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TMI Blog2021 (3) TMI 1181X X X X Extracts X X X X X X X X Extracts X X X X ..... minees 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 Tata Teleservices Limited and Tata Industries Limited have come up with separate appeals in Civil Appeal Nos.440441 of 2020, 442443 of 2020 and 448449 of 2020. The grieva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 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 preference shares and 40 equity shares of the paidup share capital of Tata Sons, from an existing member by name Mrs. Rodabeh Sawhney. Over the years, the shareholding of SP Group in Tata Sons has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies’, 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 moved an application for stay of an Extraordinary General Meeting (“EGM” for short) of Tata Sons, in which a proposal for removing CPM as a Director of Tata Sons had been moved. The NCLT refused stay, as a consequence of which the EGM proceeded as scheduled and CPM was removed from the Directorship of Tata Sons, by a Resolution dated 16.02.2017. 2.12 Subsequently, by an Order dated 06.03.2017, NCLT held the main com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany (‘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 companies of Tata Group have come up with 2 Civil Appeals each (totalling to 12 appeals) and the complainant companies have come up with one Civil Appeal. In addition, Tata Sons have also come up with 2 more appeals against the order dated 06012020 passed by NCLAT on the applications of the Registrar of Companies. 3. Case set up by the complainants in their petition under sections 241 and 242, Companies Act, 2013 and Reliefs sought 3.1 In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 ensure that no legal action is initiated against Siva who owes Rs. 694 crores; (vi) that Ratan Tata enabled his associates to unjustly enrich themselves at the cost of Tata Sons; and (vii) that the present directors of Tata Sons are not promoting the interests of shareholders of Tata Sons and the interests of the shareholders of various operating companies of the Tata group. 3.4 In the light of the above pleadings and contentions, the petitioners before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 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; (P) restrain the trustees of the Trusts from interfering in the affairs of Respondent No. 1 and in the various companies; (Q) restra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 addition of two more prayers namely: (i) to direct the respondents to reinstate the representative of the complainantcompanies on the Board of Tata Sons; and (ii) to direct the amendment of Articles of Association of Tata Sons to provide for proportional representation of shareholders on the Board of Directors of Tata Sons. 4.9 But the petition for contempt, the petition for interim stay of EGM and the application for amendment to include additional prayers, all turned out to be exercises in futility, with the NCLT passing two orders, one on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; ii. The Petitioners be entitled to proportionate representation on Board of Directors of Respondent No.1; iii. The Petitioners be entitled to representation on all committees formed by the Board of Directors of Respondent No.1; and iv The Articles of Association be amended accordingly. b. Prayers A, B and C were not pressed. c. Prayers F, Q and R, being infructuous were not pressed 5. Response of Tata Sons to the allegations made in the Company Petition 5.1 Tata Sons filed a reply to the company petition contending interalia : (i) that CPM, who was removed from the post of Executive Chairman, after having lost the confidence of 7 out of 9 Directors, has sought to use the complainant companies to besmirch the reputation of Tata Group; (ii) that even the decisions to which CPM was a party have been questioned in the petition; (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 representations to the shareholders of all operating companies, with unsubstantiated and false allegations, thereby attempting to make the operating companies vulnerable to make confidential data available for public inspection; (xviii) that the shareholders of Tata Industries Limited, Tata Consultancy Services and Tata Teleservices Limited passed Resolutions respectively on 12.12.2016, 13.12.2016 and 14.12.2016 to remove CPM from Directorship; (xix) that, therefore, CPM resigned from the Directorship of the other companies also on 19.12.2016, when he faced the prospect of being removed in the impending meetings; (xx) that the actions and conduct of CPM after 24.10.2016 compelled Tata Sons to issue a special notice and requisition for his removal from the Directorship of Tata Sons; (xxi) that the company petition was not about espousing the cause of corporate governance or seeking remedie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her 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, allegation-wise, were as follows: On the allegations revolving around Siva and Sterling group of companies (i) Tata Teleservices shares were acquired in the year 2006 with the approval of the Board and hence almost after 10 years, it cannot be raised as an issue. It is also a fact that the very complainant companies had acquired same TTSL shares two months before, for Rs. 15 per share. (ii) The loan taken from Kalimati Investments was already paid back by Siva Group of Companies and the company was relieved of its undertaking by Siva himself who provided personal guarantee for the loan taken from Standard Chartered Bank. (iii) As to the allegation that Siva made a big profit by selling shares to NTT DoCoMo @ Rs. 117 per share, it is evident from the record that these shares were sold in the year 2008 to NTT DoCoMo, while NTT DoCoMo was acquiring shares in bulk from TTSL as well as fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 the company. Forbes Golak was not made a Party and the transaction happened somewhere in the year 2002, but the allegation is raised in the year 2016. (ii) As to these allegations relating to Mehli deriving hugebenefits, the only document that the Petitioners and CPM filed and relied on, is an email Mr. Mehli addressed to Mr. Padmanabhan of TPC among others. (iii) In respect of the 1993 contract for dredging at Trombay, it was awarded by Tata Power to MpCL for 9 years after choosing them from amongst three vendors. Thereafter it was renewed 5 times for various tenures from October 2002 to September, 2014 after obtaining requisite approvals. When these approvals were given, CPM was a Director of Tata Power. He held directorship from 1996 to 2006 and again from 2011 to 2016, but never raised any objection. Nano car project and the losses suffered by Tata Motors (i) RNT has not been the director of Tata Motors at any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as an incident where Article 121 was abused, since the issue of acquisition of Welspun should have come up before the Board of Tata Sons even prior to Tata Power taking a decision, in view of Article 121A(h). Since Tata Power had already signed the papers for the acquisition of Welspun on 12.06.2016 itself, CPM really made the Directors of Tata Sons as fait accompli. Therefore, it was the action of CPM that was prejudicial to the interests of Tata Sons and not the other way around. (iii) None of the Articles have ever been opposed either by the complainant companies or by CPM at any point of time in the past. And Article 75 has been in place even before the complainant companies acquired shares. Allegation of Breach of fiduciary duties by the Directors (i) In support of their allegation that there was breach of fiduciary duties by the Trust nominee Directors and to prove that the Directors of the Company were guilty of dereliction of dutie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondents 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. Cyrus Mistry from the position of Director is because he admittedly sent the company information to Income Tax Authorities; leaked the company information to Media and openly come out against the Board and the Trusts, which hardly augurs well for smooth functioning of the company, and