No.1 3. Application for stay dated 31.10.2017 Through this application, the complainants sought Stay of conversion of Tata Sons into a Private Limited Company. 4. Memo dated 12.01.2018 By this memo, certain reliefs originally sought, were given up, certain reliefs originally prayed for, were not pressed and one particular relief was sought to be restricted. The prayer in the Memo was as follows: a. Prayer M, which sought the striking of Articles 86, 104(B), 118, 121 and 121A, and striking of a portion of Article 124, is restricted as under: i. The necessity of an affirmative vote of the majority of directors nominated by the Trusts, which are majority of shareholders, be deleted; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follow through in strategic plan and business plan, failure to take meaningful steps to enter new growth businesses, weak top management team and reluctance to embrace the Articles of Association that spelt out the governance structure of the company and the rights of Tata Trusts; (xii) that there was a growing trust deficit between the Board of Directors of Tata Sons and CPM due to several reasons, such as the conflict of interest in the matter of award of contracts to S.P. Group of companies and his systematic and planned reduction of the representation of Tata Sons Directors on the Boards of other major Tata Companies; (xiii) that even when the Directors of Tata Sons resolved on 24.10.2016 to replace CPM as Executive Chairman, the Board agreed to his continuance as a Director of Tata Sons; (xiv) that however CPM addressed a vitriolic mail on 25.10.2016 to the Directors making false allegations; (xv) that though the mail was marked confidential, it was simultaneously leaked to the press; (xvi) that CPM also breached his fiduciary and contractual duties by disclosing confidential information and documents pertaining to Tata Sons to third parties; (xvii) that CPM made representatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled upon to sit in judgment over the commercial decisions of the Board of Directors of companies; and (vi) that even commercial misjudgments of the Board of Directors cannot be branded as instances of oppression and mismanagement. 5.3 On specific acts of oppression and mismanagement, raised in the company petition, such as (i) over priced and bleeding acquisition of Corus PLC of UK; (ii) doomed Nano car project; (iii) loan advanced by Kalimati Investments to Siva; (iv) sale of the residential flat to Mehli Mistry; (v) unjust enrichment of Mehli Mistry and the companies controlled by him, due to the personal equation of RNT with him; (vi) aviation industry misadventures; and (vii) a huge loss due to purchase of shares of Tata Motors, the reply filed by Tata Sons contained an elaborate and graphic rebuttal. We shall take note of them later, while dealing with the question whether or not the allegations constitute the ingredients of sections 241 and 242 of the Act. 6. The approach of NCLT 6.1 The NCLT, in its order dated 9.7.2018, went into each of the allegations of oppression, mismanagement and prejudice and recorded categorical findings. In brief, these findings, all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oval of the joint venture or for infusing funds in Air Asia India, until he was removed as Chairman of the company. (iii) In their desperate attempt to make a case out of nothing, the complainant companies claim on the one hand that CPM had no say in the Air Asia transaction, but on the other hand, they claim that CPM protected the interest of the company by limiting its exposure to 30% equity of USD 30 million and by ensuring that no fall back liability came on the company. (iv) A person privy to a transaction is estopped from questioning it, but the complainant companies and CPM have made all kinds of allegations with impunity flouting all legal principles. They have proceeded as though they did not take active part in the Air Asia incorporation and as though CPM did not preside over the meeting on 15.09.2016 for further funding it. In addition, they have made a scurrilous statement, without a shred of paper, that RNT funded one Terrorist through hawala with diversion of Air Asia India funds. On the Transactions with Mehli Mistry, including the sale of the flat (Bhakthawar) and a land (Alibaug) (i) There is nothing to indicate that RNT got enriched at the cost of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anything so as to cause prejudice to the rights of the minority shareholders. On the contention that a few Articles were oppressive or that they were abused (i) The contention that Articles 104B, 121, 121A and 75 of the Articles of Association were per se oppressive and that they have been used as tools of oppression and mismanagement, is unacceptable since CPM’s father was party to the amendments made to the Articles of Association on 13.09.2000. The amendment of Article 118 was passed on 06.12.2012 when CPM was the Executive Deputy Chairman. CPM was also party to the Resolutions passed on 09.04.2014, in which the Articles were amended so as to confer affirmative rights in favour of the Directors of the Trusts. In so far as Article 75 is concerned, it was in existence throughout and hence the question whether persons who acquired shares of such a company consciously despite the presence of Article 75, can turn around later and project them as oppressive, looms large. (ii) The fact that the nominee Directors stepped out of the meeting of the Board held on 29.06.2016 to take instructions from RNT on the issue of acquisition of Welspun by Tata power, cannot be projected a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re he is not accountable either to the majority shareholders or to the Trust nominee Directors and hence his removal. (iii) The letter dated 25.10.2016 issued by CPM could not have been leaked to the media by anyone other than CPM and hence his removal from Directorship on 06.02.2017 became inevitable. 6.2 What we have provided in the preceding paragraph, is an abridged version of the findings recorded by NCLT on every one of the allegations contained in the main company petition. Apart from those findings recorded in the body of the judgment, NCLT itself gave a summary of findings in paragraph 581 of its decision. It is extracted verbatim as follows: “a) Removal of Mr. Cyrus Mistry as Executive Chairman on 24.10.2016 is because the Board of Directors and Majority of Shareholders, i.e., Tata Trusts lost confidence in Mr. Cyrus as Chairman, not because by contemplating that Mr. Cyrus would cause discomfort to Mr. Tata, Mr. Soonawala and other answering Respondents over purported legacy issues. Board of Directors are competent to remove Executive Chairman; no selection committee recommendation is required before removing him as Executive Chairman. b) Removal of Mr. Cy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board. j) We have observed that prejudice remedy has been included in 2013 Act in addition to oppressive remedy already there and also included application of "just and equitable" ground as precondition to pass any relief in mismanagement issues, which was not the case under old Act.” 7. The Approach of NCLAT 7.1 While NCLT dealt with every one of the allegations contained in the main company petition and recorded its findings, NCLAT, curiously, focused attention only on (i) the removal of CPM (ii) the affirmative voting rights of the Directors nominated by the 2 Trusts in the decision making process and (iii) the amended certificate of incorporation issued by the RoC, deleting the word “Public” and making it a private company once again. 7.2 The findings recorded by NCLAT are presented, to a great extent, in the language of NCLAT itself, as follows: (i) The word ‘unfairly prejudicial’ has not been used in Section 241. The Indian Law (Sections 241 & 242 of the Companies Act, 2013) does not recognize the term ‘legitimate expectation’ to hold any act prejudicial or oppressive. (paragraphs 101 and 102 of the impugned order) (ii) In the general meeting of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PM, on the same date decision had already been taken by RNT in presence of Mr. Nitin Nohria to remove CPM, who asked him to step down from the post of the ‘Executive Chairman’ of the Company (‘Tata Sons Limited’). (paragraph 130 of the impugned order) (viii) RNT was determined to remove CPM even prior to the meeting of the board and the majority shareholders of Tata Trust knew that there was a requirement of advance notice before the removal of CPM. Therefore, they had taken opinion from eminent lawyers and a former Judge of the Supreme Court. (paragraph 133 of the impugned order) (ix) There is nothing on the record to suggest that the Board of Directors or any of the trusts, namely- Sir Dorabji Tata Trust or the Sir Ratan Tata Trust at any time expressed displeasure about the performance of CPM. (paragraph 134 of the impugned order) (x) From the opening sentence of ‘Press Statement’ dated 10 th November, 2016, issued by Tata Sons it is clear that sudden and hasty removal of CPM as Executive Chairman of ‘Tata Sons Limited’ raised concerns in the industrial group. (paragraph 137 of the impugned order) (xi) The allegations as made in the ‘Press Statement’ dated 10th Nove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting held on the next day i.e. on 29th June, 2016. (paragraph 150 of the impugned order) (xix) Three Directors who also voted for removal of CPM, including Mr. Amit Chandra, who spearheaded the removal proceedings and Mr. Ajay Piramal and Mr. Venu Srinivasan, had been inducted into the Board of ‘Tata Sons Ltd.’ only on 8th August, 2016 i.e. after the appraisal report of ‘Nomination and Remuneration Committee’. They attended just one Board meeting prior to the meeting held on 24th October, 2016. (paragraph 151 of the impugned order) (xx) Two of the Directors, Mr. Ranendra Sen and Mr. Vijay Singh, a Trust Nominee Director, who voted for the removal of CPM, were members of the ‘Nomination and Remuneration Committee’ which just four months’ prior to his removal on 28th June, 2016 praised the performance of CPM as Executive Chairman. These two Directors also voted against CPM just four months thereafter which has not been explained by Mr. Ranendra Sen and Mr. Vijay Singh. Further, what is accepted is that prior to the meeting held on 24th October, 2016 between 2.00 p.m. to 3.00 p.m., in the forenoon, the ‘Tata Trusts’ in a separate meeting decided to remove CPM. Even before decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nversion of Tata Sons Limited from being a public limited company into a private company, after the decision of NCLT. (paragraph 165 of the impugned order) (xxvi)Tata Sons Limited became a public company by virtue of Section 43(1A) of the Companies Act, 1956 on the basis of average annual turnover, w.e.f. 01.02.1975. (para 165) In terms of Subsection (2) of Section 43A Tata Sons informed the Registrar and the Registrar deleted the word “private” in the name of the Company upon the Register. By virtue of Subsection (4), such a company is to continue to be a public company until it becomes a private company with the approval of the Central Government and in accordance with the Act. (para 167) The Companies Act, 2013 repealed part of the 1956 Act. The new Act defines a “Private Company” and a “Public Company” under Clauses (68) and (71) of Section 2. (para 169 to 172). Under the 2013 Act, there is no provision similar to Section 43A(1A), for automatic conversion of a company. Since there is no automatic conversion, Tata Sons, having become a public company long ago was required to alter its articles of Association by following the procedure prescribed by Section 14(1)(b) read wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Nitin Nohria (7th Respondent) and Mr. N.A. Soonawala (14th Respondent) and other nominee Directors. (paragraph 183 of the impugned order) (xxix) The company’s affairs have been or are being conducted in a manner ‘prejudicial’ and ‘oppressive’ to members including Appellants, Mr. Cyrus Pallonji Mistry (11th Respondent) as also ‘prejudicial’ to the interests of the Company and its group Companies i.e., ‘Tata Companies’ and winding up of the Company would unfairly prejudice the members, but otherwise the facts, as narrated above, would justify a winding up order on the ground that it was just and equitable that the Company should be wound up and thereby, it is a fit case to pass order under Section 242 of the Companies Act, 2013. (xxx) 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 illegal; all consequential decisions taken by ‘Tata Companies’ for removal of Mr. Cyrus Pallonji Mistry (11th Respondent) as Director of such Companies are also illegal. (paragraph 184 of the impugned order) (xxxi) For better protection of interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm a consecutive chain of events with cumulative effect justifying us to hold that the Appellants have made out a clear case of ‘prejudicial’ and ‘oppressive’ action by contesting Respondents, including Mr. Ratan N. Tata (2nd Respondent), Mr. Nitin Nohria (7th Respondent) and Mr. N.A.Soonawala (14th Respondent) and other, the nominee Directors. 