New Delhi: In a big victory for the Tata Group, the Supreme Court on Friday upheld its removal of Cyrus Mistry as the executive chairman of the USD 100 billion salt-to-software conglomerate, bringing the curtains down on a bitter four-year long public and legal battle. Setting aside the appellate tribunal NCLAT’s order which had restored Mistry to the top post, the apex court in a unanimous 3-0 decision also dismissed a plea of Shapoorji Pallonji(SP) Group seeking separation of ownership interests in Tata Sons Pvt Ltd (TSPL). The SP Group owns 18.37 per cent shares in TSPL, and the next fight could be over its valuation.
A person who tries to set his own house on fire for not getting what he perceives as legitimately due to him, does not deserve to continue as part of any decision making body (not just the Board of a company), the bench said, in a hard-hitting observation while questioning the conduct of the 53-year-old Mistry. The court said the conduct of Mistry in leaking his mail dated October 25, 2016 to the Press and sending replies to the Income Tax authorities enclosing four box files, even while continuing as a Director, justified his removal even from the Directorship of Tata Sons and other group companies.
Mistry had succeeded Ratan Tata, 84, as the chairman of the TSPL in 2012, but was dramatically ousted four years later, triggering one of the ugliest boardroom battle at the country’s biggest business conglomerate that brought top lawyers face to face in the apex court. Thus in fine, all the questions of law are liable to be answered in favour of the appellants Tata group and the appeals filed by the Tata Group are liable to be allowed and the appeal filed by SP Group is liable to be dismissed,” a bench of Chief Justice SA Bobde, justices AS Bopanna and V Ramasubramanian ordered in its 282-page judgement In the result, all the appeals except Civil Appeal No…(appeal of Cyrus Investments Pvt Ltd versus Tata Sons Ltd and others) are allowed and the order of NCLAT dated December 18, 2019 is set aside.
The SP Group had said the TSPL moved the top court to block its plan to pledge shares for raising funds and that reeked of vindictiveness and oppression of minority shareholder rights. The top court had, on January 10 last year, granted interim relief to the Tata Group by staying the National Company Law Appellate Tribunal (NCLAT) order by which Mistry was restored as the executive chairman of the conglomerate.
Ratan Tata, the Tata Group Chairman Emeritus, and Tata Sons hailed the verdict as a validation of the conglomerate’s values and governance standards. There was no immediate reaction from the Mistry camp. “It is not an issue of winning or losing,” Ratan Tata said in a social media post.
“After relentless attacks on my integrity and the ethical conduct of the group, the judgement upholding all the appeals of Tata Sons is a validation of the values and the ethics that have always been the guiding principle of the group,” he added. “It(verdict) reinforces the fairness and justice displayed by our judiciary.” Tata Sons, the holding firm of the Tata group companies, said the judgement vindicates its position and upholds the governance standards adopted by the conglomerate over the years.
“The judgment of the Hon’ble Supreme Court vindicates the position of Tata Sons and upholds the governance standards adopted by the Tata Group over the years. Tata Sons is grateful to the Hon’ble Supreme Court,” it said in a statement. Tata Group stocks gained up to 6 per cent after the verdict.
Days after the ouster, Ratan Tata had explained to shareholders of group firms that Mistry was replaced as chairman on October 24, 2016 “because the board of Tata Sons lost confidence in him and his ability to lead the Tata Group in future”. He also had stated that the board felt that Mistry’s removal was “absolutely necessary” for the future success of the group.
On the other hand, Mistry, who termed his sacking as an “illegal coup”, alleged that his ouster was aimed to cut short his “attempt to bring about reform” at the Tata group. In its verdict, the top court further said the petitions filed before the NCLT by the two firms belonging to the SP Group shall stand dismissed.
It said the appeals filed by Cyrus Investments Pvt Ltd and Sterling Investments Corporation Pvt Ltd seeking proportionate representation on the board of Tata Sons and in all committees formed by it are also dismissed. All IAs (interlocutory applications) including the one for causing separation of ownership interests of the SP Group in Tata Sons namely IA No…are dismissed, it said.
SP Group has moved an application seeking direction to Tata Sons and others for separation of ownership interests in the conglomerate via reduction of capital by extinguishing its shares in lieu of fair compensation. It sought the separation be effected through a transfer of proportionate shares of the listed companies of Tata Sons, with the balance value of unlisted companies and intangibles including brand value being settled in cash.
The court said, interestingly, such an application was filed after Tata Group moved an application for restraining SP Group from raising money by pledging shares and this court passed an order of status quo on September 22, 2020. “For the first time, SP Group seems to have realized the futility of the litigation and the nature of the order that the Tribunal can pass under Section 242. This is reflected in Paragraph 62 of the application, where SP Group has stated that they are seeking such an alternative remedy as a means to put an end to the matters complained of, it added.
The court said that as a matter of fact, the SP Group should have sought such a relief from the Tribunal even at the beginning as we have pointed out elsewhere a divorce without acrimony is what is encouraged both in England and in India under the statutory regime. It said, but in an appeal under Section 423 of the Companies Act, 2013, this Court is concerned with questions of law arising out of the order of NCLAT.
It should be pointed out at this stage that Article 75 of the Articles of Association is nothing but a provision for an exit option (though one may think of it as an expulsion option). After attacking Article 75 before NCLT, the SP Group cannot ask this Court to go into the question of fixation of fair value compensation for exercising an exit option.” It added that what is pleaded in the application of SP Group for separation of ownership interests; require adjudication on facts, of various items. The bench said: The valuation of the shares of SP Group depends upon the value of the stake of Tata Sons in listed equities, unlisted equities, immovable assets etc., and also perhaps the funds raised by SP group on the security/pledge of these shares.
“Therefore, at this stage and in this Court, we cannot adjudicate on the fair compensation. We will leave it to the parties to take the Article 75 route or any other legally available route in this regard. The SP Group had earlier valued its holding in TSPL at Rs 1.75 lakh crore.
However, during the hearing in the matter before the apex court, the Tatas had, on December 8 last year, said the valuation of the 18.37 per cent shares of the SP Group in TSPL is between Rs 70,000 crore and Rs 80,000 crore.
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