we have not found any merit to believe that his removal as director falls within the ambit of section 241 of Companies Act 2013. c) We have not found any merit to hold that proportional representation on Board proportionate to the shareholding of the petitioners is possible so long as Articles do not have such mandate as envisaged under section 163 of Companies Act, 2013. d) We have not found any merit in purported legacy issues, such as Siva issue, TTSL issue, Nano car issue, Corus issue, Mr. Mehli issue and Air Asia issue to state that those issues fall within the ambit of section 247 and 242 of Companies Act 2013. e) We also have not found any merit to say that the company fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13) 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 shareholders of ‘Tata Sons Limited’ or the Board of Directors, the majority decision is fully dependent upon the affirmative votes of nominated Directors of ‘Tata Trusts’. The affirmative vote of the Directors nominated by ‘Tata Trusts’ has an overriding effect and renders the majority decision subservient to it. (paragraph 115 of the impugned order) (iii) The Tribunal/Appellate Tribunal has no jurisdiction to hold any of the Articles as illegal or arbitrary, the terms and conditions being agreed upon by the shareholders. However, if any action is taken even in accordance with law which is ‘prejudicial’ or ‘oppressive’ to any member or members or ‘prejudicial’ to the Company or ‘prejudicial’ to the public interest, the Tribunal can notice whether the facts would justify the winding up of the Company and in such case, if the Tribunal holds that it would unfairly prejudice member or members or public interest or interest of the Company, it may pass appropriate orders in terms of Section 242. (paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ‘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 November, 2016 appears to be an afterthought as the aforesaid matter was not discussed in any of the meetings of the Board of Directors. The allegations in the ‘Press Statement’ as not supported by record cannot be accepted. (paragraph 139 of the impugned order) (xii) Correspondence between CPM, RNT, Mr. Nitin Nohria and Mr. N.A. Soonawala show that all the time CPM had been pointing out that some of the ‘Tata Companies’ were suffering losses and if appropriate steps were not taken, it may aggravate in future. In spite of such communications no decision for the revival or restructuring of Tata Companies was taken. (paragraph 140 of the impugned order) (xiii) If there was a failure and loss caused to one or other Tata Company which also affected the ‘Tata Sons Limited’, the ‘Tata Trusts’ or the Board of Directors could not be absolved of its responsibility, particularly when the nominee Directors of the Tata Trusts who have affirmative vote to reverse the majority decision. (paragraph 141 of the impugned order) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting 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 decision of ‘Tata Trusts’, RNT in presence of Mr. Nitin Nohria called CPM and asked him to resign. (paragraph 152 of the impugned order) (xxi) In view of what transpired, it is not open to the Respondents to state or allege that loss in different ‘Tata Companies’ was due to mismanagement of CPM. If that be so, why the nominated Directors who have affirmative voting right over the majority decision of the Board or in the Annual General Meeting of the shareholders allowed the ‘Tata Companies’ to function in a manner which caused loss, as accepted in the press release dated 10th November, 2016. The consecutive chain of events coming to fore from the correspondence amply demonstrates that impairment of confidence with reference to conduct of affairs of company was not attributable to probity qua CPM but to unfair abuse of powers on the part of other Respondents. (paragraph 155 of the impugned order) (xxii) Even in the absence of a right of minority members (‘Shapoorji Pallonji Group’), because of the healthy atmosphere and cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 with Section 14(2) and 14(3), for converting the company as a private company. (paras 173 to 175). The General Circular No.15 of 2013 dated 13.09.2013 and Notification dated 12.09.2013 issued by the central Government cannot override Section 14 of the Act (para 177) and hence the action taken by Tata Sons hurriedly to get the word “public” struck off in the certificate of incorporation, after the order of NCLT is absolutely illegal. (xxvii) The aforesaid action on the part of the company and its Board of Directors to take action to hurriedly change the Company (‘Tata sons Limited’) from ‘Public Company’ to a ‘Private Company’ without following the procedure under law (Section 14), with the help of the Registrar of Companies just before the filing the appeal, suggests that the nominated members of ‘Tata Trusts’ who have affirmative voting right over the majority decision of the Board of Directors and other Directors/members, acted in a manner ‘prejudicial’ to the members, including minority members (‘Shapoorji Pallonji Group’) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry (11th Respondent) as Director of such Companies are also illegal. (paragraph 184 of the impugned order) (xxxi) For better protection of interest of all stake holders as also safeguarding the interest of minority group, in future at the time of appointment of the Executive Chairman, Independent Director and Directors, the ‘Tata Group’ which is the majority group should consult the minority group i.e., ‘Shapoorji Pallonji Group’ and any person on whom both the parties have trust, be appointed as Executive Chairman or Director as the case may be which will be in the interest of the Company and create healthy atmosphere removing the mistrust between the two groups, already developed and has caused global effect as admitted in the ‘Press Statement’ of the Company. (paragraph 185 of the impugned order) 8. Important difference between the approach of NCLT and the approach of NCLAT 8.1 As pointed out at the beginning of chapter 7, NCLT dealt with every one of the allegations of oppression and mismanagement and recorded reasoned findings. But NCLAT, despite being a final court of facts, did not deal with the allegations one by one nor did the NCLAT render any opinion on the correctn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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 appeal under Section 423 of the Companies Act, 2013, this court will not normally interfere with a finding of fact reached by NCLAT, unless it is found to be wholly perverse. 9. Contentions on behalf of Tata Sons, group companies and Trustees 9.1 Assailing the judgment of NCLAT, Shri Harish Salve and Dr. Abhishek Manu Singhvi, learned Senior counsel for Tata Sons contended as follows: (i) The entire focus of NCLAT was only on the justification for the removal of CPM from the post of Executive Chairman of Tata Sons, despite the fact that the positive case of the complainant companies as well as CPM was that they were not seeking the reinstatement of CPM; (ii) In focusing entirely upon the removal of CPM from Executive Chairmanship of Tata Sons, NCLAT lost track of the law that such a removal cannot be termed as oppression or mismanagement; (iii) NCLAT went completely overboard by directing the reinstatement of CPM as the Executive Chairman of Tata Sons and also annulling the appointment of the new Chairman N. Chandrasekaran; (iv) NCLAT wen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the same, only for the purpose of improving upon the reasons already provided, showing thereby the mindset with which NCLAT approached the case; (ix) NCLAT committed a serious error in whittling down Article 75 of the Articles of Association, though the said Article was not found to be illegal; (x) Curiously NCLAT did not find any actual misuse of the Articles of Association, which envisaged a crucial role for the nominee Directors of the two Trusts. CPM himself had proposed a Governance framework which recognised preconsultation with the Trusts. Therefore, the findings of NCLAT as though the preconsultation as well as the affirmative voting right conferred upon the Directors nominated by the