SC Stays NCLAT order of reinstating Cyrus Mistry

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On 10th January 2020, the Supreme Court comprising of three-judge bench led by Chief Justice SA Bobde issued notices to all parties on the slew of petitions filed by several Tata companies and top executives including chairman emeritus Ratan Tata against the order of NCLAT.

Tata Sons challenged the order of NCLAT saying that the order had put at risk the holding company’s efforts to cut costs, sell assets and boost growth across Tata group companies. Additionally, it also said the order had created “confusion in the working of important corporate entities, some of which are listed companies”. Tata Group of Companies also said the order restoring Mistry’s directorship in three group companies was incoherent with corporate democracy because his removal was done by the approval of shareholders.

The SC heard the parties and decided to put a stay on the order of NCLAT for reinstating Cyrus Mistry as executive chairman. The advocate representing the minority shareholders, Mr CA Sundaram, opposed any stay on the order stating out that Mistry had clarified that he was not interested in “returning” to the chairman’s post. Sundaram further argued that Mistry was standing for the rights of the minority shareholders and whether rules of corporate governance would concern them. He defended the NCLAT order saying that the tribunal had only “moulded” consequential relief as it had deemed fit. “There is nothing wrong with it. Such orders of the NCLAT are upheld every day by the top court.”

The Tatas, through senior advocate Harish Salve opposed any status quo and instead sought a stay on the order of NCLAT. In an effort to convince the court that no change would be made to the existing situation on the ground, Salve offered an assurance. “We do not propose to take any steps under Article 75 (of the articles of association of the company),” he said.

The Supreme Court came to the conclusion that there were “basic errors” in the National Company Law Appellate Tribunal (NCLAT)’s observations. “Our first impression is not good about the order of the tribunal,” said a bench headed by Chief Justice S.A. Bobde. “The tribunal granted the prayer which was not prayed for.” The Bench noted that never before had there been a judgment of this nature under the Companies Act. With this stay, the company can get back to business as usual with N Chandrasekaran at the helm of Tata Sons. The Mistry camp has four weeks to respond to the court notice, though senior advocate C A Sundaram, appearing for Cyrus Investment had sought two weeks to file a reply. The court has ordered the Tata group not to exercise power under Article 75 of the Company.

The SC stay acts as interim relief to the Tata Group of Companies. On the other hand, Cyrus Mistry has ruled out pursuing chairmanship of Tata Sons or any other executive positions at group entities but asserted that he is interested in a board seat at the holding company. Ruling out taking up any position at the group or any group entities, Mistry said that he is “walking the talk” to uphold corporate governance, and this is not a quest for position or power and he “will not be pursuing the executive chairmanship of Tata Sons, or directorship of TCS, Tata Teleservices or Tata Industries”.


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