8.2 The allegations relating to (i) over priced and bleeding Corus acquisition (ii) doomed Nano car project (iii) undue favours to Siva and Sterling (iv) loan by Kalimati to Siva (v) sale of flat to Mehli Mistry (vi) the unjust enrichment of the companies controlled by Mehli Mistry (vii) the Aviation industry misadventures (viii) losses due to purchase of the shares of Tata Motors etc., were not individually dealt with by NCLAT, though NCLT had addressed each one of these issues and recorded findings in favour of Tata Sons. Therefore, there is no escape from the conclusion that NCLAT did not expressly overturn the findings of facts recorded by NCLT, on these allegations. We are constrained to take note of this, even at the outset, in view of a contention raised by Shri Shyam Divan, learned Senior Counsel for the SP group, that in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholders, as spelt out by the Articles of Association. S.P. Group also accepted without any demur, all the amendments made to the Articles of Association, when Pallonji Mistry was on the Board and also when CPM was on the Board; (vii) The removal of CPM was on account of the loss of confidence inCPM and the complete breakdown of trust between the other members of the Board and CPM. To say that his removal required the stamp of approval of the Selection Committee, is completely amiss; (viii) NCLAT failed to appreciate in the right perspective, the effectsof the Amendment Act 53 of 2000 on a ‘deemed to be a public company’ under Section 43A and the provisions of the 2013 Act, while dealing with the question whether Tata Sons would be a private Company or a public Company. NCLAT, without any justification, made uncharitable remarks against the Registrar of Companies for issuing an amended certificate of incorporation after the judgment of NCLT, though RoC was not a party. When RoC sought the expunction of those remarks by filing an application, NCLAT entertained the same, only for the purpose of improving upon the reasons already provided, showing thereby the mindset with which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard of Directors of Tata Sons and also caused erosion of their ability to exercise independent judgment and to act in the interest of the Company. RNT as well as Soonawala demanded preconsultation and prior clearance of the agenda items to be placed before the Board. There were instances (a) when the TrustNominee Directors objected to matters being placed before the Board without the approval of the Trust, (b) when RNT edited the minutes of the Board meetings that he did not attend, (c) when RNT questioned certain operational and business decisions of Tata Motors, (d) when the Trustees overruled the views of the Tata Group legal counsel in the DoCoMo disputes and (e) when the Trustees interfered in business decisions such as Welspun acquisition and rights issue of Tata Motors; (iv) Tata sons was a public company in form and conduct, as they accepted public deposits even after 13.12.2000 till September2002 and hence the conversion of the company into a private company by a hand written order of the ROC, effected at night just before NCLAT was to hear the appeals, was completely shocking. The conversion of the company into a private company was aimed at avoiding a higher standa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should only be to the company alone. (iv) Once a director is appointed, his duty is only to the company and none else, irrespective of how he is appointed. (v) There was a series of acts of oppression, including the breach of Articles, misuse of Articles and also a violation of the essential understanding between the two groups. This was found by the NCLAT. (vi) There was a clear lack of probity and honesty in the dealings of the majority. The concept of probity is much broader and wider than integrity. (vii) There was a long good faith relationship between the Tata group and SP group, developed over several decades and this has to be viewed in the context of a specific statutory framework that existed from 1964 upto 2000. (viii) In matters of this nature, the Court is obliged, in its equitable jurisdiction, to take note of the status of the company in question, which is at the top (apex) of the pyramid, with several stakeholders including the minority shareholders of the company itself, the employees and shareholders of the operating companies controlled by the company etc. (ix) NCLAT has recorded detailed findings on facts and there is no perversity in those fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assailing the judgment of NCLAT, Shri Mohan Parasaran, learned Senior counsel appearing for the Trusts, contended as follows: (i) Impugned judgment did not deal with the detailed findings of fact rendered by NCLT, nor the arguments advanced on behalf of the Trustees of the Tata Trust. (ii) Impugned judgment employed erroneous tests to determine oppression under section 241 of the 2013 Act (iii) Mere unwise or loss making business decisions etc. cannot be construed as acts of mismanagement so as to justify winding up on just and equitable grounds. For holding the majority guilty (a) there must be a sequential chain of events leading up to the date of filing the petition; (b) the conduct must be burdensome, harsh and wrongful qua the minority; and (c) there must be an element of lack of probity depriving the proprietary rights of the SP group as shareholders. (iv) This is not a case of quasipartnership (v) Impugned judgment is replete with erroneous findings of fact that influenced the conclusions drawn and reliefs granted (vi) Impugned judgment misattributes the replacement of CPM to RNT and grants reliefs that were not prayed for. (vii) Though the TrustN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not meet the requisite threshold under section 244 of the Companies Act, 2013. The SP Group held only 0.24% in direct equity interests in TCS which stood at 0.55% on 13.12.2016, and has since been diluted to 0.05% on 18.12.2019 – the date of the impugned order. (iv) There was no allegation of oppression and mismanagement made out against TCS. (v) TCS was denied the opportunity of hearing which was contrary to the principles of natural justice. (vi) NCLAT lacked jurisdiction to grant reinstatement as CPM’s tenure of office came to an end on 16.06.2017. 13. Contentions of others 13.1 Shri Tushar Mehta, learned Solicitor General, appearing on behalf of the Registrar of Companies, made submissions to the limited extent of justifying the action of the RoC in issuing an amended certificate of incorporation. According to him, the Articles of Association of Tata Sons contained provisions which come within the parameters of the definition of a ‘private company’ under section 2(68) of the Act. The amendment merely recognized a preexisting reality and the RoC followed the extant provisions of the Act. But unfortunately, the NCLAT passed remarks, though it claimed it did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable under Subsection (2) of Section 242 ? (iii) Whether the Appellate Tribunal could have, in law, muted the power of the Company under Article 75 of the Articles of Association, to demand any member to transfer his ordinary shares, by simply injuncting the company from exercising such a right without setting aside the Article ? (iv) Whether the characterisation by the Tribunal, of the affirmative voting rights available under Article 121 to the Directors nominated by the Trusts in terms of Article 104B, as oppressive and prejudicial, is justified especially after the challenge to these Articles have been given up expressly and whether the Tribunal could have granted a direction to RNT and the Nominee Directors virtually nullifying the effect of these Articles ? (v) whether the reconversion of Tata Sons from a public company into a private company, required the necessary approval under section 14 of the Companies Act, 2013 or at least an action under section 43A(4) of the Companies Act, 1956 during the period from 2000 (when Act 53 of 2000 came into force) to 2013 (when the 2013 Act was enacted) as held by NCLAT ? 15. Legislative History of Oppression, Mismanageme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1844. This Act made it possible for ordinary people to incorporate companies through a simple registration procedure. However, it did not permit limited liability. 15.6 Then came the Limited Liability Act, 1855, which allowed investors to limit their liability in the event of business failure, to the amount they invested in the company. These two features a simple registration procedure and limited liability were subsequently codified in the first modern company law enactment, namely the Joint Stock Companies Act 1856. The Joint Stock companies Act, 1856 made it possible for any 7 individuals, subscribing to shares individually, to form a limited liability company. This was subsequently consolidated with a number of other statutes in the Companies Act 1862, which was described by Francis Palmer as the Magna Carta of Cooperative enterprises. 15.7 The Companies Act, 1862 consolidated the laws relating to the incorporation, regulation and winding up of trading companies and other associations. Though this Act did not provide for any remedies to the minority shareholders in respect of oppression and mismanagement, Section 79 empowered the Court to wind up a company whenever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave to raise money to pay estate duties. The directors of the company, who are usually the principal shareholders, sometimes exercise their power to refuse to register transfers to outsiders, with the result that executors, who must realise their testators' shares in order to pay estate duty, have to sell to the directors or persons approved by them at prices much lower than the values at which the shares are assessed by the Board of Inland Revenue in valuing the estate of the deceased for purpose of estate duty. This difficulty is not in law peculiar to private companies since there is no legal impediment to a public company having in its articles a provision subjecting transfer of shares to the approval of the directors though Stock Exchanges do not accept it where leave to deal is required. This restriction is valued as a means of keeping a family business under the control of the family and we see no sufficient reason for its removal, particularly if our suggestion in paragraph 6o is adopted. 