Trust, undermined the role of the Board of Directors of Tata Sons, are completely perverse; (xi) The direction issued by NCLAT to the majority (Tata Group) toconsult the S.P. Group, for all future appointments of Executive Chairman or Director, is wholly unsustainable in law. This direction tantamount to striking down Articles 104B and 118, even though the challenge to these Articles had already been given up. 10. Contentions on behalf of S.P. Group: 10.1 Shri C. Aryama Sundaram, l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely shocking. The conversion of the company into a private company was aimed at avoiding a higher standard of scrutiny statutorily required for public companies. The conversion also adversely affected the ability of Tata Sons to raise funds, thereby increasing borrowing costs. Due to this conversion, Tata Sons became obliged to refund money to insurance companies which held substantial investments in the instruments issued by the company. Therefore the conversion of the company into a private company lacked probity and prejudiced the proprietary rights of minority shareholders; (v) The removal of CPM was contrary to the provisions of Article 118, which required the setting up of a Selection Committee both for appointment as well as removal. In fact Article 121B contemplates a 15 days’ notice, but the same was also not complied. Therefore, the removal of CPM, carried out without there being any agenda for the same and without there being any deliberation or discussion, was wholly illegal. The manner in which three Directors were inducted into the Board without being vetted by the Nomination and Remuneration Committee and the manner in which the resolution for removal was passed wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ix) NCLAT has recorded detailed findings on facts and there is no perversity in those findings. Therefore there is actually no scope for interference by this court. (x) The reliefs sought in the company petition, are consistent with the provisions of the Companies Act, 2013 including Section 163 (proportionate representation) and subSections (1), (5), (7) and (8) of Section 242 of the Act. 10.3 Mr. Janak Dwarakadas, learned counsel appearing on behalf of CPM, the original composer of this musical ensemble, raised the following contentions: (i) Lack of financial probity is not the only ground on which the ‘just and equitable’ clause for winding up can be invoked. Infraction of a legal and/or proprietary right is also a ground for invoking it. (ii) Proprietary right includes the right to be governed in accordance with the Articles of Association and the provisions of the Act. Independence and autonomy of Board is guaranteed by law. Interference by majority shareholders that encroaches upon the Board’s autonomy and independence, is an infraction upon the proprietary rights of minority shareholders. (iii) Art. 104B, 121 and 121A have been misinterpreted, misconstrued and mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grants reliefs that were not prayed for. (vii) Though the TrustNominee Director introduced the resolution for CPM’s removal, it was ultimately the majority of the Board that voted in favor of the resolution. (viii) Impugned judgment goes against the fundamentals of corporate democracy by taking away basic rights of shareholders (ix) By directing that all future appointments to directorial positions in Tata Sons can be made only through mutual “consultation” with the SP Group and that only a person “on whom both the groups have trust” can be appointed, NCLAT has undermined the role of majority. This could create a stalemate and an impasse by giving minority shareholders a veto power. (x) This direction also renders mute, the right of the Tata Trusts to nominate directors under Art.104B even though its validity was not under challenge before NCLAT. (xi) Impugned judgment’s interpretation of affirmative voting rights u/ Art 121 is conceptually and legally wrong. (xii) NCLAT took the affirmative right to mean unilateral power to implement decisions (referencing para 155 of the judgment). 12. Contentions of Tata Consultancy Services (TCS) Attacking one portion of the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed remarks, though it claimed it did not, without even hearing the RoC beforehand. 13.2 Shri Zal Andhyarjuna, learned counsel appearing for Shri Noshir A. Soonawala, submitted that Soonawala has never been accused of wrongdoing in his 44 years of association with the Tata Group and even during CPM’s tenure as Director. He has not attended a single meeting of the Board of Directors of Tata Sons since his retirement. He was requested to act as advisor to Tata Sons which received unanimous approval of the Board in 2010. CPM would therefore, approach him from time to time for advice on financial matters of Tata Sons. Soonawala has, on his own initiative, sent only two notes to CPM and RNT which were purely advisory in nature and cannot be construed as being “directions” or “instructions” from him. The Note dated 04.12.2015 was an analysis of Tata Sons’ past financial results pointing out areas of concern and the Memo dated 09.07.2015 concerned Tata Tele Services Limited, an unlisted company having financial problems. Therefore, he argued that NCLAT was wrong in attributing to him, interference with the affairs of Tata Sons. 14. Questions of law arising for consideration 14.1 Thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession, Mismanagement and Unfair Prejudice 15.1 Before we take up the questions of law formulated above for consideration, we think it would be useful to look at the legislative history of oppression, mismanagement and prejudice/ unfair prejudice, both in England and India, as colonial vintage continues to haunt us (fortunately or unfortunately), both in legislative drafting and in judicial decision making even till date. In England 15.2 The history of legislative action to regulate incorporated companies, in England, is just 176 years old. It begins with the Joint Stock Companies Act, 1844. Until then, the government created corporations under a Royal Charter or an Act of Parliament with the grant of a monopoly over a specified territory. The best known example is the British East India Company, to which Queen Elizabeth I granted the exclusive right to trade with all countries to the east of the Cape of Good Hope. During this period, Corporations essentially used to act on the government's behalf, bringing in revenue from their exploits abroad. 15.3 A chartered company (similar to East India Company), known as the South Sea Company, was established in 1711 to trade in the Span ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court was of the opinion that it is just and equitable to wind up the company. This Act also contained a provision conferring a limited right upon a dissentient member, whenever a sale or transfer of the business or property of the company took place in the course of winding up proceedings. 15.8 However, when fraudulent practices in relation to the formation and management of companies came to the fore, an investigation was ordered by a Committee chaired by Lord Davey. The Committee submitted a report along with a draft Bill in June, 1895. This Bill became the Companies Act, 1900. This Act also did not contain any provision relating to oppression and mismanagement. So was the case with the Companies (Consolidation) Act, 1908. The Act of 1908 was examined by a committee presided over by Lord Wrenbury in 1918 and again by a committee headed by Greene, K.G. in 1926, which led to the Companies Act, 1929. 15.9 During the second world war, a Company Law Reforms Committee chaired by Lord Cohen was appointed (in 1943) by the President of the Board of Trade to consider and report what major amendments are needed to the 1929 Act, particularly “to review the requirements prescribed in reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es so that little or nothing is left for distribution among the shareholders by way of dividend. This may happen where, for example, two persons trading in partnership form their business into a limited company and one partner dies, leaving his shares to his widow who takes no active part in the business. At present the only remedy open to the minority shareholder is to commence an action to restrain the company from paying the remuneration on the ground that such payment is a fraud on the minority, since the Court would not make a windingup, order in view of the alternative remedy. 