The National Company Law Tribunal (NCLT) on Monday denied Cyrus Mistry a waiver from the minimum 10% shareholding in Tata Sons needed to seek relief from oppression to minority shareholders. The decision is a big setback for the former Tata Sons chairman who was unceremoniously ousted from the post on October 24, 2016.
Mistry’s two family investment arms — Cyrus Investments and Sterling Investment Corporation — together own 18.4% of the ordinary shares of Tata Sons but just 2.17% of the combined equity including preference shares.
Legal experts opined that Mistry, who has been hoping to prove instances of corporate misgovernance in the Tata Group, could approach the appellate tribunal or the National Company Law Appellate Tribunal.
The NCLT had on March 6 dismissed Mistry’s petition seeking relief from oppression by Tata Sons on the grounds that Mistry’s family investment arms did not own the minimum required 10% of the issued share capital of the company. Subsequently, it heard arguments on whether or not this requirement should be waived.
Mistry’s lawyers had successfully argued in the NCLAT that the NCLT should first rule whether the petition seeking relief from oppression was maintainable and whether the 10% shareholding rider could be waived before hearing the main petition.
The appellate tribunal’s judgment read: “We are of the opinion that during the final hearing the question of maintainability should be decided first and if it is answered in negative, against the appellants, the question of waiver of the petition be decided if any strong ground has been made out to claim exception under proviso to subsection (1) of Section 244.”
The judgment added: “In case aforesaid issues are decided in favour of the appellants, then the tribunal can decide the case on merit.”
It would appear from Monday’s verdict that the NCLT may not have found enough merit in Mistry’s allegations to allow a waiver.
According to Section 244 of the Companies Act, to seek relief from oppression, the petitioner(s) need to comprise “not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company”.
However, the Act also gives the tribunal discretionary powers to waive this requirement if a petitioner makes an application for the same.
A few days after filing his petition alleging oppression of minority shareholders by Tata Sons, Mistry had sought this waiver stating that if it is not granted, “the grave issues raised in the petition would go entirely uninvestigated”.
Mistry’s lawyers had argued Tata Sons’ preference shares do not carry voting rights at a general meeting, nor do they carry the right to receive bonus shares. Moreover, they are to be redeemed within 20 years. “Although the petitioners do not meet the strict legal requirements of Section 244 (1) (b), because of the number of members in the register of members, the reality of the matter is that they constitute one of the two group of members in a very closely held company,” Mistry’s petition read.
Tata Sons, on its part, had challenged the waiver petition contending that since Mistry had not sought such a waiver during the filing of the main petition, such a request at a later stage shouldn’t be accommodated.
“The petitioners have also not sought the leave of this Hon’ble Tribunal for a waiver of these conditions at the time of filing the petition and any such leave, if sought now, will only be an after-thought and not even maintainable,” Tata Sons’ submission read.
Welcoming the NCLT’s ruling, FN Subedar, Tata Sons’ COO, said, “We are pleased that Mr Mistry’s claims have been dismissed by the NCLT. The order of the NCLT represents a vindication of our position. We hope this brings to an end a vexatious campaign against the Company, the Tata Trusts and Ratan N Tata. Tata Sons will continue its focus on its future development under the stewardship of our Executive Chairman N Chandrasekaran.”