Libertatem Magazine

TATA’s Boardroom Battle enters the Court Room

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The scramble for the leadership at the TATA Sons which began with the ouster of Cyrus Mistry from the Chairmanship of TATA Industries on 24th October has seen various events till date. It led to the removal of the Cyrus Mistry from the Directorship of pivotal companies of the TATA Sons through the Extraordinary General Meetings (EGMs). It was followed by the bitter exchange of allegations between the TATA Management and Cyrus Mistry. While amidst the pendency of some EGMs, Cyrus Mistry surprised everyone by resigning from the post of Director of the TATA Companies. It is pertinent to mention that even though he is no longer a Director of the Board of the Companies, his family’s major shareholdings at the TATA Sons is unaffected. It was followed by Cyrus Mistry filing a petition before the National Company Law Tribunal (NCLT) against the TATA Sons on the charges of mismanagement and oppression. Mistry had approached the NCLT under the Sections 241 and 242 of the Companies Act, 2013 which provides relief to the petitioner in the case of oppression. The petition alleged that the Tata Sons had committed oppression and mismanagement in the special notice given by the management under Section 169 of the Act that sought to remove Mistry from the post of the Director. It also prayed for the restraining of the TATA Sons from issuing any directions to adversely affect the paid up capital of the petitioner in the companies.

Meanwhile, the TATA Sons management also initiated a legal recourse against Cyrus Mistry for the breach of confidentiality rules. The Management claimed that Mistry had fraudulently attached the classified information of the Company with the petition filed before the NCLT and it had adversely affected the image of the company. While alleging that the conduct of the respondent amounts to the violation of the Tata code of conduct, the petition asked him to return all the classified files that he had in possession. It also demanded him to render a written undertaking that he will not disclose any vital private information of the company in the future.

Response of TATA Sons before NCLT

The TATA Sons responded to the allegations levied against it by Cyrus Mistry before the National Company Law Tribunal (NCLT) in the form of an affidavit on 8th January 2017. The affidavit said that Mistry was removed from the post of Chairman due to the growing trust deficit. It mentioned that the decision to remove Mistry was not taken in a hurry and an adverse chain of events forced the Board to take the call. It divulged that Mistry wasn’t able to maintain a positive relationship between the investors and shareholders of the company. It also revealed that the tenure of Mistry as the Chairman was marred by indiscipline in capital allocation, slow redressal of problems and lacking specialised planning. It accused Mistry of deliberately and systematically reducing the representation of the TATA Sons’ directors in the major TATA Companies. It led to the weakening of the TATA ethos, values and governance principles that are characteristic to TATA brand. The chain of events leads to enervating of the TATA structure in the holding companies. Inter se, the affidavit also mentioned that before the sacking of Mistry as the Chairman, Ratan Tata who was the Chairman Emeritus of the TATA Sons, had asked Mistry to step down before the pivotal board meeting of 24th October. It said the allegations levelled by Mistry was totally untenable and unqualified.

N Chandrashekhar appointed the new TATA Chairman

While the tussle between the TATA Sons management and Cyrus Mistry over the eviction of the latter from the post of the Chairmanship of the TATA Companies has now entered the courts, the TATA Sons in the meantime appointed N Chandrashekhar as the chairman of the TATA Group and he will take charge on 21st February 2017. The former Managing Director of TATA Consultancy Services (TCS) has also been made the chairman of TATA Motors. The seasoned TATA executive will have his work cut out to recover the losses from the TATA Nano project while ensuring higher profits from the Jaguar Land Rover of UK which is one of the most profitable avenues currently in the TATA Conglomerate. It is interesting to note that the former chairman Cyrus Mistry had criticised the Nano Project as being loss making while the TATA sonssame is considered as the brainchild of Ratan Tata. The appointment of N Chandrashekhar is also expected to bring the ongoing corporate feud involving TATA Sons and Cyrus Mistry to a moderation as he is expected to revive the confidence of the investors and shareholders by following a balanced approach. His appointment highlights the ideological dilemma of the TATA Boardroom battle as he being a veteran at TCS will pursue the traditional benevolent approach of the TATA Group while upholding the values of governance and trust that the Group is symbolic with.

