SC stays NCLAT order restoring Cyrus Mistry’s chairmanship of Tata Sons

The Supreme Court (SC) of India, on Friday, ordered a stay on the implementation of an earlier judgment, passed by the National Company Law Appellate Tribunal (NCLAT) that ordered the reinstatement of Cyrus Mistry as executive chairman of Tata Sons, the flagship holding firm of the $110-billion Tata group. This was reported by the Press Trust of India on Friday afternoon.

On December 18, 2019 the NCLAT had overturned an earlier verdict passed by the Mumbai bench of the National Company Law Tribunal (NCLT) that had dismissed a plea by Mistry, who was sacked as Tata group chairman in 2016, and a couple of his family investment firms. The Shapoorji Pallonji (SP) Group, whose patriarch Pallonji Mistry is Mistry’s father, is the single largest shareholder in Tata Sons with an 18.4% stake. In his suit before the NCLT, Mistry had alleged oppression of minority shareholders and mismanagement and had also challenged the legality of the process by which he was removed as chairman and as a director on the board of a few listed Tata group firms. The allegations were levelled against Tata Sons, its directors, the Tata Trusts (a clutch of philanthropic bodies that collectively own a majority of 66% in Tata Sons), and its trustees (including Mistry’s predecessor Ratan Tata).

The NCLT found no merit in Mistry’s suit and dismissed it. Mistry consequently moved the NCLAT, which last month passed a judgment in his favour. The NCLAT found the board meeting at which Mistry was removed as chairman to be illegal; found merit in claims of prejudicial behaviour against minority shareholders like the SP Group; and also ordered a reversal of Tata Sons’ conversion into a private limited company from a public limited company. Tata Sons and Ratan Tata in his personal capacity then moved the apex court earlier this year, asking for the NCLAT judgment to be declared void as it went against the grain of corporate democracy.

While the fine print of the SC’s order issued on Friday needs to be examined carefully, it appears that the stay on the NCLAT verdict is to allow the apex court to hear the matter, and the arguments of both sides, in its entirety. A report on NDTV.com stated that the chief justice of India, S.A. Bobde, while hearing the matter, observed that the NCLAT’s decision to restore Mistry’s chairmanship might have been an “adjudication error” that permeates the whole order.

Earlier this month, Mistry had issued a detailed press statement clarifying that he wasn’t seeking to return as Tata Sons chairman, or as a director on the board of the group companies. He stated that his battle against Tata Sons and its promoters had more to do with ensuring the highest level of governance at one of India’s oldest and largest business houses and not an individual quest for power. In that sense, the apex court’s stay on the restoration of Mistry’s chairmanship won't have much impact. What will however be crucial is the stand that the SC takes on the right that the Mistry family has to a seat on the board of Tata Sons. Soon after Mistry moved the NCLT against his ouster, he was also removed as a director on the board of the flagship holding company of the salt-to-software conglomerate.

In his last statement issued on January 6, Mistry maintained that he will continue to fight for his family’s right to be on the board of the company. The NCLAT in its judgment had also observed that, going forward, the majority shareholders of Tata Sons should discuss important corporate matters with minority shareholders like the SP Group, before taking a final decision. Given the troubled relationship, this entails the potential for future flash points that can hinder operations if the two sides do not see eye to eye on matters.

Though Pallonji Mistry had been a director of Tata Sons (and was later succeeded by his son Cyrus, even before he became group chairman), it was always at the invitation of the company. Tata Sons says there is no written agreement that mandates it to have a member from the SP Group as a board member.