59. Excessive remuneration of directors. Another abuse which has been found to occur is that the directors absorb an undue proportion of the profits of the company in remuneration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minority, should be empowered, instead of making a windingup order, to make such other order, including an order for the purchase by the majority of the shares of the minority at a price to be fixed by the Court, as to the Court may seem just 15.11 Lord Cohen committee report led to the enactment of the Companies Act, 1948, in which a provision was incorporated in section 210. The heading given to the Section was, “Alternative Remedy to Winding up in Cases of Oppression”. This provision reads as follows: “210. Alternative remedy to winding up in cases of oppression (1) Any member of a company who complains that the affairs of the company are being conducted in a manner oppressive to some part of the members (including himself) or, in a case falling within subsection (3) of section one hundred and sixty-nine of this Act, the Board of Trade, may make an application to the court by petition for an order under this section. (2) If on any such petition the court is of opinion- (a) that the company's affairs are being conducted asaforesaid; and (b) that to wind up the company would unfairly prejudice that part of the members, but otherwise the facts woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legality or invasion of legal rights. Moreover, the provision invited 2 criticisms namely (i) that the requirement to establish grounds which justified winding up under the just and equitable clause was itself harsh and (ii) that section 210 would not apply to an isolated act, but applied only to a course of conduct. 15.13 Therefore, the Jenkins Committee of 1962 recommended use of the term “unfairly prejudicial”. Parliament adopted it in Section 75 of the Companies Act, 1980. Later, this section 75 of the 1980 Act became, with an amendment, Section 459 of the Companies Act, 1985. Sections 459 to 461 of the Companies Act, 1985 were included in Part XVII, under the caption “Protection of Company’s Members against Unfair Prejudice” . Sections 459 to 461 read as follows: 459. Order on application of company member. (1) A member of a company may apply to the court by petitionfor an order under this Part on the ground that the company’s affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of some part of the members (including at least himself) or that any actual or proposed act or omission of the company (including an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quires the company not to make any, or any specified, alteration in the memorandum or articles, the company does not then have power without leave of the court to make any such alteration in breach of that requirement. (4) Any alteration in the company's memorandum or articlesmade by virtue of an order under this Part is of the same effect as if duly made by resolution of the company, and the provisions of this Act apply to the memorandum or articles as so altered accordingly. (5) An office copy of an order under this Part altering, or givingleave to alter, a company's memorandum or articles shall, within 14 days from the making of the order or such longer period as the court may allow, be delivered by the company to the registrar of companies for registration ; and if a company makes default in complying with this subsection, the company and every officer of it who is in default is liable to a fine and, for continued contravention, to a daily default fine. (6) Section 663 (windingup rules) applies in relation to apetition under this Part as in relation to a windingup petition. The words in bold letters in the above extract in section 459, were later substitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Services and Markets Act 2000 (c. 8) (information gathering and investigations); or (d) the Secretary of State has received a report from aninvestigator appointed by him or the Financial Services Authority under that Part. (2) If it appears to the Secretary of State that in the case ofsuch a company- (a) the company’s affairs are being or have been conductedin a manner that is unfairly prejudicial to the interests of members generally or of some part of its members, or (b) an actual or proposed act or omission of the company(including an act or omission on its behalf) is or would be so prejudicial, he may apply to the court by petition for an order under this Part. (3) The Secretary of State may do this in addition to, orinstead of, presenting a petition for the winding up of the company. (4) In this section, and so far as applicable for the purposesof this section in the other provisions of this Part, “company” means any body corporate that is liable to be wound up under the Insolvency Act 1986 (c. 45) or the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)). 996 Powers of the court under this Part (1) If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to those companies and associations. It was under this Act that for the first time the prescription that 7 or more persons associated for any lawful purpose may form themselves into an incorporated company with or without limited liability by subscribing their names to a Memorandum of Association, was introduced. By this very same Act the prohibition for 20 or more persons to carry on any partnership in trade or business having gain as its object, unless they are registered as a company, was also introduced. But even in this Act the concepts such as oppression and mismanagement etc., were not dealt with (perhaps due to the fact that East India Company alone was granted such a privilege). 15.18 Thereafter, a fullfledged enactment known as The Indian Companies’ Act, 1866 was passed with a view to consolidate and amend the laws relating to the incorporation, regulation and winding up of trading companies and other associations. Even this Act, did not provide for any remedy in the case of oppression and mismanagement, though provisions were made for winding up including voluntary winding up. 15.19 The above Act No. X of 1866 was repealed by The Indian Companies Act No. VI of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f, all persons so interested, and the provisions of rule 8 of Order I of the First Schedule to the Code of Civil Procedure, 1908 (Act V of 1908), shall apply to any such application as it applies to any suit within the meaning of that rule. (4) If on any such application the court is of opinion (a) that the company’s affairs are being conductedas aforesaid, and (b) that to wind up the company would unfairly andmaterially prejudice the interests of the company or any part of its members, but otherwise the facts would justify the making of a winding up order on the ground that it is just and equitable that the company should be wound up, the court may, with a view to bringing to an end the matters complained of, make such order in relation thereto as it thinks fit. (5) Without prejudice to the generality of the powers vested in a court under subsection (4), any order made under that subsection may provide for (a) the regulation of the conduct of the company’s affairs in future; (b) the purchase of the shares or interests of any members of the company by other members thereof or by the company; (c) in the case of a purchase of shares or inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd upon such terms as to the court appears just and equitable, to make an such interim order as it thinks fit for regulating the conduct of the affairs of the company pending the making of a final order in relation to the application. (9) Where any manager, managing agent, managing director or any other director or any other person who has not been impleaded as a respondent to any application under this section applies to be made a party thereto, the court shall, if it is satisfied that his presence before the court is necessary in order to enable the court effectually and completely to adjudicate upon and settle all the questions involved in the application, direct that the name of any such person be added to the application. (10) In any case in which the court makes an order terminating any agreement between the company and its manager, managing agent or managing director or any of its other directors, as the case may be, the court may, if it appears to it that the manager, managing agent, managing director or other director, as the case may be, has misapplied or retained or become liable or accountable for any money or property of the company or has been guilty of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o to apply in virtue of section 399. (2) If, on any application under subsection (1), the Court is of opinion (a) that the company's affairs are being conducted in a manner oppressive to any member or members; 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 Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. 398. Application to Court for relief in cases of mismanagement. (1) Any members of a company who complain (a) that the affairs of the company are being conducted in a manner prejudicial to the interests of the company; or (b) that a 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 its board of Directors, or of its managing agent or secretaries and treasurers, or in the constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under section 397 or 398, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference; (g) any other matter for which in the opinion of the Court it is just and equitable that provision should be made.” 15.22 After the economy of the country opened up and the national and international economic environment changed, the Government decided to replace the 1956 Act with a new one. Accordingly, the Companies Bill, 2009 was introduced in the Lok Sabha. But this bill was withdrawn and the Companies Bill, 2011 was introduced. This eventually became the Companies Act 2013. Among the many changes brought about by this Companies Act 2013, those relating to protection of minority shareholders is what is relevant for our purpose. In fact, paragraph 5(ix) of the Statement of Objects and Reasons for the Companies Act, 2013 deals with the issue of protection of minority shareholders. It reads as follows: “5. (ix) Protection for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic 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 windingup 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. (2) Without prejudice to the generality of the powers under subsection (1), an order under that subsection may provide for- (a) the regulation of conduct of affairs of the company in future; (b) the purchase of shares or interests of any members of the company by other members thereof or by the company; (c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital; (d) restrictions on the transfer or allotment of the shares of the company; (e) the termination, setting aside or modification, of any agreement, howsoever arrived at, between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles. (6) Subject to the provisions of subsection (1), the alterations made by the order in the memorandum or articles of a company shall, in all respects, have the same effect as if they had been duly made by the company in accordance with the provisions of this Act and the said provisions shall apply accordingly to the memorandum or articles so altered. (7) A certified copy of every order altering, or giving leave to alter, a company’s memorandum or articles, shall within thirty days after the marking thereof, be filed by the company with the Registrar who shall register the same. (8) If a company contravenes the provisions of subsection (5), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twentyfive lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twentyfive thousand rupees but which may extend to one lakh rupees, or with both.” 15.24 Thus the English ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been or are being conducted in a manner– (a) Prejudicial to any member or members; (b) Prejudicial to public interest; or (c) Prejudicial to the interests of the company; or (d) Oppressive to any member or members. (2) Winding up will unfairly prejudice such member or members. 