Cyrus Mistry’s Removal as Chairman of Tata Sons was Illegal, says NCLAT

While the appellate tribunal ordered the restoration of Mistry to his original position as executive chairman, it also agreed to stay that part of the verdict in order to let the Tata Group lodge an appeal before the Supreme Court.

New Delhi: In a surprising turn of events, the National Company Law Appellate Tribunal (NCLAT) on Wednesday ruled in favour of former Tata Sons boss Cyrus Mistry on a petition challenging his removal as chairman of the massive conglomerate that sells everything from salt to software services.

Accordingly, the tribunal has now restored Mistry to his original position as executive chairman of the Tata Group’s ultimate holding company. 

In an order pronounced on Wednesday afternoon, the NCLAT held that the resolution passed by the Tata Sons board removing Mistry in October 2016 was illegal.

Consequently, the subsequent decision by the company to appoint N. Chandrasekaran as Mistry’s successor has also been held illegal.

The appellate tribunal also set aside the change of Tata Sons from public to private company, a key demand made by Mistry that will allow his father to sell their stake in the group

In response to the NCLAT’s order, the Tata Group issued a cautious statement on Wednesday evening, saying that its unclear how the company tribunal chose to “overrule the decisions taken by shareholders of Tata Sons and listed Tata operating companies at validly constituted shareholder meetings”.

The group added that it would take appropriate legal recourse against the order.

Partial suspension

Shortly after the judgement was announced, senior advocate Abishek Manu Singhvi, who was appearing for Tata Sons, asked for a partial stay on the NCLAT verdict in order to give them time to file an appeal before the Supreme Court.

The tribunal  agreed to suspend the part of its verdict, namely the bit concerning the reinstatement of Mistry,  for four weeks. 

“With a view to ensure smooth functioning of the Company, while we are not inclined to suspend the Judgment pronounced today in its totality, but suspend the part of the Judgment so far as it relates to replacement of the present ‘Executive Chairman’ and reinstatement of Mr. Cyrus Pallonji Mistry as ‘Executive Chairman’ of ‘Tata Sons Limited’ for a period of four weeks. Rest of the Judgment and Directions including the direction to reinstate Mr. Cyrus Pallonji Mistry as Director of the Company and Directors of three Tata Companies shall be complied forthwith,” the NCLAT order noted.

With the news coming in before the stock markets closed,  shares of various Tata Group companies fell by up to 5% on the Bombay Stock Exchange.

The Mistry family, in the form of the Shapoorji Pallonji Group, is the single largest shareholder in Tata Sons, with an 18.4%  stake.

The two-member NCLAT Bench headed by chairperson Justice S J Mukhopadhaya pronounced its judgement after reserving its order in July 2019, when it completed a marathon hearing on the issue.

‘Victory for good governance’

In a statement put out on Wednesday evening, Mistry said that the NCLAT order was not only a personal victory, but also one for the “principles of good governance and minority shareholder rights”.

“The outcome of the appeal is a vindication of my stand taken when the then board of Tata Sons, without warning or reason removed me, first as the executive chairman, and subsequently as a director of Tata Sons. My endeavor as Executive Chairman had always been to establish a culture and processes that promote effective board governance to create long term stakeholder value, sustainable profits and growth,” he said in a statement.

“I believe it is now time that all of us work together for sustainable growth and development of the Tata Group, an institution that we all cherish,” the statement added.

Tata v Mistry

Mistry’s battle against Tata Sons began on October 10, 2016, when the Tata Sons board unceremoniously sacked him, citing a host of governance and financial issues.

Less than six months later after his removal, the group appointed TCS boss N Chandrasekaran as chairman, which set off a legal battle.

In his petition before the National Company Law Tribunal (NCLT), Mistry accused Tata Sons of mismanagement and of oppressing minority shareholder rights by turning private.

In July 2018, the NCLT ruled against Mistry, prompting the Shapoorji Pallonji scion to move the NCLAT in an appeal against the NCLT order.