60. Oppression of minorities.We have carefully examinedsuggestions intended to strengthen the minority shareholders of a private company in resisting oppression by the majority. The difficulties to which we have referred in the two preceding paragraphs are, in fact, only illustrations of a general problem. It is impossible to frame a recommendation to cover every case. We consider that a step in the right direction would be to enlarge the power of the Court to make a windingup order by providing that the power shall be exercisable notwithstanding the existence of an alternative remedy. In many cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company by other members of the company or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company's capital, or otherwise. (3) Where an order under this section makes any alteration in or addition to any company's memorandum or articles, then, notwithstanding anything in any other provision of this Act but subject to the provisions of the order, the company concerned shall not have power without the leave of the court to make any further alteration in or addition to the memorandum or articles inconsistent with the provisions of the order; but, subject to the foregoing provisions of this subsection, the alterations or additions made by the order shall be of the same effect as if duly made by resolution of the company and the provisions of this Act shall apply to the memorandum or articles as so altered or added to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of this Part apply to a person who is not amember of a company but to whom shares in the company have been transferred or transmitted by operation of law, as those provisions apply to a member of the company; and references to a member or members are to be construed accordingly. 460 Order on application of Secretary of State (1) If in the case of any company- (a) the Secretary of State has received a report under section437, or exercised his powers under section 447 or 448 of this Act or section 44(2) to (6) of the [1982 c. 50.] Insurance Companies Act 1982 (inspection of company's books and papers), and (b) it appears to him that the company's affairs are being orhave been conducted in a manner which is unfairly prejudicial to the interests of some part of the members, or that any 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 himself (in addition to or instead of presenting a petition under section 440 for the winding up of the company) apply to the court by petition for an order under this Part. (2) In this section (and, so far as applicable for its purposes, in the section next f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came into effect in 1991. 15.14 The Companies Act, 1985 was repealed by the Companies Act, 2006, which had the dubious distinction of being the longest Act in British parliamentary history, with 1300 sections and 16 schedules. (until it was overtaken by the Corporation Tax Act, 2009). Part 30 of the Act contains 3 provisions in sections 994 to 996 (apart from others), grouped under the heading “Protection of Members against Unfair Prejudice”. Paragraph 1265 of the Explanatory Notes to the 2006 Act, confirms that Sections 994998 restate sections 459, 460 and 461 of the 1985 Act. 15.15 Sections 994 to 996 of the Companies Act, 2006 read as follows: “994 Petition by company member (1) A member of a company may apply to the court by petition for an order under this Part on the ground- (a) that the company’s affairs are being or have beenconducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or (b) that an actual or proposed act or omission of thecompany (including an act or omission on its behalf) is or would be so prejudicial. (2) The provisions of this Part apply to a pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f subsection (1), thecourt’s order may- (a) regulate the conduct of the company’s affairs in thefuture; (b) require the company- (i) to refrain from doing orcontinuing an act complained of, or (ii) to do an act that the petitioner has complained it has omitted to do; (c) authorise civil proceedings to be brought in the nameand on behalf of the company by such person or persons and on such terms as the court may direct; (d) require the company not to make any, or any specified,alterations in its articles without the leave of the court; (e) provide for the purchase of the shares of any membersof the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company’s capital accordingly. Legislative history in India 15.16 In India, the earliest legislation made for the ‘Regulation of Registered Joint Stock Companies’ was Act No. XLIII of 1850. This Act provided for the registration of every unincorporated company of partners, associated under a deed containing a provision that the shares in the stock or business of the said company, are transferable without the consent of all the partners. It will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1913) which repealed the 1882 Act and the amendments made thereof. Interestingly, this 1913 Act also repealed one particular provision in the Indian Arbitration Act, 1899. Though in the original enactment of 1913, there was no provision relating to oppression and mismanagement, the Amendment Act 52 of 1951 inserted Section 153C to The Indian Companies Act, 1913. This Section 153C reads as follows : “153C. Power of court to act when company acts in a prejudicial manner or oppresses any part of its members.(1) Without prejudice to any other action that may be taken, whether in pursuance of this Act or any other law for the time being in force, any member of a company who complains that the affairs of the company are being conducted (a) In a manner prejudicial to the interest of the company, or (b) In a manner oppressive to some part of the members (including himself) may make an application to the court for an order under the section. (2) An application under subsection (I) may also be made by the Central Government if it is satisfied that the affairs of the company are being conducted as aforesaid. (3) No application under subsection (I) shall be made by any member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he termination or revision of any agreement entered into between the company and any person other than any of the persons referred to in clause(d), provided that no such agreement shall be termination or revised except after due notice to the party concerned and in the case of revision of any such agreement, after obtaining the consent of the party concerned thereto; (f) 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 subsection (I), which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference. (6) Where an order under this section makes any alteration in, or addition to, the memorandum or articles of any company, then notwithstanding anything contained in any other provision of this Act, but subject to the provisions of the order, the company concerned shall not have power without the leave of the court to make any further alteration in, or addition to, the memorandum or articles inconsistent with the provisions of the order, but subject to the foregoing provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easance or breach of trust as the court thinks just, and the provisions of sections 235 and 236 of this Act shall apply as they apply to a company in the course of being wound up. Explanation. For the purposes of this section, any material change after the 21st day of July, 1951, in the control of a company, or in the case of a company having a managing agent in the composition of the managing agent which is a firm or in the control of the managing agent which is a company, may be deemed by the court to be a fact which would justify the making of a windingup order on the ground that it would be just and equitable that the company should be wound up: Provided that the court is satisfied that by reason of the change the interests of the company or any part of its members are or are likely to be unfairly and materially prejudiced” 15.21 After the country attained independence, a Company Law Committee was appointed by the Government of India for the revision of the Companies Act with particular reference to Indian trade and industry. The Committee submitted its report in March1952. After circulating the Report to all State Governments, Chambers of Commerce, Trade Associations an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ests of the company; may apply to the Court for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under subsection (1), the Court is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit. 402 Powers of Court on application under section 397 or 398. Without prejudice to the generality of the powers of the Court under section 397 or 398, any order under either section 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 its shares by the company as aforesaid, the consequent reduction of its share capital; (d) the termination, setting aside or modification of any agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve a director representing small shareholders who may be elected in such manner as may be prescribed by rules.” 