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NCLT says board of directors, majority shareholders lost confidence in Cyrus Mistry

An executive chairman does not enjoy a free hand and cannot assume that majority shareholders and the board would be at his beck and call, the NCLT order said.

Virendrasingh Ghunawat        Last Updated: July 13, 2018  | 13:40 IST
NCLT says board of directors, majority shareholders lost confidence in Cyrus Mistry

The National Company Law Tribunal (NCLT) in its ruling upheld the removal of Cyrus Mistry as Executive Chairman, saying that it is because the board of directors and majority of shareholders - Tata Trusts - lost confidence in Cyrus as Chairman and not because by contemplating that Cyrus would cause discomfort to Tata, Soonawala and other over purported legacy issues.

The NCLT order added that the board of directors are competent to remove executive chairman and no selection committee recommendation is required before removing him.

In the 368-page order, which was made public on Thursday, the bench also said that Mistry's wrong assumption that he had a free hand to run the affairs of the Tata Group perhaps caused all the problems and that Tata Sons board was "competent" to remove its chairman.

An executive chairman does not enjoy a free hand and cannot assume that majority shareholders and the board would be at his beck and call, the order said.

Highlights of NCLT order in Tata-Mistry case

  • Removal of Cyrus Mistry from the position of Director is because he admittedly sent the company information to Income Tax Authorities; leaked the company information to Media and openly come out against the Board and the Trusts, which hardly augurs well for smooth functioning of the company, and we have not found any merit to believe that his removal as director falls within the ambit of section 241 of Companies Act 2013.
  • We have not found any merit to hold that proportional representation on Board proportionate to the shareholding of the petitioners is possible so long as Articles do not have such mandate as envisaged under section 163 of Companies Act, 2013.
  • We have not found any merit in purported legacy issues, such as Siva issue, TTSL issue, Nano car issue, Corus issue, Mehli issue and Air Asia issue to state that those issues fall within the ambit of section 247 and 242 of Companies Act 2013.
  • We also have not found any merit to say that the company filing application under section 14 of Companies Act 2013 asking this Tribunal to make it from Public to Private falls for consideration under the jurisdiction of section 247 & 242 of Companies Act 2013.
  • We have also found no merit in saying that Tata & Soonawala giving advices and suggestions amounted to interference in administering the affairs of the company, so that to consider their conduct as prejudicial to the interest of the company under section 241 of Companies Act 2013
  • We have found no merit in the argument that  Tata and  Soonawala acted as shadow directors superimposing their wish upon the company so that action to be taken under section 241 & 242 of Companies Act 2013.
  • We have not found any merit in the argument that Articles 75, 1048, 118, 121 of the Articles of Association per se oppressive against the petitioners.
  • They are never in conflict with each other; the management is rather more accountable to the shareholders under the present regime. Corporate governance is collective responsibility, not based on assumed free-hand rule which is alien to the concept of collective responsibility endowed upon the Board.
  • we have observed that prejudice remedy has been included in 2013 Act in addition to oppressive remedy already there and also included application of "just and equitable" ground as precondition to pass any relief in mismanagement issues, which was not the case under old Act. 582,
  • For the reasons aforesaid, we hereby dismiss this company petition by closing applications if any remain pending. No costs.

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