“A person who tries to set his own house on fire for not getting what he perceives as legitimately due to him, does not deserve to continue as part of any decision making body (not just the Board of a company),” the SC said.
In a huge win for Tata Sons the Supreme Court on Friday set aside the December 18, 2019 order of National Company Law Appellate Tribunal that had restored Cyrus Mistry as chairman of the Group, thus bringing to an end a four-year feud between the two. Earlier on January 10, the SC had stayed the appellate tribunal’s order in entirety. Mistry was removed as chairman on October 24, 2016, and as a director from the holding company’s board on February 6, 2017, as also from the boards of several group firms triggering an unseemly public spat. The apex court’s view that the sacking of Mistry by the Tata Sons board did not constitute oppression of minority shareholders nor mismanagement, will set a precedent for litigation on corporate governance.
In a further blow to the Shapoorji Pallonji Group, which holds an 18.3% stake in Tata Sons, and which has cited a value of Rs 1.75 lakh crore, the apex court said it was up to the two parties to thrash out an agreement on the valuation and terms of the stake sale. The relationship between the Tatas and the SP Group goes back nearly seven decades and Ratan Tata had endorsed Cyrus Mistry’s appointment as his successor.
On Friday, the apex court set aside the National Company Law Appellate Tribunal’s verdict of December 18, 2019, that had reinstated Mistry as chairman of Tata Sons after calling his removal in October 2016 as “illegal”.
The bench, led by Chief Justice SA Bobde, observed “it is an irony that the very same person (Mistry), who represents shareholders owning just 18.37% of the total paid-up share capital and yet identified as the successor to the empire, has chosen to accuse the very same Board, of conduct, oppressive and unfairly prejudicial to the interests of the minorities”.
Mistry was requested before the board meeting, to step down from the post of executive chairman, the court observed. It added “…the Board securing a legal opinion prior to the Board meeting, cannot make the act a premeditated one. There is a thin line of demarcation between a well-conceived plan and a premeditated one and the line can many times be blurred… In fact the post of Executive Chairman is not statutorily recognised or regulated, though the post of a Director is.” All petitions of Tata Sons were allowed, while those of the SP group were disallowed.
It said that the subsequent conduct, including Mistry leaking his mail to the press in October 2016, even while continuing as a director, justified his removal even from the directorship of Tata Sons and other group companies. “A person who tries to set his own house on fire for not getting what he perceives as legitimately due to him, does not deserve to continue as part of any decision making body (not just the Board of a company),” the SC said.
Stating that Article 75 of the Articles of Association is nothing but a provision for an exit option (though one may think of it as an expulsion option), the SC said that “after attacking Article 75 before NCLT, the Shapoorji Pallonji (SP) group cannot ask this court to go into the question of fixation of fair value compensation for exercising an exit option”.
According to the judges, the application for separation of ownership interests requires an adjudication on facts of various items. “The valuation of the shares of SP Group depends upon the value of the stake of Tata Sons in listed equities, unlisted equities, immovable assets, etc, and also perhaps the funds raised by SP group on the security/pledge of these shares. Therefore, at this stage and in this Court, we cannot adjudicate on the fair compensation. We will leave it to the parties to take the Article 75 route or any other legally available route in this regard,” the bench said in its 282-page judgment.
Welcoming the decision, Ratan Tata tweeted “I appreciate and am grateful for the judgement passed by the honourable Supreme Court today. It is not an issue of winning or losing. After relentless attacks on my integrity and the ethical conduct of the group, the judgement upholding all the appeals of Tata Sons is a validation of the values and ethics that have always been the guiding principles of the group. It reinforces the fairness and justice displayed by our judiciary.”
The Mistry-run family firms had also sought a proportionate representation for the SP Group on the Tata Sons’ board, claiming that the group owns 18.37% of equity share capital in Tata Sons and whose stake is worth over `1.75 lakh crore, thus making it the single largest non-Tata shareholder.
The Tata group, which had pegged the valuation of the Shapoorji Pallonji Group’s 18.4% stake anywhere between Rs 70,000 to Rs 80,000 crore, had offered to buy out the minority stake at fair market value as per Article 75. Tata Sons had also rejected the non-cash settlement offer extended by the SP group in lieu of its stake in the holding firm. The SP Group had offered a pro-rata division of all the assets of Tata Sons as part of the settlement. The Mistry group had also sought a direct stake in all the listed companies of the Tata Group, which includes a 13.22% stake in Tata Consultancy Service based on the formula suggested by it.