15.23 Chapter XVI of the 2013 Act containing Sections 241 to 246 deals exclusively with “Prevention of Oppression and Mismanagement.” Sections 241 and 242 are of relevance for our purpose and hence it is extracted as follows: “241. Application to Tribunal for relief in cases of oppression, etc. - (1) Any member of a company who complains that- (a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or (b) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company‘s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made or done by or against the company within three months before the date of the application under this section, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference; (h) removal of the managing director, manager or any of the directors of the company; (i) recovery of undue gains made by any managing director, manager or director during the period of his appointment as such and the manner of utilisation of the recovery including transfer to Investor Education and Protection Fund or repayment to identifiable victims; (j) the manner in which the managing director or manager of the company may be appointed subsequent to an order removing the existing managing director or manager of the company made under clause (h); (k) appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal on such matters as the Tribunal may direct; (l) imposition of costs as may be deemed fit by the Tribunal; (m) any other matter for which, in the opinion of the Tribunal, it is just and equitable that provision should be made. (3) A certified copy of the order of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80/1985. The journey, in other words, was from “winding up on just and equitable cause” to “oppression” to “unfair prejudice”. 15.25 But in so far as India is concerned, what was incorporated in section 210 of the English Companies Act, 1948, inspired the insertion of section 153C of the Indian Companies Act, 1913, by way of an amendment in 1951. Then came sections 397 and 398 of the 1956 Act, with certain modifications. An overhaul of these provisions resulted in Sections 241 and 242 of the 2013 Indian Act, on the model of (and not exact reproduction of) sections 459 to 461 of the English Companies Act, 1985 and sections 994 to 996 of the English Act of 2006. 15.26 The change of language and the consequential change of parameters for an inquiry relating to oppression and mismanagement from 1951 to 1956 and from 1956 to 2013 and thereafter can be best understood, if the anatomy of the statutory provisions are dissected and presented in a table : 1913 Act (After the Amendment Act 52 of 1951) 1956 Act (with the amendment made under Act 53 of 1963) 2013 Act (1) Company’s affairs are being conducted in a manner – (a) Prejudicial to the company’ interest; or (b) Oppressive t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e “such member or members” indicating thereby that the focus was on complaining/affected members. 15.28 Having thus seen the shift in the Indian legislative policy under Act 52 of 1951 (amending the 1913 Act) and then under the 1956 Act as amended by Act 53 of 1963 and thereafter under the 2013 Act, let us also see how the shift in the legislative policy happened in the United Kingdom. A table similar to the one given in para 15.26, is presented below insofar as the English Law is concerned: 1948 English Act 1985 English Act with Amendment in 1991 2006 Act (i) the company’s affairs are being conducted in a manner oppressive to some part of the members (ii) to wind up the company would unfairly prejudice that part of the members, though winding up on just and equitable ground may be justified. (iii) the order of the Court should be passed with a view to bringing to an end the matters complained of. (i) the company’s affairs are being or have been conducted in a manner unfairly prejudicial to the interests of some part of its members or: (ii) that any actual or proposed act would be so prejudicial then the Court may pass such order as it thinks fit for giving relief in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressive 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 ? 16.2 An analysis of the provisions of Section 241(1)(a) read with clauses (a) and (b) of Subsection (1) of Section 242 shows that a relief under these provisions can be granted only if the Tribunal is of the opinion – “(1) that the company’s affairs have been or are being conducted in a manner – (a) Prejudicial to any member or members or (b) Prejudicial to public interest or (c) Prejudicial to the interests of the company or (d) Oppressive to any member or members and (2) that though the facts would justify the making of a winding up order on the basis of just and equitable clause, such a winding up would unfairly prejudice such member or members. 16.3 Keeping in mind the above statutory prescription, if we go back to the pleadings, it will be seen that the complainant companies forming part of the S.P. Group pitched their claim in their or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.2013, RNT wrote to CPM requesting him to meet Siva to discuss the predicament, in lieu of latter’s previous contributions in the history of TTSL. However, this was three years before the Docomo issue, which cropped up in 2016. (Para 222, 233) 2. The loan given by one of the Tata Group Companies (Kalimati) to Siva Company was paid back and undertaking given by the company was released. Siva himself provided personal guarantee for the loan taken from Standard Chartered Bank. Moreover, no Tata Group company paid any money for acquisition of TTSL shares by Siva Group. (Para 228) 3. Ultimately, Siva had to pay its group pro-rata share of the Docomo award. Siva, on 19.09.2016, then sought damages from Tata Sons for the alleged mismanagement of TTSL, for the ensuing losses incurred by it. However, this did not prove any special relationship with RNT.(Para 221, 230, 233,234) 4. Acquisition price of TTSL by both Siva and Temasek had unanimous approval of the shareholders. (Para 230) 5. Transaction was not done not behind the back of CPM and connected parties. (Para 230) 6. The reason for the difference in the acquisition prices between Temasek (Rs. 26/ share) and Siva Group (Rs. 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AirAsia transactions, CPM claims to have protected the interest of the company by limiting its exposure and ensuring no fallback liability. These two claims conflict with each other. (Para 242) With respect to the Joint Venture with Singapore Airlines to set up Vistara, all Air Asia decision are fait accompli upon him, and thus, he is estopped from denying knowledge regarding these transactions. (Para 244) It would be preposterous to allege that RNT funded a terrorist through hawala with diversion of AirAsia India funds. (Para 245) No specific finding. Mehli Mistry:- 1. Awarding of dredging and Shipping contracts (without tenders) to Mehli’s Companies by Tata Power. 