15.27 From the table given above, it could be seen that the changes brought about in India in course of time, were material. These changes can be summarised as follows: (i) While the conduct of the company’s affairs in a manner thatwarrant interference, should be “present and continuing”, under the 1913 Act and 1956 Act, as seen from the usage of the words “are being”, the conduct could even be “past or present and continuous” under the 2013 Act as seen from the usage of the words “have been or are being” (But the conduct cannot be of a distant past); (ii) Prejudice to public interest and prejudice to the interests of anymember or members were not among the parameters prescribed in the 1913 Act, but under the 1956 Act prejudice to public interest was included both under the provision relating to oppression and also under the provision relating to mismana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y pass such order as it thinks fit for giving relief in respect of the matters complained of. 15.29 There are a few notable features of the shift that happened in England. They are (i) from a “conduct oppressive to some part of the members” the focus has shifted to “conduct unfairly prejudicial to the interests of the members generally or of some part of its members”: (ii) conduct prejudicial to public interest or prejudicial to the company’s interest, does not form part of the scheme of English Law; (iii) any actual or proposed act or omission, can also be challenged under English Law on the ground that it would turn out to be prejudicial; (iv) the question of the Court forming an opinion that the facts would otherwise require an order for winding up on just and equitable ground but that the same will unfairly prejudice the complaining members, does not arise under the English Law any more. 15.30 But despite the huge shift in England, there appears to be a common thread running in all the enactments, both in India and England. In all the 3 Indian enactments, namely the 1913 Act, 1956 Act and the 2013 Act, the Court is ordained, generally to pass such orders “w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up Tata Sons under Section 241, but such winding up would unfairly prejudice the interests of the complainants. 16.4 The specific allegations on which the complainant companies (of the S.P. Group) sought relief are as follows: (i) The abuse of a few Articles of Association and the control exercised by the Tata Trust and its nominee Directors over the Board of Directors of Tata Sons; (ii) The removal of CPM as Executive Chairman; (iii) Transactions with Mr. C. Sivasankaran of Sterling Infotech and the transactions in which Tata Teleservices got entangled; (iv) Acquisition of Corus Group Inc of U.K.; (v) Doomed Nano Car project; (vi) The grant of intercorporate bridge loan to sterling computers; (vii) The dealings with NTT DoCoMo which eventually led to an arbitration award for a huge sum of money; (viii) The sale of a flat to Mehli Mistry and the grant of huge personal favours to the companies owned and controlled by Mehli Mistry. 16.5 Each and every one of the allegations forming the basis of the complaint, was dealt with by NCLT and categorical findings based on evidence was recorded by NCLT. The findings recorded by NCLT allegationwise, are indic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits from the acquisition of shares of TTSL than Siva Group. (the latter had sold its shares to NTT-Docomo in 2008). Complainant companies also acquired shares of Tata Teleservices Ltd. at ₹ 15/ per share. (Para 230) 8. NTT-DoCoMo also acquired shares from brother and father of CPM. CPM was also a beneficiary like Siva but this was not disclosed by the complainant companies. The rate at which the petitioners acquired the shares of TTSL is less than the rate at which Siva acquired them and the gain made by the petitioners by selling shares of NTT DoCoMo was more than the gain made by the Siva Group. (Para 230) 9. The acquisition happened in 2006 and it is sought to raise after 10 years, during which period CPM was part of that board and also the Executive Chairman for a period. 10. No proof on record to show leakage of info 11. It was Mr. Nitin Nohria (Trust Nominee director) and not CPM, who proposed to initiate legal action against Siva. (Para 231) 12. With respect to Tata Capital giving a loan to Mr. Siva, due diligence carried out on the same, and no role in the grant of this loan can be attributed to RNT. (Para 234) 13. The acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever raised any objection. (Para 258) 2004 barging cum dredging contract – with regard to the award of contract by Tata Power to MPCL, there is nothing on material to prove that this caused loss to TPC. (Para 259) 2006 Shipping Contract awarded by Tata Power to a consortium (comprising of MPSPL and Mercator Lines Ltd.) – Letter written by Mr. Mehli to Tata Power dated 04.05.2013 pertained to issue of coal storage, which does not prove any expropriation or bullying by him. Since, the company of Mr. Mehli was the contractor, he only wrote to Tata Power to ensure proper coordination and joint decision making to sustain a smooth supply chain to Trombay Power house. (Para 263) This (Alibaug) was a regular transfer that took place in 1993. Previously, Aqua Farms had made payments to the original landowner for purchase, but the sale deed did not fructify. Aqua Farms was made a confirming party, as RNT reimbursed Aqua Farms for the original payment that it had made to the original land owners. Simply put, the moment RNT reimbursed Aqua Farms, the vendors of the land would execute the sale deed in favour of RNT. This was a mere sale transaction between two parties, which c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or harm to Tata Motors has been proved. (Para 281-282) No evidence of the UPSI causing prejudice to the interest of Tata Motors has been placed by CPM, upon whom the burden of proof was. (Para 284) Seeking information does not amount to conducting affairs of the company. (Para 285) The correspondences of RNT to CPM regarding the supply of cars to Ola/ Uber, were done to try to get into business with either of the two. (Para 290-293) No specific finding Wellspun Acquisition by Tata Power Since the acquisition of Welspun was not put up to the Board of Tata Sons for prior approval and it came up only after Tata Power had signed the papers for acquisition, making Tata Sons a fait accompli, the nominee directors had to indulge in consultations and the same did not tantamount to interference by the Trusts. (Para 384, 385, 543) No specific finding. The oppressive nature of Articles 104B, 121, 121A and 75 CPM’s father was a director at the time when amendments were made to the Articles of Association on 13/09/2000. (Para 371) Article 118 was amended on 06/12/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Tata Sons into a private company. In other words, these are the 4 areas in which NCLAT can be taken to have undertaken a scrutiny and reversed the findings of NCLT. Therefore, for answering the first question of law, we need to focus mainly on these issues on which NCLAT expressly overruled NCLT. 16.10 Out of these 4 specific issues on which NCLAT overruled NCLT, 3 issues will also be covered in our discussion on questions of law 4 and 5.. Therefore, we shall take up in this chapter, the question (i) whether the removal of CPM could have been the basis for the allegation that the company’s affairs have been or are being conducted in a manner oppressive or prejudicial to the interests of some of the members and (ii) whether the findings recorded by NCLAT about the existence of just and equitable clause is in accordance with the well established principles of law. Removal of CPM 16.11 CPM was first removed only from the post of Executive Chairman of Tata Sons, but not from the Directorship, by the resolution of the Board dated 24.10.2016. This acted as the trigger point for CPM, to launch an offensive. On the very next day namely 25.10.2016, CPM wrote a mail alle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sses by virtue of the affirmative voting rights; (ii) that RNT and Soonawala have on many occasions sought prior information and consultation; (iii) that the conduct of the Trustees posed several regulatory risks; and (iv) that the office of RNT, in his capacity as Chairman Emeritus was funded by Tata Sons, including the cost of his overseas travel by private jet. To this letter to the Deputy Commissioner of Income Tax was enclosed certain files purportedly containing the information sought. 16.15 Upon coming to know of CPM’s letter to the Deputy Commissioner of Income Tax, Tata Sons lodged a protest through a letter dated 26.12.2016. It was followed by a legal notice issued by Tata Sons to CPM on 27.12.2016 pointing out that he was guilty of breach of confidentiality and that he had passed on confidential and sensitive information contained in 4 box files, without any authority. CPM sent a legal reply dated 05.01.2017 claiming that he had a statutory obligation to cooperate with Income Tax authorities. As if to display his courage of conviction, CPM sent another letter dated 12.01.2017 to the Deputy Commissioner of Income Tax sending one more file and assuring the authorities t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainant companies moved an application for amendment of the original petition so as to include two additional prayers namely (i) reinstatement of the representative of the complainant companies on the Board of Tata Sons; and (ii) amendment of the Articles of Association to provide for proportional representation. 16.20. However, eventually the prayers made in clauses (A), (B) and (C) were not pressed. Prayers in clauses (F), (Q) & (R) were also not pressed on the ground that they had become infructuous. In Paragraph 3.4 above we have extracted the reliefs as originally sought in the main company petition and in the table in Paragraph 4.11 we have indicated the prayers additionally made and the reliefs either given up or sought to be modified. 16.21 In fact the real reason why the complainant companies thought fit, quite tactfully, not to press for the reinstatement of CPM is that the mere termination of Directorship cannot be projected as something that would trigger the just and equitable clause for winding up or to grant relief under Sections 241 and 242. A useful reference can be made in this regard to the decision of this Court in Hanuman Prasad Bagri & Ors. vs. Bagress ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CPM in leaking his mail dated 25102016 to the Press and sending replies to the Income Tax Authorities enclosing 4 box files, even while continuing as a Director, justified his removal even from the Directorship of Tata Sons and other group companies. A person who tries to set his own house on fire for not getting what he perceives as legitimately due to him, does not deserve to continue as part of any decision making body (not just the Board of a company). It is perhaps this realisation that made the complainant companies give up their original prayer for restraining the company from removing CPM and singing a different tune seeking proportionate representation on the Board. 16.26 For assailing the decision to remove CPM from the Chairmanship of Tata Sons, it is contended (i) that Tata Group performed exceedingly well under his stewardship; (ii) that the Nomination and Remuneration Committee for the Financial Year 201516 endorsed his performance and even recommended a pay hike and performance linked bonus; and (iii) that the Board unanimously approved these recommendations on 29.6.2016 just four months before his unceremonious removal. 