Restrains Tata Sons from forcing him out but refuses to stay conversion of holding firm into a private company.
In a partial relief for Cyrus Mistry, the National Company Law Appellate Tribunal (NCLAT)on Friday restrained Tata Sons from forcing him out of the company as a shareholder but refused to stay the conversion of the holding firm into a private company from a public limited one. The restraint on Tata Sons shall remain in force till the appellate tribunal hears the merits of Mistry’s petition challenging his ouster as chairman of the group holding firm in October 2016, which has been upheld by the Mumbai bench of the National Company Law Tribunal (NCLT).
In its interim order on Mistry’s plea for putting on hold the approval for conversion of Tata Sons into a private company from a public limited one, the appellate tribunal admitted his petition against the move and posted the matter for hearing on September 24.
The conversion of a company into a private one from a public limited one restricts minority shareholders’ rights to sell their shares to external parties. Further, under Article 75 of the articles of association of Tata Sons, the board can force a minority shareholder to sell out.
“Taking into consideration the facts and that the appeal is pending and if the appellants are forced to sell their shares which may affect the merits of the appeal, as they will cease to be member(s) of the company (Tata Sons), we direct the respondents (Tata) not take any step in terms of Article 75 for transfer of shares of minority shareholders like appellants and others during the pendency of the appeal,” the NCLAT interim order said.
During arguments, Tata Sons contended that it was always a closely held private entity but was considered a public limited company due to a legal provision which made firms deemed public company if their annual turnover exceeded a particular amount. The Tata Sons counsel said that it thus became a “hybrid” firm in 1975 by retaining the restrictions under law which applies to a private company.
This means that that the word “deemed” was used to mean essentially that the company was actually a private company and by operation of law was treated as a public limited company.
However, the Companies Act, 1956, was amended in 2000 as per which a public company can become a private company by informing the registrar of companies (RoC) and making necessary changes in its certificate of incorporation and memorandum of association.
Mistry family firms, which hold 18.4% stake in Tata Sons, had alleged that the appeal against the NCLT Mumbai order was filed before the NCLAT in the evening of August 6, 2018, and the Tatas hurriedly moved before RoC, Mumbai, which passed a certificate converting the company as ‘Tata Sons Private Limited’.
The Tatas said that Article 75 has been a part of the articles of association of Tata Sons since inception in 1917, which was a private limited company then. However, it was changed into a public limited company in 1965, which is when the Mistry side had invested in Tata Sons.
Article 75, which deals with the company’s power to transfer shares, says Tata Sons may at any time by special resolution resolve that any holder of ordinary shares to transfer his ordinary shares.
In September last year, Tata Sons had received shareholders’ approval to convert itself into a private limited company from being a public limited company. This limited the Mistry family’s ability to sell its stake to outsiders.