2. Purchase of agricultural land by RNT at Alibaug in 1993 where Aqua Farms (in which Mr. Mehli was a partner) was a confirming party to the sale deed. 3. Sale of Bakhtawar Apartment at Colaba to MPCPL (which belongs to Forbes Gokak Ltd.) The contract for dredging at Trombay was awarded in 1993 and renewed for various tenures (5 times) from 2002 – 2014. CPM held directorship of Tata Power from 1996-2006 & 2011- 2016, but never raised any objection. (Para 258) 2004 barging cum dredging contract – with regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the board when he was chairman. (Para 305) TSL has not been made a party. No specific finding Tata Motors – Nano Project:- It is well established that RNT was not in the management of either Tata Motors or the company after retirement. There is not a single instance where the advice of RNT was directly implemented without consideration by the respective Board. (Para 267) Tata Motors and Jayem Auto incorporated a Joint Venture. This happened under the stewardship of CPM. (Para 275) CPM never objected over any visit, correspondence or investment by RNT in Jayem Auto. (Para 272) Merely because Tata Motors Finance (TMF) had a loss of Rs. 392 Crores (towards Nano out of Rs. 2000 Crores) for financing Nano, it cannot be used to make a case of mismanagement against RNT. (Para 280) With regard to personal visits of RNT to the Jayem Auto factory and about the enquiries sought apropos to the projects, no personal benefit to RNT 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara 3 of the memorandum of appeal, is limited to the failure of NCLAT to grant certain reliefs. The failure of NCLAT to specifically overturn the findings of fact recorded by NCLT, is not assailed in the SP group’s appeal. Therefore, we have no hesitation in holding that the allegations relating to (i) transactions with Siva and Sterling Group of Companies; (ii) Air Asia; (iii) Transactions with Mehli Mistry; (iv) the losses suffered by Tata Motors in Nano car project; and (v) the acquisition of Corus reached finality. 16.9 The findings recorded by NCLAT for the grant of reliefs, revolved primarily around the removal of CPM, the affirmative voting rights, interference by nominee Directors and the conversion 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax (Exemptions) seeking certain information under Section 133(6) of the Income Tax Act, 1961 in the case of Tata Education Trust. Tata Sons, through a reply dated 09.12.2016 furnished necessary information along with the requested documents. The Deputy Commissioner of Income Tax also called for some additional information by subsequent letters, and the information so called for, was also furnished. 16.14 Claiming that a mail dated 20.12.2016 issued by the Deputy Commissioner of Income Tax seeking further information under Section 133(6) was copymarked to him, CPM sent a reply to the Income Tax department confirming (i) that the Directors appointed by Tata Trust controlled the decision making processes 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 sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l petition) from the directorship of Tata Sons. This was in prayer clause (F) of Paragraph 153 of the main company petition. This prayer was in direct contrast to the reliefs sought in prayer clauses (A) and (B). Prayer clause (A) was for superseding the existing Board of Directors and appointment of an Administrator. Prayer in clause (B) was for appointment of a retired Supreme Court Judge as Non Executive Chairman and for appointment of a new set of independent Directors. 16.19 After the dismissal of the interim application moved for stalling the EGM scheduled to be held on 06.02.2017 and after the passing of the resolution for the removal of CPM in the EGM held on 06.02.2017, the complainant 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 infruc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l settled. In fact it may be concede today by Tata sons that one important decision that the Board took on 16.03.2012 certainly turned out to be a wrong decision of a life time. 16.24 Therefore, the fact that the removal of CPM was only from the Executive Chairmanship and not the Directorship of the company as on the date of filing of the petition and the fact that in law, even the removal from Directorship can never be held to be an oppressive or prejudicial conduct, was sufficient to throw the petition under section 241 out, especially since NCLAT chose not to interfere with the findings of fact on certain business decisions. 16.25 The subsequent conduct on the part of 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 complainan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not a labour Court or an administrative Tribunal to focus entirely on the manner of removal of a person from Directorship. Therefore, the accolades received by CPM from the Nomination and Remuneration Committee or the Board of Directors on 29.6.2016, cannot advance his case. 16.30 A contention was raised that CPM’s removal was a premeditated act, carried out at the behest of Tata Trusts and RNT and that the removal was not only contrary to Article 118, but also contrary to Article 105(a) read with the second proviso to Section 179(1) and Article 122(b). 16.31 As we have pointed out above, the validity of and justification for the removal of a person can never 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce in Article 118 reading “the same process shall be followed for the removal of incumbent Chairman” actually goes along with the last limb of the portion immediately preceding this line. It deals with the appointment of a person as Chairman, pursuant to the recommendation of a Selection Committee, subject to Article 121 which requires the affirmative vote of the Directors appointed in terms of Article 104B. 16.35 It is absurd to interpret Article 118 to mean that Selection Committee is to be constituted for the removal of an incumbent Chairman. The necessity for taking recourse to the affirmative voting right under Article 121 is 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 remun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fice. But the decision in Central Bank of India arose out of the termination of a fire insurance policy. It had nothing to do with the removal of a Director. But a decision of the King’s Bench in Nelson vs. James Nelson 1914-2 K.B. 770 was relied upon in the said case to assail the termination of the insurance policy. After pointing out that Nelson was a case where the termination assailed was that of the services of the Managing Director and that the contract of his appointment did not provide for his termination except on the condition of his ceasing to be a Director, this Court rejected the citation in Central 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 Mahapali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of them are deliberately and consistently violated and set aside by the action of a member and official of the company who wields an overwhelming voting power, and if the result of that is that, for the extrication of their rights as shareholders, they are deprived of the ordinary facilities which compliance with the Companies Acts would provide them with, then there does arise, in my opinion, a situation in which it may be just and equitable for the Court to wind up the company.” 16.45 If the above tests are applied, the case on hand will not fall anywhere near the just and equitable standard, 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtnership or even a quasi partnership”. 16.48 That, “for superimposing an equitable fetter on the exercise of the rights conferred by the Articles of Association, there must be something in the history of the company or the relationship between the shareholders”, is fairly well settled Re Saul D. Harrison and Sons Plc. 1994 BCC 475. 16.49 In Lau v. Chu [2020] 1 WLR 4656, the House of Lords indicated, “that a just and equitable winding up may be ordered where the company’s members have fallen out in two related but distinct situations, which may or may not overlap”. The first 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declares dividends. The dividends that the Trusts get are to find their way eventually to the fulfilment of charitable purposes. Therefore, NCLAT should have raised the most fundamental question whether it would be equitable to wind up the Company and thereby starve to death those charitable Trusts, especially on the basis of uncharitable allegations of oppressive and prejudicial conduct. Therefore, the finding of NCLAT that the facts otherwise justify the winding up of the Company under the just and equitable clause, is completely flawed. 