16.27 First of all, the above content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r be the primary focus of a Tribunal under Section 242 unless the same is in furtherance of a conduct oppressive or prejudicial to some of the members. In fact the post of Executive Chairman is not statutorily recognised or regulated, though the post of a Director is. At the cost of repetition it should be pointed out that CPM was removed only from the post of (or designation as) Executive Chairman and not from the post of Director till the Company Petition was filed. But CPM himself invited trouble, by declaring an all out war, which led to his removal from Directorship. 16.32 It is true that as per the evidence available on record he was requested before the Board meeting, to step down from the post of Executive Chairman. That does not tantamount to the act being premeditated. The induction of new members on 8.8.2016 into the Board and the Board securing a legal opinion prior to the Board meeting, cannot make the act a premeditated one. There is a thin line of demarcation between a wellconceived plan and a premeditated one and the line can many times be blurred. 16.33 Article 118 around which arguments were advanced reads as follows: “118. APPOINTMENT OF CHAIRMAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what is meant by the expression “the same process” appearing in the second part of Article 118. 16.36 The argument pitched upon Article 105(a) is also completely unfounded. Article 105(a) deals with the power of the Board to appoint a Managing Director, Joint/Deputy Managing Director or Whole Time Director. The provision relating to Executive Chairman is not to be found in Article 105(a) but in Article 105(b) which reads as follows: “The Board shall have the power to designate the Chairman of the Board as the Executive Chairman and pay him such remuneration as, in their opinion, they deem fit”. Therefore, the argument on the basis of Article 105(a) is illfounded. 16.37 The contention that the removal was in violation of the second proviso to Section 179(1) read with Article 122(b) is also illconceived. The second proviso to Section 179(1) prohibits the Board from exercising any power that could be exercised by the company only in a General Meeting. Article 122(a) is only a reiteration of the principle behind the second proviso to Section 179(1). Article 122(b) says that the Board may exercise all such powers as are not required to be exercised by the company in Gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Bank of India on the ground that it had no relevance to the termination of a policy of insurance. 16.41 The decision in M.I. Builders Pvt. Limited vs. Radhey Shyam Sahu & Others (1999) 6 SCC 464, to the effect that an important issue cannot be decided under the residuary agenda item “any other item”, will not also go to the rescue of the complainant companies, since the matter in M.I. Builders concerned the permission granted by the Municipal Corporation to a builder to construct an underground shopping complex in a park. The Court found the decision taken by the Mahapalika to be in clear breach of Sections 91 and 119 of the U.P. Municipal Corporation Act, 1959. Therefore, the said decision has no application. 16.42 In any event the removal of a person from the post of Executive Chairman cannot be termed as oppressive or prejudicial. The original cause of action for the complainant companies to approach NCLT was the removal of CPM from the post of Executive Chairman. Though the complainant companies padded up their actual grievance with various historical facts to make a deceptive appearance, the causa proxima for the complaint was the removal of CPM from the office of Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tandard, for the simple reason that it was the very same complaining minority whose representative was not merely given a berth on the Board but was also projected as the successor to the Office of Chairman. 16.46 In Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 WLR 1289 , decided by House of Lords, one of the Directors who was voted out of office by the other two Directors (fatherson duo) petitioned for an order under Section 210 of the English Companies Act, 1948. The very relief sought by the ousted director was for a direction to the other two persons to purchase his shares in the Company or to sell their shares to him on such terms as the Court should think fit. Alternatively, he prayed for winding up. The Court of the first instance held that a case for winding up had been made out, as the majority was guilty of abuse of power and a breach of good faith which the partners owed to each other not to exclude one of them from all participation in the business. The court of Appeal reversed it by applying the tests of (i) bonafide exercise of power in the interest of the company; and (ii) whether a reasonable man could think that the removal was in the interest of the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst of these is labelled as, “functional dead lock”, where the inability of members to cooperate in the management of the company’s affairs leads to an inability of the company to function at Board or shareholder level. The House of Lords pointed out that functional dead lock of a paralysing kind was first clearly recognised as a ground for just and equitable winding up In Re Sailing Ship Kentmere Co. [1897] WN 58. The second of these is where a company is a corporate quasi partnership and an irretrievable breakdown in trust and confidence between the participating members has taken place. In the first type of these cases, where there is a complete functional dead lock, winding up may be ordered regardless whether the company is a quasi partnership or not. But in the second type of cases, a breakdown of trust and confidence is enough even if there is not a complete functional dead lock. 16.50 Therefore, for invoking the just and equitable standard, the underlying principle is that the Court should be satisfied either that the partners cannot carry on together or that one of them cannot certainly carry on with the other, The advantage that the English courts have is that irret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Law No.2 17.1 The second question of law arising for consideration is as to whether the reliefs granted and directions issued by NCLAT including the reinstatement of CPM into the Board of Tata Sons and other Tata Companies are in consonance with (i) the pleadings made, (ii) the reliefs sought and (iii) the powers available under SubSection (2) of Section 242. 17.2 As we have indicated in Para 3.4 above, the complainant companies originally sought a set of 21 reliefs listed in para 153 (A) to (U). Subsequently, the complainant companies sought the addition of two more prayers, through an application for amendment filed on 10.2.2017. The additional reliefs sought to be included were for: (i) reinstatement of a representative of the complainant companies on the Board of Tata Sons and (ii) Amendment of the Articles of Association so as to provide for proportional representation on the Board. 17.3 Thereafter the complainant companies sought a few more prayers through an application for amendment dated 31.10.2017. However, by a Memo dated 12.01.2018 the complainant companies gave up certain prayers, sought a modification of some other prayers and recorded that they we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tata Group companies, and prohibit the Trustees from interfering in the affairs of Respondent No. 1 and/or Tata Group companies; (I) appoint an independent auditor to conduct a forensic audit and independent investigation into transactions and dealings of Respondent No. 1 with particular regard to: (i) all transactions between Mr. C. Sivasankaran and his business entities on the one hand, and the Respondent No. 1 and various Tata Group companies under the control of Respondent No. 1 or of which Respondent No. 1 is the promoter on the other hand, to determine and crystallize the breach of trust, violation of fiduciary duties and failure to discharge the duty of care, and fix accountability therefor; and (ii) all transactions involving Mr. Mehli Mistry and his associated entities with Respondent No. 1 and/or Tata Group companies whereby any unjust enrichment has been generated in favour of any these parties; and submit a report to this Hon’ble Tribunal such that this Hon’ble Tribunal can pass such further orders as may be necessary so as to recover from concerned persons the loss that has been caused inter alia to the Petitioners and such findings of the audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Association of Respondent No. 1; and substitute these articles with such articles as the nature and circumstances of this case may require; (N) direct the Respondents (excluding Respondent Nos. 4, 10 &11) to bring back into Respondent No. 1, the funds used by Respondent No. 1 for acquiring shares of Tata Motors; (O) restrain Respondent No. 1 from initiating any new line of business or acquiring any new business in existing lines of business without leave of this Hon’ble Tribunal and that too only after the matter is discussed and decided upon by the Board of Directors of Respondent No. 1 without applying Article 121 of the Articles of Association; (P) restrain the trustees of the Trusts from interfering in the affairs of Respondent No. 1 and in the various companies that form part of the Tata Group; (Q) restrain the existing Selection Committee from acting any further and/or discharging any functions and a new Selection Committee be appointed. (R) direct that no candidate selected by the Selection Committee constituted pursuant to Article 118 of the Articles of Association of Respondent No. 1 to be appointed without leave of this Hon’ble Tribunal; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment and the memo mentioned above, the reliefs that remained to be considered by NCLT were as follows: (1) restrain Respondent No. 14 (N.A. Soonawala) from interfering in the affairs of Respondent No. 1; (Relief clause D) (2) direct Respondent No. 1 (Tata Sons) not to issue any securities which will result in dilution of the paidup equity capital; (Relief clause E) (3) restrain the Respondents from making any changes to the Articles of Association of Respondent No. 1 without the leave of the Tribunal; (Relief clause G) (4) order an investigation into the role of the Trustees of the Tata Trusts in the operations of Respondent No. 1, the Tata Group companies as also in the functioning of the Board of Directors of Respondent No. 1 and Tata Group companies, and prohibit the Trustees from interfering in the affairs of Respondent No. 1 and Tata Group companies; (Relief clause H) (5) appoint an independent auditor to conduct a forensic audit and independent investigation into transactions and dealings of Respondent No. 1 with particular regard to: (i) Mr. C. Sivasankaran and his business entities; and (ii) Mr. Mehli Mistry and his associated entities; and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest of the Company and that too after recording reasons and informing the affected parties. (iv) Setting aside the decision of the Registrar ofCompanies recognising Tata Sons conversion into a Private Company. 17.6 Thus NCLAT granted to the complainant companies (and indirectly to CPM) four reliefs namely: (i) reinstatement of CPM; (ii) declaring Tata Sons as a Public Limited Company; (iii) restraining the nominee Directors and RNT from taking any decision in advance and (iv) restraining the invocation of Article 75 except in exceptional circumstances. We shall now see whether NCLAT could have granted any of these reliefs. Reinstatement of CPM 17.7 Removal and reinstatement are two different things. We have dealt with the issue of removal of CPM, while answering question of law No.1, in the context of whether it was part of a scheme of oppressive and prejudicial conduct. Now we shall deal with the issue of reinstatement in the context of the contours of section 242(2) and the nature of the orders that could be passed. 