Although he’s still fighting it out in the courts, it’s probably the end of the road for Cyrus Mistry who on Monday lost his seat on the board of Tata Sons.
Although he’s still fighting it out in the courts, it’s probably the end of the road for Cyrus Mistry who on Monday lost his seat on the board of Tata Sons. A resolution to remove Mistry from the board received the requisite majority of votes at an extraordinary general meeting held here.
On October 24, 2016, Mistry, son of construction baron Shapoorji Pallonji Mistry, had been ousted from the position of chairman of the holding company for Tata Group companies.
Since then Mistry’s predecessor Ratan Tata and Mistry have traded charges, with the former accusing the later of under-performance. Mistry, for his part, exposed several weak spots in group companies and alleged corporate governance norms had been breached.
A draft ‘corporate governance framework’ sent by him to Ratan Tata that suggested the role of the Tata Sons board be restricted to being directional rather than prescriptive might have led to him being replaced as the company’s chairman. Mistry had suggested providing a proper structure to the group, defining and demarcating the role of various power centres and more importantly, restricting the role of the Tata Sons’ board to just providing feedback and not approving or disapproving the decisions of operating companies.
Mistry’s removal means the Shapoorji Pallonji Group will not have a representation on the Tata Sons board despite an over 18% stake in the company. As legal experts opine, there is no provision in the Companies Act, 2013, that guarantees even a major shareholder a seat on the board. “The Companies Act doesn’t bestow any privilege on a shareholder, irrespective of his/her stake, as far as a seat on the board is concerned. However, the convention is that anyone with a 10% or higher stake is generally offered a seat,” a senior corporate lawyer explained.
Whether a major shareholder can nominate a member to the board or not ultimately boils down to the company’s articles of association (AoA). “While the law gives the right to any shareholder with an over 10% stake to call for an EGM, including a provision in the company’s AoA that allows him to nominate a director needs a special resolution passed by 75% of shareholders,” he added.
“The shareholders of Tata Sons Limited, at the extraordinary general meeting held today, passed, with the requisite majority, a resolution to remove Mr Cyrus P Mistry as a Director of Tata Sons Limited,” the company said in a statement.
With this, the Tata-Mistry battle will be played out in the courts with the Mumbai bench of the National Company Law Tribunal (NCLT) scheduled to resume its hearing of Mistry’s petition on February 13. The tribunal had rejected Mistry’s plea seeking a stay on Monday’s EGM since it deemed it to be a part of normal business of the company. Mistry also failed to win a reprieve from the National Company Law Appellate Tribunal where he had appealed.
An affidavit filed by Mistry on January 23 in the NCLT seeks to prove the breakdown of corporate governance in the Tata Group and also to show how some board members were not only in the know but also concerned about it, sources told FE.
In an email sent to Mistry in February 2015, a copy of which is with FE, board member Nitin Nohria had written that even though the memorandum and AoA of Tata Sons provide some guidelines on the separation of power, they were not operational.
“The separation of the leadership of Tata Trust and Tata Sons is more significant than anyone has fully comprehended or internalised,” Nohria wrote. In fact, Nohria had a few days earlier also written that he sympathised with Mistry’s frustrations, emails show.
Sources in the know told FE that Mistry is trying to convince the NCLT that such emails are proof he had ended up becoming a lame-duck chairman due to the constant interference of Ratan Tata and the Tata trusts.
In the affidavit, Mistry has also highlighted that the Tata Sons’ portfolio outperformed the Sensex during his chairmanship and that its market capitalisation rose more during his three-and-a-half-year tenure than in the last seven years of Ratan Tata’s watch.
After his ouster as chairman of Tata Sons, Mistry was voted out as chairman of Tata Consultancy Services (TCS) on November 10. Tata Sons convened EGMs to remove him from the boards of other group companies but Mistry stepped down from the boards of six firms on December 19.
Mistry won the appreciation of the independent directors on the board of Indian Hotels, who lauded his leadership and strategic direction. N Chandrasekaran, managing director of TCS, was appointed chairman of Tata Sons on January 12.