17. Question 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1; (G) restrain Respondent No. 1 and/or Respondent Nos. 2 to 10 and 12 to 22 from making any changes to the Articles of Association of Respondent No. 1 unless such changes have been made with the leave of this Hon’ble Tribunal; (H) order and investigation into the role of the Trustees of the Tata Trusts in the operations of Respondent No. 1 and/or Tata Group companies as also in the functioning of the Board of Directors of Respondent No. 1 and /or 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 involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, 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 I 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 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 compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Directors of Respondent No.1; and iv The Articles of Association be amended accordingly. Prayers A, B and C were not pressed. Prayers F, Q and R, being infructuous were not pressed 17.4 Therefore, after all the confusion created by affidavits, application for 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 audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nominees of Tata Trust from taking any advance decision. (iii) Restraining Tata Sons from exercising its power under Article 75 against the complainant companies and other minority members, except in exceptional circumstances and in the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tarapada Dey 16 (1987) 4 SCC 398 and Mohd. Gazi vs. State of Madhya Pradesh (2000) 4 SCC 342. While so, it is incomprehensible that the NCLAT directed reinstatement, and that too, of a Director of a company, after 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nonetheless an effective dismissal though it may give rise to a claim in damages. The award, no doubt, also said that the dismissal of the appellant was ultravires but as will be seen later, it did 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Principles of Statutory Interpretation 14th Edition by Justice G.P. Singh at Page 541: “As statutes are not enacted in a vacuum, it is assumed that long standing principles of constitutional 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 contrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portionate representation on the Board of Directors of Tata Sons and representation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n matters of this nature, as indicated 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 compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g aside the conversion 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 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came 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 amendment itself was a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust 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 shall be appointed as Directors of the Company. Explanation: the words ‘acting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter 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., The Indian Hotels Company Ltd., Trent Limited, Tata Teleservices (Maharashtra) Limited, Tata Industries Limited, Tata Teleservices Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 by NCLAT against RNT and nominee Directors, on the ground that there was no such prayer. Now that S.P. Group has come up with an appeal seeking an amplification or modulation of the relief so granted, we shall deal with the challenge to the affirmative voting rights. Affirma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 corporate entities have passed. In the first period, large corporate houses were established by individuals with their own funds and those individuals and their families controlled both ownership and management of these enterprises. In the second time period, when professionalism became the ‘Taraka man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any 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 and the Board. (xii) The Board of Directors of certain companies arerequired to have certain Committees such as (1) Audit Committee; (2) Nomination and Remuneration Committee and (3) Stakeholders Relationship Committee. (xiii) A separate section on Corporate Governance is to be included in the Annual Reports ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 Board to redesignate him as Chairman. This is how the Board, in its meeting dated 18.12.2012 redesignated CPM as Executive Chairman. 19.17 If the argument relating to corporate governance is carefully scrutinized in the context of the fact: (i) that a large industrial house whose origin and creation was familial, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers 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 support education, health, livelihood generation and Art & Culture. 19.23 If we take these two important factors into consideration namely: (i) that Tata Sons is only a Principal Investment Holding Company; and (ii) that the majority shareholders of Tata Sons are only philanthropic charitable Trusts, it will be clear that the Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation, 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 of the 1956 Act), recognises two types of share capital of a company limited by shares. They are (i) equity share capital; and (ii) preference share capital. Again equity share capital can be of two kinds namely, (i) those with voting rights; and (ii) those with differential rights as to dividend, voting or otherwise in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired 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 underlying Indian assets. It was in that context that this Court analysed the independent legal existence of a subsidiary and held that even if directors are appointed at the behest of the parent company or removable by the parent company, such directors of the subsidiary company will owe their duty to those companies and are not to be dictated by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Claim for proportionate representation 19.38 As we have pointed out elsewhere, the Statute confers upon the members of a company limited by shares, a right to vote in a general meeting. And this right is proportionate to his shareholding as per Section 47(1)(b). Section 152 which contains provisions for the appointment of Directors, does not confer any right of proporti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 20,000/ or less, in a public company having a paidup capital of Rs. 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 not on “minority shareholders” like the S.P. Group which holds around 18.37%. In fact, admittedly the value of this 18.37% of shareholding of the S.P. Group, as of March2016 was around Rs. 58,441 crores. It is claimed that the purchase consideration of these shares at the relevant point of time was Rs. 69 crores and that during the period from 1991 to 2016, SP group had received aggregate dividends to the tune of Rs. 872 crores. We do not know whether this kind of a huge return on investment and the skyro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 being conducted in a manner oppressive or prejudicial to the interests of the S.P. group, we wonder how a representative of the S.P. Group holding a little over 18% of the share capital could have moved upto the top most position within a period of six years of his induction. Therefore, we are of the considered view that the claim for proportionate representation on the Board is neither statutorily or contractually sustainable nor factually justified. 19.49 Placing reliance upon section 163 of the Companies Act, 2013, it was contende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 filing appeals against the order of the NCLT. But the Registrar of Companies issued an amended certificate on 06.08.2018. 20.6 Upon coming to know of the issue of amended Certificate of Incorporation, S.P. Group filed an additional affidavit before NCLAT on 10.08.2018 in the appeals that came up for hearing. 