The National Company Law Appellate Tribunal on the petition filed by Cyrus Pallonji Mistry against the Tata Consultancy Services Limited for the alleged acts of oppression and mismanagement has allowed the petition by holding the meeting of the Board of Directors held on 24.10.2016 illegal and restored the position of Cyrus Mistry as the Executive Chairman of the Tata Sons Limited and consequently as a Director of Tata Comoanies for the rest of the tenure, inter alia alongwith other reliefs. The Tata Sons went upto the Hon’ble Supreme Court by filing two appeals.
The entire case raised various complex legal issues such as to what consitutes oppression and mismangement, limits of the tribunal in deciding the issues of oppression and mismangement, should nominee directors of a majority shareholder have substantial affirmative powers, the legality of Tata Sons’ conversion from public company to a private company, fate of Mistry’s directorship on Tata Sons board and so on.
So far as the removal of the CPM from Chairman is concerned, the Hon’ble Supreme Court after considerering the entire law in this regard and the chain of events held that CPM was only removed from the Executive Chairmanship and not the Directorship of the company as on the date of filing of the petition and the fact that in law, even the removal from Directorship can never be held to be an oppressive or prejudical conduct, was suffiecient to throw the petition under Section 241 out, especically since the NCLT chose not to interfere with the findings of fact on certain business decision. The Hon’ble SC further observed that in a petiton under Section 241 of the Companies Act, 2013, the Tribunal cannot ask the question whether the removal of a Director was legally valid or not. The question to be asked is whether such a removal tanatamount to a conduct oppressive or prejudical to some members. Even in cases where the Tribunal finds that the removal of a Director was not in accordance with law or was not judtified on facts, the Tribunal cannot grant a relief under Section 242 unless the removal was oppressive or prejudical. The SC concluded on this issue that the removal of the Executive Chairman cannot be termed as oppressive or prejudical.
The next important issue amongst the other issues which was dealt by the Hon’ble Supreme Court was that as to whether the re-coversion of Tata Sons from public company into a priavte compay, required the neccessary approval unde Section 14 of the Companies Act, 2013 or at least an action under 43-A(4) of the Companies Act, 1956 during the period from 2000 (when Act 53 of 2000) came into force) to 2013 (when the 2013 Act was enacted). After considering the entire factual position in this regard and the various provisions and its history, the Hon’ble SC observed that Tata Sons did not become a public company by choice, but became one by operation of law. Therefore, compliance of the provisions of Section 14 would not come into picture, which otherwise also only deals with the aleration of the Articles having an effect of such conversion. Once the company had become a deemed public company, the privileged of a private company stood withdrawn and the company was entitlted in law to allow renunciation of shares under rights issue.
Thus, to conclude the Court held that the actions of Tata Sons board against CPM did not amount to oppression of minority shareholders or mismanagement and that it was open for Tatas and CPM to work out their sepeartion terms.