The Supreme Court last week stayed the National Company Law Appellate Tribunal’s order reinstating Cyrus Pallonji Mistry as executive chairman of Tata Sons, a post from which he was removed in October 2016 by the board of directors. A bench of Chief Justice S A Bobde and Justices B R Gavai and Surya Kant ordered notice on Tata Sons petition challenging the NCLAT judgment while staying it order.
This triggered protest from the senior advocates engaged by the Shapoorji Pallonji group, Mistry and Sterling Investments. They told the court that Mistry himself had said he did not want reinstatement as executive chairman but wanted to protect the interest of minority shareholders.
The CJI said, “There appears to be a basic flaw in the NCLAT order reinstating Mistry as executive chairman of Tata Sons as that relief was never sought. Something appears very wrong. We looked at the judicial approach of NCLAT in the case and found it sorely lacking.” C A Sundaram said a status quo order was necessary as stay would enable Tata Sons to take coercive steps under law to buy out shares of the Shapoorji Pallonji group, which has invested around £10 billion in Tata Sons.
Tata Sons refused and contended that the NCLAT order was completely wrong and set a wrong legal precedent which endangered corporate democracy. This was vindicated by observations from the bench. Senior advocates C A Sundaram, Shyam Divan, Maninder Singh and Neeraj K Kaul were engaged by the Pallonji group, Mistry and Sterling Investments.
“The Supreme Court must keep operational the NCLAT decision rescinding conversion of Tata Sons to a private company from a public company,” Sundaram argued. He also said representation of Shapoorji Pallonji group through a director, which has been traditionally done, must be maintained.
Sundaram said a status quo order was necessary as stay would enable Tata Sons to take coercive steps under law to buy out shares of the Pallonji group. But Salve pre-empted the apprehensions by undertaking before the court that Tata Sons would not resort to coercive steps to buy back shares of minority shareholders.
The SC asked the Pallonji group to respond to petitions filed by Tata Sons, Ratan Tata and other Tata group companies and their directors, in four weeks. Tata Sons enlisted a heavy-duty line-up of senior advocates - Harsh Salve, A M Singhvi and Mukul Rohatgi - to challenge the NCLAT judgment. Mistry was removed on October 24, 2016, nearly four years after his appointment. Of the eight directors, seven voted for his ouster while one abstained. Tata Sons, in its petition filed through solicitors Karanjawala & Co, said the NCLAT order directing reinstatement of Mistry was gratuitous as none of the appellants, Cyrus Investment or Sterling Investment, had ever sought such a relief.