20.7 While allowing the appeals of S.P. Group by a judgment dated 18.12.2019, NCLAT declared the action of the Registrar of Companies in issuing the amended Certificate of Incorporation as illegal with a further direction to the Registrar of Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 that trust; or (b) that the share (i) forms part of the estate of a deceased person, (ii) has not been bequeathed by the deceased person by his will to any body corporate, and (iii) is held by the banking company either as an executor or administrator of the deceased person or in its own name on behalf of an executor or administrator of the deceased person, and the registrar may, for the purpose of satisfying himself that any share is held in the private company by a banking company as aforesaid, call for at any time from the banking company such books and papers as he consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, reduced below seven. (2) Within three months from the date on which aprivate company becomes a public company by virtue of this section, the company shall inform the Registrar that it has become a public company as aforesaid, and thereupon the Registrar shall delete the word "Private" before the word "Limited" in the name of the company upon the register and shall also make the necessary alterations in the Certificate of Incorporation issued to the company and in its memorandum of association. (2A) Where a public company referred to in subsection (2) becomes a private company on or after the commencement of the Companies (Amendment) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 commencement or at any time thereafter; (b) “turnover”, of a company, means the aggregate value of the realization made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year; (c) “deposit has the same meaning as in section 58A (10) Subject to the other provisions of this Act,any reference in this section to accepting, after an invitation is made by an advertisement, or renewing deposits from the public shall be construed as including a reference to accepting, after an invitation is made by an advertisement, or∙ renewing deposits from any section of the public and the provisions of section 67 shall, so far as ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provisions of the Act which would apply to public companies, but not to Section 43A companies. An important observation found in Needle Industries, is that “the policy of the Act if anything, points in the direction that the integrity and structure of section 43A proviso companies should, as far as possible, not be broken up”. 20.16 Keeping the above stipulations in mind, let us now come to the amendments made to Section 43A under Act 53 of 2000, with effect from 13.12.2000. By this Act, two subsections namely Subsection (2A) and Subsection (11) were inserted in Section 43A. 20.17 By virtue of subsection (11), all the provisions of Section 43A except subsection (2A) were made inapplicable on and after the comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here 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 wanted to retain the prescription contained in subsection (1C) of section 43A and which is why subclause (d) was inserted under section 3(1) (iii). 20.21 But while doing so under Act 53 of 2000, a major omission happened. The omission related to section 27 (3) of the 1956 Act. Section 27 of the 1956 Act contained stipulations as to what the Articles of Association of (i) an unlimited company (ii) a company limited by guarantee and (iii) a private company limited by shares, should contain. It reads as follows: “27. REGULATIONS REQUIRED IN CASE OF UNLIMITED COMPANY, COMPANY LIMITED BY GUARANTEE OR PRIVATE COMPANY LIMITED BY SHARES (1) In the case of an unlimited company, the articles shallstate the number of members with which the company is to be regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 stipulation inserted as subclause (d) by Act 53 of 2000, is omitted in section 2(68). Section 2(68) of the 2013 Act reads as follows: Sec 2 (68) “private company” means a company having a minimum paidup share capital of one lakh rupees or such higher paidup share capital as may be prescribed, and which by its articles, (i) restricts the right to transfer its shares; (ii) except in case of One Person Company, limitsthe number of its members to two hundred: Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member: Provided further that- (A) persons who are in the employment ofthe company; and (B) persons who, having been formerly inthe employment of the company, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 20.31 The articles of association of Tata sons contain the restrictions prescribed in subclauses (a), (b) and (c) of Section 3(1) (iii) of the 1956 Act, but they do not satisfy the requirement of subclause (d) incorporated in the year 2000. However, on and from 12092013, which is the date appointed for the coming into force of section 2(68) of the 2013 Act, the articles of association of Tata Sons satisfy the requirements of Section 2(68) of the 2013 Act. Therefore, it was and it continues to be a private company. 20.32 In other words, the status of Tata Sons (i) was that of a private company till 31011975; (ii) was that of a deemed public company under section 43A from 01021975 till 12122000; (iii) was that of a company that continued to be a deemed to be public company from 13122000 till 110920 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the status of the company and it does not by itself create one. 20.36 As pointed out by this court in Ram Parshotam Mittal Vs. Hillcrest Realty (2009) 8 SCC 709, “it is not the records of the Registrar of Companies which determines the status of the company”. The status of the company is determined by the Articles of association and the statutory provisions. 20.37 NCLAT was wrong in thinking that Tata Sons ought to have taken action during the period 20002013 and obtained approval of the Central Government to become a private company under Subsection (4) of Section 43A of the 1956 Act. Subsection (11) of section 43A, inserted under Act 53 of 2000 made all subsections of Section 43A except subsection (2A), inapplicable on and after the commencement of the Act. Therefore, it is clear that Subsection (4) ceased to exist on and from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Company Affairs, a company which does not approach the RoC for reconversion would be deemed to have chosen to remain as a public company (iv) that as per RBI circular dated 112002 private companies accepting deposits would become public companies (v) that till the year 2009, Tata Sons chose to describe itself only as a public company in the forms filed under Rule 10 of the Companies (Acceptance of Deposits) Rules, 1975 (vi) that the conversion adversely affected the ability of Tata Sons to raise funds increasing borrowing costs (vii) that Tata Sons will be required to refund the investments made by insurance companies on account of the conversion and (viii) that the act of conversion lacked probity and was also prejudicial to the interests of the minority shareholders and the company as well as independent directors. 20.42 But we are not impressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a scheme of reduction of capital by extinguishing the shares held by the S.P. Group in lieu of fair compensation effected through a transfer of proportionate shares of the underlying listed companies, with the balance value of unlisted companies and intangibles including brand value being settled in cash. 21.2 Interestingly, such an application was filed after Tata Group moved an application for restraining S.P. Group from raising money by pledging shares and this court passed an order of status quo on 22.09.2020. For the first time S.P. Group seems to have realized the futility of the litigation and the nature of the order that the Tribunal can pass under Section 242. This is reflected in Paragraph 62 of the application, where S.P. Group has stated that they are seeking such an alternative remedy as a means to put an end to the matters complained of. 21.3 As ..... X X X X Extracts X X X X X X X X Extracts X X X X
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