17.8 As we have seen already, the original motive of the complainant companies, was to restrain Tata Sons from removing CPM as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expiry of his term of office. Needless to say that such a remedy would not have been granted even by a labour court/service Tribunal in matters coming within their jurisdiction. 17.12 In fact NCLAT has gone to the extent of reinstating CPM not only on the Board of Tata Sons, but also on the Board of Tata group companies, without they being parties, without there being any complaint against those companies under section 241 and without there being any prayer against them. These companies have followed the procedure prescribed by Statute and the Articles and they have validly passed resolutions for his removal. For instance, TCS granted an opportunity to CPM and held a general meeting in which 93.11% of the shareholders, including public institutions who hold 57.46% of shares supported the resolution. In any case CPM’s tenure itself was to come to an end on 16.06.2017 but NCLAT passed the impugned order reinstating him “for the rest of the tenure”. In respect of other companies which had convened the EGM for considering the resolution for his removal, CPM submitted resignations. But now by virtue of the impugned order, CPM will have to be reinstated even on the Board of compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not thereby hold the act of dismissal to be a nullity and, therefore, of no effect.” 17.17 It is significant that Sections 241 and 242 of the Companies Act, 2013 do not specifically confer the power of reinstatement, nor we would add that there is any scope for holding that such a power to reinstate can be implied or inferred from any of the powers specifically conferred. 17.18 The following words at the end of subsection (1) of 242 “the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit” cannot be interpreted as conferring on the Tribunal any implied power of directing reinstatement of a director or other officer of the company who has been removed from such office. These words can only be interpreted to mean as conferring the power to make such order as the Tribunal thinks fit, where the power to make such an order is not specifically conferred but is found necessary to remove any doubts and give effect to an order for which the power is specifically conferred. For instance, subsection (2) of Section 242 confers the power to make an order directing several actions. The words by which subsection (1) of Section 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitutional law and administrative law are not displaced by use of merely general words. This is styled as the principle of legality. In the words of SIR JOHN ROMILLY: “The general words of the Act are not to be so construed as to alter the previous policy of the law, unless no sense or meaning can be applied to those words consistently with the intention of preserving the previous policy untouched.” Since every new law involves some change the above statement of LORD ROMILLY must be applied with caution and should be normally confined to cases where ‘the abrogation of a long standing rule of law is in question’. There are many presumptions which an interpreter is entitled to raise which are not readily displaced merely by use of general words, e.g., an intention to bind the Crown or an intention to exclude the supervisory jurisdiction of superior courts will not be inferred merely by use of general words. It is an application of the same principle that unless there be clearest provision to the contrary, Parliament is presumed not to legislate contrary to rule of law which enforces ‘minimum standard of fairness both substantive and procedural’. Thus a statutory power though confer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentation on all committees formed by the Board of Directors of Tata Sons.” 17.22 Thus the relief of reinstatement granted by the Tribunal, was too big a pill even for the complainant companies (and perhaps CPM) to swallow. Relief relating to Article 75 17.23 The larger questions revolving around the attack to Article 75, particularly the question whether the very presence of such an article could be construed as oppressive and prejudicial to some members, will be dealt with in the next chapter concerning question of law No.3. But we shall consider here, the limited question whether the Tribunal could have granted a relief, that has the effect of sending Article 75 into comatose. 17.24 Actually, the relief in respect of Article 75, technically speaking, could not have been granted by NCLAT. The reason is that in the Company Petition as it was originally filed, there was no prayer challenging Article 75. It was only through an application for amendment dated 31.10.2017 that the complainant companies sought to incorporate a prayer as Clause M2 for striking off/ deleting Article 75 on the ground that it is a tool in the hands of majority shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicated in Clauses (a) to (m) of Subsection (2) of Section 242. Subsection (2) of Section 242 has been extracted by us elsewhere and it shows that what is listed in Clauses (a), (b), (c), (e), (f) and (g) of Subsection (2) of Section 242 are just the same as or similar to Clauses (a) to (f) of Section 402 of the 1956 Act. Clauses (d), (h), (i), (j), (k) and (l) of Subsection (2) of Section 242 are new additions under the 2013 Act. 17.31 Fundamentally, the object for the achievement of which, the Tribunal is entitled to pass an Order under Section 242(1) of the 2013 Act, remains just the same, as in the 1956 Act. The words “the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit”, found in the last limb of Subsection (2) of Section 397 of the 1956 Act, is also repeated in the last limb of Subsection (1) of Section 242 of the 2013 Act. These words also found a place in the last limb of Subsection (4) of Section 153C of the 1913 Act. 17.32 Even Section 210 of the English Companies Act of 1948 used the very same words namely “the Court may, with a view to bringing to an end the matters complained of, make such order a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Tata Sons into a private company. 18. Question 3 18.1 The third question of law to be considered is as to whether NCLAT could have, in law, muted the power of the company under Article 75 of the Articles of Association, to demand any member to transfer his shares, by injuncting the company from exercising the rights under the Article, even while refusing to set aside the Article. 18.2 Article 75 of the Articles of Association reads as follows: “75. Company’s Power of Transfer The Company may at any time by Special Resolution resolve that any holder of Ordinary shares do transfer his Ordinary shares. Such member would thereupon be deemed to have served the Company with a salenotice in respect of his Ordinary shares in accordance with Article 58 hereof, and all the ancillary and consequential provisions of these Articles shall apply with respect to the completion of the sale of the said shares. Notice in writing of such resolution shall be given to the member affected thereby. For the purpose of this Article any person entitled to transfer an Ordinary share under Article 69 hereof shall be deemed the holder of such share.” 18.3 At the outset it sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he became a party with eyes wide open. 18.7 It is not as though CPM or his father who was also a Director for nearly 25 years, were not aware of or blind to the existence of Article 75. In fact, in the application for amendment filed by the complainant companies on 31.10.2017, seeking to incorporate a challenge to Article 75, the complainant companies stated as follows: “…In as much as no occasion had arisen in exercise of the said Article, the petitioners i.e., Respondent Nos. 1 and 2 had taken a conscious decision not to challenge the same. Respondent Nos. 1 and 2 now foresee a real and immediate threat of this Article being misused” The above pleading on the part of the complainant companies was sufficient to throw the challenge to Article 75 out, as it did not correlate to an actual conduct but the possibility of a future conduct. Section 241 is not intended to discipline a Management in respect of a possible future conduct. 18.8 It is no doubt true that the Tribunal has the power under Section 242 to set aside any amendment to the Articles that takes away recognised proprietary rights of shareholders. But this is on the premise that the bringing up of amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rabji Tata Trust and the Sir Ratan Tata Trust so long as the Tata Trusts hold in aggregate at least 40% of the paidup Ordinary share capital, for the time being, of the Company. Explanation: the words “jointly nominated” used in this Article shall mean that the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust shall together nominate the authorized representative. In the case of any difference, the decision of the majority of the Trustees in the aggregate of the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust shall prevail.” 104. General Provisions A. Number of Directors ............ B . Nomination of Directors So long as the Tata Trusts own and hold in the aggregate at least 40% of the paid up Ordinary share capital, for the time being, of the company, the Sir Dorabji Tata Trust and Sir Ratan Tata Trust, acting jointly, shall have the right to nominate one third of the prevailing number of Directors on the Board and in like manner to remove any such person so appointed and in place of the person so removed, appoint another person as Director. The Directors so nominated by the Sir Dorabji Tata Trust and Sir Ratan Tata Trust s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny Tata Company or of or over any part thereof, if not already approved as part of the annual business plan; (g) any matter affecting the shareholding of the Tata Trusts in the company or the rights conferred upon the Tata Trusts by the Articles of the Company or the shareholding of the Company in any Tata Company if not already approved as part of the annual business plan; (h) Exercise of the voting rights of the Company at the general meetings of any Tata Company, including the appointment of a representative of the Company under Section 113(1)(a) of the Companies Act, 2013 in respect of a general meeting of any Tata Company and, in any matter concerning the raising of capital, incurring of debt and divesting or acquisition of any undertaking or business of such Tata Company, instructions to such representative on how to exercise the Company’s voting rights. Explanation: the term “Tata Company” used in this article shall, as the context requires, mean each or any of the 4 following companies” Tata Consultancy Services ltd., Tata Steel Limited, Tata Motors Limited, Tata Capital Ltd., Tata Chemicals Ltd., Tata Power Company Ltd., Tata Global Beverages Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta Sons, were interfering with the decision making processes of the Board of Directors, and therefore, the reliefs ought to have been granted against all the Trustees of the Tata Trusts. ii. Further in view of the fact that such interference was being based on the existence of an affirmative vote under Article 121, it would totally be anomalous to a Board managed Company if every decision required an affirmative vote of the Trust Nominee Directors and Tata Sons would virtually become a majority shareholder managed company rather than a Board managed company as contemplated under Article 122(b). Article 121A of the Articles specifies certain areas where consent of the majority shareholder was necessary and therefore, the relief that ought to have been granted was to restrict the applicability of the affirmative vote to the nominee of the Tata Trusts on the matters covered under Article 121A and a a similar right ought to have been conferred on the nominee directors of the minority shareholder – the SP Group. 