MCA says no illegality in conversion of Tata Sons into private company; NCLAT reserves order

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New Delhi | Updated: January 3, 2020 3:53:40 PM

The submission was made before the National Company Law Appellate Tribunal (NCLAT) during the course of hearing on a petition filed by Registrar of Companies (RoC) that seeks modifications in the tribunal's December 18, 2019 judgment reinstating Cyrus Mistry as the executive chairman of Tata Sons.

Tata-Mistry case, tata steel, nclat, cyrus mistry, tata steel case, tata steel nclat caseMonths after Mistry was sacked, Tata Sons had received its shareholders’ nod in September 2017, to convert itself into a private limited company from a public limited company. (Reuters)

The Ministry of Corporate Affairs on Friday told the company law appellate court that it did not commit any illegality in granting permission to convert Tata Sons — the holding company of the USD 110 billion salt-to-software conglomerate — into a private company. The submission was made before the National Company Law Appellate Tribunal (NCLAT) during the course of hearing on a petition filed by Registrar of Companies (RoC) that seeks modifications in the tribunal’s December 18, 2019 judgment reinstating Cyrus Mistry as the executive chairman of Tata Sons. A two-member bench of the NCLAT headed by Chairman Justice S J Mukhopadhaya, which reserved its order on the RoC’s petition, said it will clarify that the December 18 judgement does not cast aspersions on the RoC and indicated that its order is likely to come on Monday next week.

Last month, the NCLAT set aside the RoC decision allowing conversion of Tata Sons into a private company. During the proceedings on Friday, the Ministry of Corporate Affairs (MCA) said it was only discharging its duty and has not committed any illegality in the conversion of Tata Sons from a public company to a private company.

Director Prosecution, representing the MCA, informed the appellate tribunal that after amendment in 2015, there is no such requirement of any minimum prescribed share capital for conversion of companies from public to private ones. “Nothing has been prescribed. There is no requirement. This has been done for ease of doing business,” said the MCA official.

The MCA also said that RoC Mumbai was “duty-bound” to change the status, over such a request and there was no hurry from its part in the conversion of Tata Sons from a public to a private company. However, on this, the bench said, “Hurry was not from your part. It was from their own part (Tata). “Your help was in that… hurriedly changed with the board of directors” said the NCLAT.

Further, the appellate tribunal said the RoC cannot challenge its finding observations in the judgement before it. “You are challenging the finding observation (of December 18 judgement). You go and challenge it before the Supreme Court. Your action challenging is prejudicial,” said the NCLAT.

The appellate tribunal also clearly told the MCA that it was not making any aspersions against the RoC. “We are not making any aspersions against you. These are our findings. We are not saying anything malafide against you. Your apprehensions are unfounded,” said the NCLAT, “You can’t ask for a change for just seeking a change”.

Going a step further, the NCLAT also observed, “Your arguments seem that you are arguing for a company… You are arguing as a mouthpiece of a company. Don’t plead like that”. NCLAT Member (Judicial) Justice Bansi Lal Bhat, who was also part of the two-member bench, observed, “This is for the first time we are seeing that a director prosecution is acting like defence”.

On December 18, the NCLAT directed the USD 110-billion Tata group to reinstate Cyrus Mistry as the executive chairman of Tata Sons. Tata Sons and Ratan Tata have separately moved the Supreme Court against the NCLAT order. In its order passed on December 18, NCLAT termed the appointment of N Chandrasekaran, as “illegal” following the October 2016 sacking of Mistry as Tata Sons’ executive chairman. It had also directed the RoC to reverse Tata Sons’ status from a ‘private company’ to a ‘public company’.

The appellate tribunal had also quashed the conversion of Tata Sons — the principal holding company and promoter of Tata firms — into a private company from a public one and had termed it as “illegal”. It had said the action taken by the RoC to allow the firm to become a private company was against the provisions of the Companies Act, 2013, and ‘prejudicial’ and ‘oppressive’ to the minority member (Mistry camp).

In an urgent application, which was mentioned on December 23, RoC Mumbai had asked the appellate tribunal “to carry out requisite amendments” of its judgement “to correctly reflect the conduct of the RoC Mumbai as not being illegal and being as per the provisions of the Companies Act”. In its plea, the RoC, which functions under the MCA, sought to be impleaded as a party in the two petitions and deletion of the words “illegal” and “with the help of the RoC” used by the NCLAT in its judgement.

Besides, it also urged the tribunal “to delete the aspersions made regarding any hurried help accorded by the RoC Mumbai to Tata Sons, except what was statutorily required” in para 181 of the order. The RoC also said it has acted in “bonafide manner” in converting the status of Tata Sons as “there was no stay granted by this appellate tribunal on the operation of the judgement dated July 9, 2018, of Mumbai, NCLT, at the time when this intimation was filed by Tata Sons Ltd”.

Months after Mistry was sacked, Tata Sons received its shareholders’ nod in September 2017, to convert itself into a private limited company from a public limited company, thereby absolving it of the need to take shareholder consent in taking crucial decisions, which could be passed with just the board’s approval. Tata Sons was initially a ‘private company’, but after insertion of Section 43A (1A) in the Companies Act, 1956, on the basis of average annual turnover, it assumed the character of a deemed ‘public company’ with effect from February 1, 1975, the order said.

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