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[DAY1] “Articles of Association give power to outvote and hence it is not oppression": Harish Salve in Tata Mistry Case

By Akanksha Sinha, Intern Aquilas Legal Solutio      Dec 09, 2020      0 Comments      1,575 Views
Harish Salve Tata Mistry Case

The Supreme court has started the final hearing in the dispute between Tata Group’s holding company, Tata Sons Limited and Shapoorji Pallonji Groups’ Cyrus Mistry.

The case has been going on for four years, shifting from the National Company Law Appellate Tribunal to the Supreme Court. 

Both Tata Sons Pvt. Ltd and Cyrus Mistry  challenged a December 18, 2019 order of the National Company Law Appellate Tribunal which had ordered the reinstatement of Cyrus Mistry as the Chairperson of Tata Sons Limited.

The Supreme Court had on January 10, 2020, stayed the NCLAT order. The NCLAT, in its December 2019 judgment, had held that the proceedings of the Board meeting of Tata Sons held on October 24, 2016, removing Cyrus Mistry as Chairperson was illegal.

Senior counsel Harish Salve commenced the arguments on behalf of Tata Sons stating “Chairmanship is not a post but a designation”.

He further stated that the Tata Sons which was created in 1917 was always been a private company.

Pointing to an unusual provision in the Articles of Association of the company which bars the transfer of it’s share, the senior council argued that this provision was overlooked by the Tribunal. 

He further clarified that appointment of Cyrus Mistry as Executive Chairman was not a lifetime appointment and it was only up until March 2017.  After March 2017, he had no right to seek re-appointment. 

In response to Harish Salve saying that Mistry wrote an email with scathing comments against Ratan Tata and Tata Sons, supposedly for Board, but was leaked to media, CJI Bobde asked, “This happens in corporate world also?” Salve stated that in fact, this was invented by corporate world & practice has now been followed in other areas also.

He was removed only as Executive Chairman. He would have continued as Director” Mr. Salve stated. 

Talking about the powers of Tribunal, he further stated that the Tribunal has no power to select Chairman, although they have power to appoint Directors in certain conditions only. And such appointments should be pro tem (only for time being).

Selection of Chairman is for the shareholders to decide” Salve added. 

What NCLAT has done now is vest the control of the company with minority. "Minority with 18 per cent holding has been effectively given power to rule over all the Tata Companies", Salve stated. 

CJI remarked that “Section 242(h) speaks about power of Tribunal to remove as Managing Director etc. But there is no power given to set aside an order of removal.  Furthering, Section 242(k) talks about the power to appoint a Director to report to the Tribunal. It is like appointing a Commissioner Director.

Salve referred to the findings of the Tribunal that the oppression is such that a winding up order is just and equitable, submitted that a mere loss cannot come under Section 242 of Companies Act unless it is a loss caused only to the minority.

He further quoted from the Needle Industries decision of 1976 that there should be ‘no hope for the smooth functioning of the company’ and ‘lack of probity in running its affairs’ for ordering winding up”.

Articles of Association gives power to outvote and hence it is not oppression”, Salve added. 

“If the grounds on which oppression and mismanagement are of such gravity that the company itself need to be wound up but it is not expedient to wind up, the court can exercise powers under Sec 242”, the CJI remarked. 

"Lack of confidence springing from the oppression of the minority by the majority involving lack of probity is needed ", Salve further quoted from the English decision in Harmer’s case.

Lastly, the Supreme Court deferred the further hearing on the case to 9th December 2020.

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