The National Company Law Appellate Tribunal (NCLAT), which ordered the reinstatement of the ousted chairman Cyrus Mistry, has also said that the conversion of Tata Sons from a public limited company into private company is not legally valid. NCLAT, on Wednesday, said that turning Tata Sons into private company was unlawful and orderd a reversal.
In September 2017, Tata Sons had received shareholder approval to convert itself into a private limited company from a public limited company. Cyrus Mistry's family firms, which hold 18.4 per cent stake in Tata Sons, had opposed the decision as it would restrict them from selling stakes to outsiders. Last year, the appellate tribunal had ordered that Tata Sons could not force Mistry to sell his family's shares until a decision was taken on his appeal.
As a private limited company, Tata Sons needs no shareholder consent and can take crucial decisions with just the board's approval. It means the Mistry family has no say in the board despite being the biggest shareholder after Tata Trusts, people close to Mistry said.
Tata Trust counsel had argued earlier at the National Company Law Tribunal (NCLT) that the Trust wanted Tata Sons to acquire the stake of Mistry family in the holding company. "Tatas wanted to remove Mistrys from share ownership of Tata Sons," says an industry expert. The Trusts' senior counsel Sudipta Sarkar had said during the argument that it would be in the interest of Tata Sons to buy out Shapoorji Pallonji (SP) Group's stake in the holding company. He had alleged that the SP Group had been exercising their rights in a "disruptive manner" which was not in the best interest of the company.
Tata counsel had argued in the court that Mistrys didn't hold any shares until 1965 and they bought it later from the sibilings of JRD Tata. However, it is believed SP Group got the Tata Sons' shares when they bought into the financing firm F.E. Dinshaw and Co in the 1930s. SP Group had been a silent shareholder until the controversial ouster of Cyrus Mistry from the post of Tata Group chairman.
Earlier, in September 2017, the shareholders of Tata Sons voted in favour of the Tata group holding firm becoming a private company in the first annual general meeting (AGM) under the chairmanship of N Chandrasekaran. The move was opposed by the Mistry family as it would restrain them from selling their stake. The shareholders of the Tata group companies had also complained that it would leave less information on what was happening at the holding company level.
Cyrus Mistry's counsel C Arya Sundaram had argued for the introduction of certain "safeguards" within the Tata Group to protect the interests of minority shareholders. Later, Mistry sought that his SP Group, the single largest shareholder in Tata Sons, be given board representation proportionate to its holdings.
Countering the Mistry family's arguments, Abhishek Manu Singhvi, representing the Tata Group's holding company, had argued that Cyrus Mistry during his time as a Tata Sons board member was party to almost all decisions and he alleged mismanagement after being removed from the post. He also argued that Mistry was removed from the chairmanship as its board had lost confidence in him.