[DAY 3] “Deadlock is not the sin qua non to exercise power under Section 241” : CA Sundaram in Tata Mistry Case

Today was the 3rd day of hearing in the dispute between Tata Group’s holding company, Tata Sons Limited and Shapoorji Pallonji Groups’ Cyrus Mistry.

The previous hearing saw Senior Counsel Harish Salve continuing his submissions on Tata Son’s behalf. 

Today, Senior Counsel started his argument on the peculiarities of the articles of association of Tata Sons. He explained the scheme under articles regarding appointment to Board of Directors ( Article 65 of Articles of Association of Tata Communication Limited) and passage of resolutions by the board.

Mistry should have kept nominee directors informed in advance about resolutions so that Chairman Emeritus is kept in loop for smooth functioning : Salve

When CJI Bobde questioned if Chairman Emeritus has any right to be informed and have a discussion on resolutions , Salve argued that advance discussions ensures there is no situation in board meeting where nominee directors have to shoot down proposals. 

Otherwise, it becomes news in financial newspapers next day.

“These are price-sensitive issues since Tata Companies are listed” Salve added.

The content of the amendment can  be challenged only if it is of such nature that it alters the basic foundation of the company : Salve

Salve  submitted that the amendments to articles was approved unanimously and hence it cannot be challenged as oppressive as long as the procedure for the amendment was followed.

He also pointed out that the allegations of misconduct are primarily relating to downstream companies and not Tata Sons. 

Second half of the hearing begins with Senior Counsel CA Sundaram appearing on behalf of Shapoorji Pallonji firms – Cyrus Investment and Sterling Investment.

“The main issue is that the business was being run in a manner which was prejudicial not just to minority shareholders but to company itself” Sundaram stated. 

He further stated that if the group companies want to take any decision, Tata Sons being the majority shareholder takes that decision. 

“Tata Sons is effectively not a board managed company” : Sundaram.

Sundaram futher argued that since the company is being run by two nominees of Tata Trusts, there is no point of bringing matters to the board.

A company being a profit making company is not a criteria for deciding whether there is oppression or mismanagement : Sundaram.

Qouting extensively from Section 242 of the Companies Act, 2013, Senior Counsel submitted that the test as per section 242 is whether the affairs of company is being run in a manner which is prejudicial to members or public interest or interest of company itself. 

“Oppression means any act which leads to loss of confidence in the manner in which company is being run” Sundaram added. 

Under the 2013 Act, an action can be prejudicial without being oppressive : Sundaram

He clarified that the Companies Act of 2013 expanded the scope for the tribunal to interfere by including ‘oppression’ and ‘prejudice ‘ to members as a ground under Section 242.

Earlier only ‘oppression’ was the ground.

The whole conduct by which the company was made a private company shows that minority was being sidelined : Sundaram

He further added that the act of converting company from public to private was to prejudice SP Groups because the protections afforded by virtue of being public was taken away. 

When CJI asked whether the Tribunal mentioned the just and equitable grounds for winding up, Sundaram mentioned that justifiable loss of confidence in management or exclusion from management in quasi partnership are grounds for winding up on just & equitable clause.

Finally, CJI Bobde asked Senior Counsel Sundaram to show how NCLAT came to conclusion that is was a fit case for winding up the company under just and equitable clause at the next hearing. 

The bench will resume hearing on the case on Monday, 14th December 2020 at 2 pm.