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[DAY6] Most crucial obligations on Directors is that they are fiduciary: Mr. Shyam Divan on behalf of Cyrus Mistry in Tata V Mistry Case

Shyam Divan Cyrus Mistry Tata
On the Day 6 of court battle between Tata Sons and Cyrus Mistry, Mr. Shyam Divan on behalf of Cyrus Mistry tendered his arguments on three main points : first, importance of Corporate Governance;  second, provisions of AoA and third, the history of relationship between Tata Sons and Cyrus Mistry. 

On the argument of Corporate Governance, Mr. Divan started by submitting that the present case in essence is about corporate governance.

“Law has evolved from corporate majority to corporate democracy to a higher set of values and a higher standard ensuring transparency”, Divan submitted. 

Citing Section 135 on CSR, Section 149 talking about Board of Directors and Section 151 on directors to be elected by small shareholders, Mr. Divan argued that all this is a bouquet of provisions to strengthen corporate governance. 

“This also includes duty of directors, audit committee etc”, Shyam added. 

Pointing the importance of Section 149 of Companies Act, Senior Counsel stated that law enjoins companies to be managed within a prescribed statutory framework managed by BOD and no one else.

Most crucial obligations on Directors is that they are fiduciary : Divan

This fiduciary role and responsibility is the highest level of duty that law imposed to them. “ he continued. 

He further added that a fiduciary cannot delegate his duty as to allegiance wrt company alone. 

There has been a breach of Articles, misuse of the articles and violations of essential understanding of these two groups : Divan

He further stated that lack of integrity or honesty in dealings is much broader than siphoning of money, 

He then argued that the relief sought wrt proportionate representation applying to listed company is consistent with the Compaines Act. Sec 163 and Sec. 242 which deals with alteration of Articles. 

“The reason we argue this is due to consistency of management of board”, Divan clarified. 

The arguments then turned towards the discussion on Articles of Association, where Divan cites annexure based on the appointment of Chairman. He argues that there is an express black letter provision saying “if you wish to remove the the chairman, you must follow the same process of appointment.” 

This article has been breached in the removal of Cyrus Mistry : Divan

Divan on second article wrt powers of the board argued that apart from statute, the management has to be by board as required to be exercised by Act and Articles. 

Divan then referred to third article on managing director and full-time director. 

“We have the Executive Chairman,Cyrus Mistry in our case. If his tenure has to be terminated for any reason, this has to be don in compliance of the article which is not done” he argued. 

He further signifying the importance of Board of Directors, argued on Sec 149 of Companies Act 2013. 

“Every company shall have a board of directors. Reason is because the duties of directors have statutory duties”, Divan submitted.

He then moved towards section 166 of Companies Act, which talks about Duties of Directors.

If you are torn between allegiance to company and allegiance to something else,then you cannot act as a director : Divan

Divan continued his argument by stating that Tata Trust could not vote on its own shares between 1964 and 2000 due to statuary restrictions and it was a public trustee appointed by Central Government who could vote on your shares. That was when Shapoorji Pallonji  because of their relationship with Tata become a reliable partner who could vote and that is why Tata sold their shares to SPG. This continued till Public Trustee Mandate was done away with in 2000 and Tata Trusts could vote. 

Divan recounted history of Shapoorji Pallonji Group’s relationship with Tata Group and how various SP Group persons served on board of various Tata Group Companies. 

The relationship is 5 decade old of which 4 was during Public Trustee Regime : Divan

He concluded by stating that the removal of Cyrus Mistry was illegal, oppressive and against good faith and trust which Tata Sons and Shapoorji Pallonji Group shared. 

The Bench will now convene to hear the matter on Thursday, 17th December 2020, where Mr. Divan will continue with his arguments.


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