19.6 But for the fact that the complainant companies have also come up with an appeal, we would have simply set aside the order of restraint passed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken and the relief that they now seek, raises a doubt whether it is actually a fight on principles. If affirmative voting rights are bad in principle, we do not know how they may become good, if conferred on S.P. Group also. 19.12 Drawing our attention to Sections 135, 149, 151, 161 166 and 177 of the Companies Act, 2013, it was argued on behalf of SP group that there is a sea change in the law, after the advent of the 2013 Act and that today a paradigm shift has taken place from ‘corporate majority/democracy’ to ‘corporate governance’ and that every action of the Board has to pass the test of fairness. It is further contended that Directors have a fiduciary responsibility with the highest level of duty and that the same cannot be outsourced. According to the SP group, the Directors, once appointed, owe their allegiance only to the company and not to their nominators. 19.13 At first blush, these arguments, almost bordering on romantic idealism, appear very attractive. But on a deeper scrutiny, they are bound to get grounded. If we have a look at the history of evolution of corporate enterprises, it can be seen that there are 3 time periods through which development of corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholders’ Director, to be elected by the small shareholders. (vii) The report of the Board of Directors should include a Director’s Responsibility Statement, covering certain aspects relating to accounting standards, accounting policies and maintenance of accounting records. (viii) Directors of a company are obliged to perform certain duties, such as duty to act in good faith, duty to exercise reasonable care, skill diligence and independent Judgment etc. (ix) A detailed Code of conduct for independent Directors is stipulated in Schedule IV. This includes guidelines for professional conduct, roles and functions and duties. (x) The resignation or removal of independent Directors should be in accordance with the procedure prescribed. (xi) Independent Directors are required to hold at least one meeting in a year without the attendance of nonindependent Directors and members of management and they are entitled in this meeting to review the performance of nonindependent Directors and the Board as a whole. They can even review the performance of the Chairperson of the Company and assess the quality, quantity and timeliness of flow of information between the management an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Pallonji Mistry, the father of CPM was inducted as a NonExecutive Director on 25.06.1980, though the Articles of Association did not confer any right of Directorship upon the S.P Group. He stepped down from this position in December, 2004. Thereafter, CPM was appointed as NonExecutive Director on 10.08.2006. Ever since the establishment of the Tata Group in 1868, there have only been six persons who became the Chairmen of the Group. While five of them namely Jamshedji Tata, Sir Dorab Tata, Nowroji Saklatwala, JRD Tata and Ratan Tata belonged to the same family, the sixth person namely CPM was inducted as Executive Chairman by Resolution dated 18.12.2012 with effect from 29.12.2012. Before the said appointment, CPM was identified by a Selection Committee which comprised of the nominees of the two Tata Trusts. This Selection Committee identified CPM as a successor to RNT as Chairman and appointed him first as Executive Deputy Chairman for a period of five years form 1.04.2012 till 31.03.2017, subject to the approval of the General Body. The General meeting of the shareholders, held on 1.8.2012 approved the appointment of CPM as Executive Deputy Chairman and also left it to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to the S.P. Group, the preconsultation/preclearance requirement disabled the Directors from effectively discharging their fiduciary duties under Section 166, violated the Secretarial Standards required to be adhered to under Section 118(10) and rendered nugatory, the scheme of Section 149 which requires 1/3rd of the members of the Board to be independent Directors. 19.21 But all the above contentions are completely devoid of any substance, for they tend to overlook one basic fact namely that Tata Sons is not a company engaged either in any manufacturing activity or in any trading activity. As per the pleadings, on which there is no dispute, Tata Sons is a Principal Investment Holding Company and is a promoter of Tata Companies. Tata Sons holds a controlling interest in all the operating companies of the Tata Group. Other than being the Principal Investment Holding Company, Tata Sons, by itself is not engaged in any direct business activity. 19.22 As we have indicated in the beginning, around 66% of the equity share capital of Tata Sons is held by philanthropic Trusts, including Sir Dorabji Tata Trust and Sir Rata Tata Trust. It is claimed that these charitable Trusts su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween competing interests and statutes cannot resolve these conflicts effectively. 19.25 Affirmative voting rights for the nominees of institutions which hold majority of shares in companies have always been accepted as a global norm. As a matter of fact the affirmative voting rights conferred by Article 121 of the Articles of Association, confers only a limited right upon the Directors appointed by the Trusts under Article 104B. Article 121 speaks only about the manner in which matters before any meeting of the Board shall be decided. If it is a General Meeting of Tata Sons, the representatives of the two Trusts will actually have a greater say as the Trusts have 66% of shares in Tata Sons. Therefore, if we apply Section 152(2) strictly, the Trusts which own 66% of the paid up capital of Tata Sons will be entitled to pack the Board with their own men as Directors. But under Article 104B, only a minimum guarantee is provided to the two Trusts, by ensuring that the Trusts will have at least 1/3rd of the Directors, as nominated by them so long as they hold 40% in the aggregate of the paid up share capital. 19.26 Section 43 of the Companies Act (which is equivalent of Section 86 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds 2 companies, one of which is the shareholder which nominated them and the other, is the company to whose Board they are nominated. If this is understood, there will be no confusion about the validity of the affirmative voting rights. What is ordained under Section 166(2) is a combination of private interest and public interest. But what is required of a Director nominated by a charitable Trust is pure, unadulterated public interest. Therefore, there is nothing abhorring about the validity of the affirmative voting rights. 19.31 Relying upon the decision of this Court in Vodafone International Holdings BV vs. Union Of India (2012) 6 SCC 613, it was contended that a minority investor has what is called “participative rights, which is a subsect of protective rights” and that these participative rights enable the minority to overcome the presumption of consolidation of operations or assets by the controlling shareholder. 19.32 But the decision in Vodafone (supra) arose under a completely different context. It was a tax dispute in relation to capital gains arising from the sale of share capital of a company resident for tax purposes in Cayman Islands, on the basis that it held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost facto and his participation as a shadow Director. But as we have pointed out elsewhere, CPM himself sought, while accepting the office of Executive Chairmanship, the continued guidance of RNT. When the Board, of which CPM was a Chairman, nominated RNT as Chairman Emeritus and recorded their desire to look forward to his support and guidance, it is not open to the complainant companies to call RNT a shadow Director. If someone, aggrieved after his removal from office can engage in shadowboxing through the companies controlled by him, he cannot accuse the very same person who chose him as successor to be a shadow director. Someone who gained entry through the very same door, cannot condemn it when asked to exit. 19.37 Therefore, the challenge to the affirmative voting rights and the allegations revolving around pre consultation and pre clearance by the Trusts of all items in the agenda and RNT’s indirect or direct influence or grip over the Board are all liable to be rejected. That leaves us with one more related issue, under this question of law and the same relates to the claim of SP group for proportionate representation on the Board. We shall now go to the same. Clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public company which has become such by virtue of Section 43A, indicating thereby that it would not have had any application to Tata Sons; (ii) that in contrast, Section 151 of the 2013 Act applies only to listed companies; (iii) that for the application of the proviso to Section 252(1) of the 1956 Act, the public company should have a paidup capital of ₹ 5 crores or more and 1000 or more small shareholders; (iv) that in contrast the applicability of Section 151 of the 2013 Act does not depend upon either the paidup capital or the number of small shareholders; and (v) that the definition of the expression “small shareholders” is just the same under both the enactments. 19.41 It is interesting to note that the smallness conceived by the 1956 Act is virtually minuscule. One would qualify to be a small shareholder only if he holds shares of a nominal value of ₹ 20,000/ or less, in a public company having a paidup capital of ₹ 5 crores or more. This proportion works out to 1/2500 or 0.04%. 19.42 One must be careful to note that both under Section 252(1) of the 1956 Act and under Section 151 of the 2013 Act, the spotlight was only on “small shareholders” and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1980 to CPM’s father. Therefore, there is nothing on record in the form of pleadings or proof, to show that there was either (i) a preexisting relationship before the incorporation of the company or (ii) a living in relationship picked up half way through, by entering into an agreement in the nature of a partnership. 19.47 In fact, CPM’s father was inducted into the Board in 1980, after 15 years of acquisition of shares and such induction was not in recognition of any statutory or contractual right. After his father’s exit in 2004, CPM was inducted in 2006, neither in recognition of a contractual right nor in recognition of a hereditary or statutory right. 19.48 The claim for proportionate representation can also be looked at from another angle. RNT who was holding the mantle as the Chairman of Tata Sons for a period of 21 years from 1991 to 2012, actually conceded a more than proportionate share to the S.P. Group by nominating CPM as his successor. Accordingly CPM was also crowned as Executive Deputy Chairman on 16.3.2012 and as Chairman later. CPM continued as Executive Chairman till he set his own house on fire in 2016. If the company’s affairs have been or are bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with effect from 01.02.1975, by virtue of Section 43A (1A) of the Companies Act, 1956. However, by virtue of the proviso to Subsection (1A), the Articles of Association of the Company, continued to retain the provisions relating to the matters specified in subclauses (a), (b) and (c) of Clause (iii) of Subsection (1) of Section 3 of the 1956 Act. 20.3 By Act 53 of 2000, the deeming fiction in section 43A was removed and the whole concept of private companies becoming public companies disappeared from the date of coming into force of this Act 53 of 2000. 