The National Company Law Tribunal today dismissed Cyrus Mistry's pleas challenging his removal as Tata Sons Chairman. The tribunal said that it was not accepting Mistry's contentions that his removal was due to the result of mismanagement by the board and oppression of minority shareholders of the group.
The NCLT said that the board of directors was competent to remove executive chairman and Mistry was ousted because Tata Sons' Board and its members had lost confidence in him. The tribunal in its judgement observed that the board and majority of its members lost confidence in Mistry after he sent out certain crucial information about the company to the Income Tax department, leaked details to the media and came out openly in public against the company's shareholders and its board.
Tata Sons has welcomed the NCLT's verdict. In a statement issued after the order, Tata Sons chairman N Chandrasekaran said: "The judgement has only re-affirmed and vindicated that Tata Sons and its operating companies have always acted in a fair manner and in the best interest of its stakeholders. The Tata Group has always been committed and will continue to be committed to transparency and good corporate governance of global standards."
"Tata Sons hopes that a finality will be given to the judgement of NCLT, Mumbai by all concerned in the larger interest of companies, the shareholders and the public," Mr Chandrasekaran added.
The NCLT's judgement was based on a petition filed by Cyrus Mistry challenging his dismissal as chairman of the Tata Sons. The Board of Tata Sons had abruptly removed Mistry as its chairman on October 24, 2016 and sought his ouster from other group companies. He subsequently resigned from the board of six firms, but dragged Tata Sons and his then interim successor Ratan Tata to the NCLT.
Cyrus Investments Pvt Ltd and Sterling Investments Corp - two Shapoorji Pallonji Group entities - in the petition against trustees of Tata Trusts and directors of Tata Sons had alleged abuse of articles of association by outsiders, breakdown of governance and loss of ethical value.
The petition claimed that Mistry's removal as chairman and subsequently as director of the board of Tata Sons was a result of oppression by promoters who are in-turn owned by Tata Trusts that owns over 68 per cent in Tata Sons. The second part of the petition focused on the alleged mismanagement by Tata Sons board and Ratan Tata which caused massive revenue loss for the group.
However, Tata Group had denied all the charges and said that Mistry was removed because the board had lost confidence in him. It further said that Mistry intentionally and in bad faith leaked sensitive and confidential information causing loss in Tata Group's market value. "He (Mistry) was appointed at the behest of Tata Trusts and his removal cannot be questioned by minority shareholders," the Group's counsel Abhishek Manu Singhvi had argued before the tribunal.
The Tata Group argued that the law clearly allows removal of a chairperson and director and Mistry was removed by a majority of 7 out of 9 - Mistry had not voted for his removal and another official had abstained.
NCLT Mumbai's special bench of B S V Prakash Kumar and V Nallasenapathy was expected to deliver its order in the case on July 4 but adjourned it to July 9 as the judgement was not ready.
Ahead of the NCLT verdict, Cyrus Mistry last week questioned the rationale behind Tata Group's some of the business transactions done lately. He questioned the sale of group's telecom arm to Airtel, massive debt-driven acquisitions by Tata Steel and its unequal tie-up with Thyssenkrupp, and a first-ever dip in TCS profit.
Questioning the "free transfer of Tata Teleservices" to Airtel, the letter said the Tatas did not get any benefit from the deal despite transferring 40 million customers, a large swathe of liberalised spectrum and access to Tata Teles extensive fibre network, while it has immensely benefited the acquirer. Mistry said that he failed to understand the logic of offering Bharti Airtel access to these assets effectively for free.
Comparing the massive debt-driven expansion of Tata Steel to its doomed acquisition of Corus, Mistry cautioned against a potential debt burden arising from the Rs 80,000-crore capex needed for acquiring Bhushan Steel (Rs 35,000 crore), Bhushan Power & Steel (Rs 24,000 crore through the NCLT) as well as the Rs 23,000-crore expansion of Kalinganagar project. "If the commodity cycle and the uptick in steel prices are to change again, leading to a decline in prices, Tata Steel will once again stand highly exposed with serious consequences Tata Sons," he warned.
In a letter to the directors of Tata Sons, Cyrus Investments Mistry has sought accountability and information from the board of Tata Sons. Mistry family owns 18.34 per cent in Tata Sons - which makes them the single largest individual shareholder in the holding company of the Tata Group.
Stating that the board is accountable for governance and performance of the Tata Group as also to the minority shareholders, the letter states that despite staring at several burning issues, "Tata Sons is hiding behind the veneer of media management to present a rosy picture."
(With input from PTI)