Mistry files Contempt Application against TATA Sons

The conundrum for the leadership of the TATA Group of Companies took another unprecedented turn when on 10th January Cyrus Mistry filed a contempt application before the National Company Law Tribunal (NCLT) against the TATA Sons for the alleged violation of the NCLT order that restrained them in acting adversely to the interests of the petitioner. The petitioner, Cyrus Investments Ltd. sought an injunction from NCLT against TATA Sons for transacting any business threat or holding the Extraordinary General Meeting (EGM) of the shareholders that are scheduled for 6th February. The application also prayed for punishing Ratan Tata and other directors of the TATA Sons. The legal provisions provide for simple imprisonment which may extend to six months or fine of ₹ 2,000 or both if found guilty of contempt of the NCLT order.

NCLT dismissed petition against TATA Sons and its Directors

The National Company Law Tribunal (NCLT) heard the contempt petition filed by Cyrus Mistry against Ratan Tata and other directors of the TATA Sons alleging the violation of the earlier NCLT order through the scheduling of the EGM on 6th February. The petition contended that the respondents have committed willful disobedience and contempt of the NCLT order dated 22nd December 2016. The said order was passed during the pendency of a petition filled by Mistry against the TATA Sons for oppression and mismanagement. On 17th January, the NCLT while dismissing the application against TATA Sons said that there was no contempt committed by the respondent. The NCLT however, allowed Mistry to file an affidavit in the Tribunal for seeking an injunction against the Extraordinary General Meeting (EGM) of TATA Sons that was scheduled on 6th February. NCLT gave Mistry a time limit of three days for filing the said affidavit to restrain the EGM which purports to remove Mistry from the Board. NCLT also accepted the plea of Mistry that TATA Sons management must not hold any further meetings without giving the prior information of the same to NCLT.

NCLT allows TATA Sons to conduct EGM

In what is seen as a major jolt to Cyrus Mistry, the National Company Law Tribunal (NCLT) on 31st January allowed TATA Sons to conduct their EGM on 6th February which seeks to remove Mistry from the Board of the Group. Mistry’s plea for restraining the management of TATA Sons from conducting the said EGM was rejected by the NCLT. The bench of NCLT said that actions of TATA Sons in conducting EGM didn’t amount to contempt of the order dated 22nd December. While adjourning the hearing on the Mistry’s petition alleging oppression of minority shareholders and mismanagement against the TATA Sons for 13th February, the Bench noted that contempt plea was turned down on 18th January hearing. NCLT warned the petitioner that if the petitioner does not argue on the designated date of 13th February, the petition would be dismissed.

Future looks bleak for Mistry’s petition

The fact that NCLT has dismissed the contempt application of Mistry and had awarded the final opportunity to the petitioner to present that case on 13th February, the balance is being seen to be shifted in favour of the management of TATA Sons. The management at the TATA Sons have not only successfully negated the contempt application but has also secured the approval of NCLT for conducting the EGM on 6th February 2017. The said EGM is expected to see the removal of Cyrus Mistry from the Board. The coming weeks may see the end of this bitter corporate slugfest if the NCLT dismisses the Mistry’s petition alleging mismanagement and oppression against the TATA Sons.

The TATA Sons will be able to complete the transition towards a new chairman, N Chandrashekhar if the petition is dismissed. The new chairman is expected to take charge on 21st February and it will be a major fillip for the TATA Sons to finally have an experienced TATA official that will steer the empire in the coming months. The current tussle also has an ideological angle as the former chairman Mistry, preferred a trimmer conglomerate owing to the compulsions of the contemporary business world, while the traditional TATA valued seeks to revive the loss-making entities by infusing new ideas and funds than closing the ailing ventures. This high-level corporate tussle has proved to be novel phenomenon even for the Indian Industry more accustomed to smooth successions and family businesses. The coming fortnight is going to provide a decisive verdict to the Boardroom Battle that began on 24th October with the removal of Mistry from the post of Chairman of TATA Sons.

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