20.4 The Companies Act, 2013 did not include any provision similar to section 43A. Therefore, Tata Sons passed a resolution in its 99th Annual General meeting held on 21092017 to alter the Memorandum and Articles so as to insert the word “private” in between the words “Sons” and “Limited” in its name. 20.5 On 09.07.2018, the complaint under sections 241 and 242 was dismissed by NCLT and hence Tata Sons approached the Registrar of Companies on 19.07.2018 seeking an amendment to the Certificate of Incorporation. It appears that S.P. Group filed objections with the Registrar of Companies on the ground that they were fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st so held before the commencement of the Companies (Amendment) Act, 1960 (65 of 1960), on and from the expiry of the period of three months from the date of such commencement unless within that period the aforesaid percentage is reduced below twentyfive per cent of the paidup share capital of the private company, become by virtue of this section a public company : Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of subsection (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven : Provided further that in computing the aforesaid percentage, account shall not be taken of any share in the private company held by a banking company if, but only if, the following conditions are satisfied in respect of such share, namely: (a) that the share (i) forms part of the subject matter of a trust, (ii) has not been set apart for the benefit of any body corporate, and (iii) is held by the banking company either as a trustee of that trust or in its own name on behalf of a trustee of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, become, by virtue of this subsection, a public company, and thereupon all other provisions of this section shall apply thereto: Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of subsection (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven. (1C) Where, after the commencement of the Companies (Amendment) Act, 1988, a private company accepts, after an invitation is made by an advertisement, or renews, deposits from the public other than its members, directors or their relatives, such private company shall, on and from the date on which such acceptance or renewal, as the case may be, is first made after such commencement, become a public company and thereupon all the provisions of this section shall apply thereto: Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of subsection (1) of section 3 and the number of its members may be, or may at any time be, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... … (c) that the private company, irrespective of its paidup share capital, did not have, during the relevant period, an average annual turnover of such amount as is referred to in subsection (1A) or more, (d) that the private company did not accept or renew deposits from the public.] (9) Every private company, having share capital, shall file with the Registrar along with the annual return a certificate signed by both the signatories of the return, stating that since the date of the annual general meeting with reference to which the last return was submitted, or in the case of a first return, since the date of the incorporation of the private company, it did not hold twentyfive per cent or more of the paidup share capital of one or more public companies. Explanation. For the purposes of this section, (a) “relevant period” means the period of three consecutive financial years. (i) immediately preceding the commencement of the Companies (Amendment) Act, 1974, or (ii) a part of which is immediately preceded such commencement and the other part of which immediately, followed such commencement, or (iii) immediately following such commence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inform the Registrar. Upon receipt of such information, the Registrar was ordained to delete the word “private” in the name of the company upon the register and also to make necessary alterations in the Certificate of Incorporation and its Memorandum of Association. 20.14 Subsection (4) declared that the status of such a company as a public company would continue until such time it becomes a private company (i) with the approval of the Central Government; and (ii) in accordance with the provisions of the Act. 20.15 In Needle Industries (India) Ltd vs Needle Industries Newey (India) Ltd (1981) 3 SCC 333, this court pointed out (A) that there are 3 distinct types of companies, namely Private companies, Public Companies and deemed to be public companies which occupy a distinct place in the scheme of the Act (B) that private companies, which become public companies, but which continue to retain in their articles those matters mentioned in section 3(1)(iii) of the Act are also broadly and generally subjected to the rigorous discipline of the Act and (C) that though section 43A companies cannot claim the same privileges to which private companies are entitled, there are certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imum paidup capital of one lakh rupees or such higher paidup capital as may be prescribed, and by is articles, (a) restricts the right to transfer its shares, if any ; (b) limits the number of its members to fifty not including (i) persons who are in the employment of the company ; and (ii) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased ; and (c) prohibits any invitation to the public to subscribe for anyshares in, or debentures of, the company ; (d) prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives: Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this definition, be treated as a single member;” 20.20 Subclause (d) was what was added to section 3(1)(iii) by Act 53 of 2000, even while scrapping the concept of a deemed public company. But this subclause (d) is nothing but subsection (1C) of section 43A. Though section 43A was being scrapped in effect, the Parliament w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as (d) of clause (iii) of subsection(1) of section 3. In other words, the Articles of Association of such a company should contain all the 4 prescriptions namely (i) restriction on the right to transfer shares (ii) limitation on the number of members (iii) prohibition of any invitation to the public to subscribe for shares/debentures and (iv) prohibition of any invitation or acceptance of deposits from persons other than members/Directors or their relatives. 20.24 The Articles of Association of Tata Sons had the prescriptions contained in subclauses (a), (b) and (c), but not subclause (d). Therefore, they did not take any steps in terms of subsection (2A) of section 43A after the advent of Act 53 of 2000. 20.25 But Companies Act, 2013 changed the complexion of the game. It not merely put an end to the concept of deemed public companies, but also restored the definition of the expression ‘private company” to the position that prevailed before Act 53 of 2000. Section 2(68) of the 2013 Act which defines a “private company” incorporated only the original 3 prescriptions contained in subclauses (a), (b) and (c) of clause (iii) of subsection (1) of section 3. The stipu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2019. In other words, the provisions of the 1956 Act continued to be in force till repealed on 30012019. It means that the criteria for a “private company” under subclauses (a), (b), (c) and (d) of clause (iii) of subsection (1) of section 3 of the 1956 Act, did not stand repealed until 30012019. But the new definition of a “private company” under section 2(68) of the 2013 Act had already come into effect on and from 12092013. 20.29 As a result, we had 2 definitions of the expression “private company” from 12092013 [the date appointed for the coming into force of section 2(68) of the 2013 Act] to 30012019 (the date on which section 3(1) of the 1956 Act became a dead letter consequent upon the repeal of the 1956 Act through the notification of the repeal provision under section 465). 20.30 Therefore, we have to fall back upon section 465(3) of the 2013 Act to conclude that section 2(68) of the 2013 Act will prevail over section 3(1)(iii) of the 1956 Act. In other words, on and from 12092013, the question whether a company is a private company or not, will be determined only by the definition of the expression “private company” found in section 2(68) of the 2013 Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any or vice versa. Primarily, Section 14(1) deals with the issue of alteration of Articles of Association of the company. Incidentally, Section 14(1) also deals with the alteration of Articles “having the effect of such conversion”. 20.35 By virtue of the proviso to subsection(1A) of Section 43A of the 1956 Act, Tata Sons continued to have articles that covered the matters specified in subclauses (a), (b) and (c) of Clause(iii) of Subsection(1) of Section 3 of the 1956 Act. Though it did not have the additional stipulation introduced by Act 53 of 2000, namely the stipulation relating to acceptance of deposits from public, this additional requirement disappeared in the 2013 Act. Therefore, Tata Sons wanted a mere amendment of the Certificate of Incorporation, which is not something that is covered by Section 14 of the 2013 Act. NCLAT mixed up the attempt of Tata Sons to have the Certificate of Incorporation amended, with an attempt to have the Articles of Association amended. Since Tata Sons satisfied the criteria prescribed in Section 2(68) of the 2013 Act, they applied to the Registrar of companies for amendment of the certificate. The certificate is a mere recognition of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) in the Articles of Association, a deemed public company can revert back to its status as a private company, in view of subsection (2A) of section 43A, by incorporating necessary provisions in the Articles. In simple terms, a company which becomes a deemed public company by operation of law, cannot be taken to have undergone a process of fermentation or coagulation like milk to become curd or yogurt, having an irreversible effect. 20.40 Therefore, NCLAT was completely wrong in holding as though Tata Sons, in connivance with the Registrar of companies did something clandestinely, contrary to the procedure established by law. The request made by Tata Sons and the action taken by the Registrar of Companies to amend the Certificate of Incorporation were perfectly in order. 20.41 It was argued on behalf of SP group (i) that in 1995 Tata Sons allowed renunciation of entitlement to rights issue, in favour of rank outsiders, throwing the restriction contained in section 3(1) (iii) to the wind (ii) that till September 2002, Tata Sons accepted deposits from public and hence subclause (d) of section 3(1)(iii) was not satisfied (iii) that as per the circular of the Department of Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions which apply only to public and listed public companies. If reconversion goes, they may perhaps stand on a better footing. But that would tantamount to putting the cart before the horse. One may be entitled to a collateral benefit arising out of a substantial argument. But one cannot seek to succeed on a collateral issue so as to make the substantial argument sustainable. 20.44 Therefore, question of law No. 5 is accordingly answered in favour of Tata Sons and as a consequence, all the observations made against the appellants and the Registrar of companies in Paragraphs 181, 186 and 187 (iv) of the impugned judgment are set aside. 21. Conclusion 21.1 Thus in fine, all the questions of law are liable to be answered in favour of the appellantsTata group and the appeals filed by the Tata Group are liable to be allowed and the appeal filed by S.P. Group is liable to be dismissed. But before we do that we should also deal with the application moved by S.P. Group before us during the pendency of these proceedings, praying for the alternative relief of directing Tata Sons and others to cause a separation of ownership interests of the S.P. Group in Tata sons through ..... X X X X Extracts X X X X X X X X Extracts X X X X
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