Ratan Tata's Affidavit Shows That Tata Sons Is Not Meant To Be A Family Run Company : Cyrus Mistry's Lawyer In SC

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15 Dec 2020 4:32 PM GMT

  • Ratan Tatas Affidavit Shows That Tata Sons Is Not Meant To Be A Family Run Company : Cyrus Mistrys Lawyer In SC

    The courtroom battle in the Tata Sons case reached to day 5 of continuous hearings by the parties. A three judge bench headed by Chief Justice of India SA Bobde heard the arguments advanced by Senior Adv. CA Sundaram on behalf of Cyrus Mistry. Mr. Sundaram tendered his arguments on three main points: first, the interpretation of Article 121 and 121A of the Articles of Association of...

    The courtroom battle in the Tata Sons case reached to day 5 of continuous hearings by the parties. A three judge bench headed by Chief Justice of India SA Bobde heard the arguments advanced by Senior Adv. CA Sundaram on behalf of Cyrus Mistry. Mr. Sundaram tendered his arguments on three main points: first, the interpretation of Article 121 and 121A of the Articles of Association of Tata Sons; second, independence of the Board of Directors and third, the nature of relationship with reference to quasi partnership between Tata Sons and Cyrus Mistry.

    Mr. Sundaram continued his arguments on the importance of prior consultation mentioned under Article 121 and Article 121A and 121B of the AoA of Tata Sons. In doing so, he put reliance on the recommendation of Nomination Remuneration Committee set up under the statutory requirement of sec. 178 of Companies Act, 2013 which provides for reviewing the performance of Directors. "The law requires the Board of Directors of this in house committee to act as independent directors acting on information regarding past, present and future incidents. Just three months prior to the removal of Cyrus Mistry, the meeting was convened. However, the same lacked prior consultation." he argued.

    According to the findings of NCLAT, it was of the view that Board of Directors had endorsed the recommendation of this Committee to applaud the performance of Cyrus Mistry and others by nearly 50 Independent Directors of Tata Group.

    On the argument of prior consultation, CJI SA Bobde asked Mr. Sundaram that merely because prior consultation is not permitted under Article 121, has it been completely prohibited under the AoA? "Is there any national or international law which governs the issue of prohibition of pre consultation?" CJI asked.

    Mr. Sundaram replied "A conjoined reading of Article 121, 121A and 121B suggest that the intention was to have a majority control of Tata Sons. The Board of Directors has the final say in the meetings and not the promoter shareholders. In this case, the promoter shareholders were also considered in the meetings. What board decides cannot be decided by promoter shareholders."

    The arguments then turned towards the discussion of independence of Directors which according to the submissions of Cyrus Mistry, was deeply affected and lost with the course of time due to the interference by other shareholders.

    "If there is a section of board which thinks of taking advice of financial promoters and they have a meeting with them, how does it take away the independence of board?" CJI asked. To make the situation easier to understand, CJI gave an example and sought Mr. Sundaram's response. "Let us take the case of a CM who before the cabinet meeting consults some party colleagues on what to do and what not to do. Will you say he has lost his independence? " He continued.

    Mr. Sundaram replied in the negative and remarked "No, your lordship. In fact that is the demand of politics. What is political science is different from corporate understanding." To this, CJI SA Bobde replied "In the commercial world, money is equivalent to power. Money is a kind of power. If in order to preserve money in a company, somebody seeks assistance of someone outside respected by him or a former chairman, does it amount to loss of independence of board?"

    "Yes it does, yourlordship. In fact in politics, majoritanism accounts for everything. This isn't the case under companies Act" Sundaram replied. On this CJI, in a lighter vein remarked "I don't think this depends on the cabinet. There are cases even where the minority has to be consulted in politics. You have a lot of experience running in your veins to understand this."

    The main argument of Mr. Sundaram rested on the aspect of interference in the functioning of the Board of Directors by other shareholders. According to him, members of the Board whether nominated by majority or minority have an individual responsibility towards the Board. When there is an act of interference in this functioning, even by minority shareholders, this poses a great threat to the independence of such Directors. "The role of shareholders cannot be to run the affairs of the company. They can only work for the welfare of the company." he argued.

    Mr. Sundaram then referred to the affidavit filed on behalf of Mr. Ratan Tata wherein he had stated that Tata Sons Group is a Company managed by the Board of Directors and it does not believe in running under family roots. According to the affidavit, the Trustees of Tata Groups operate in the interest and welfare of the Company and this role is not conferred to anyone solely because of the reason that he belongs to the Tata family. "This suggests that this is not a family run Company, your lordship. Such conduct takes away the whole purpose of Tata Sons and Companies Act, 2013". Sundaram argued.

    Yesterday, there was a discussion between Mr. Sundaram and the bench wherein CJI SA Bobde remarked the issue of family arrangement between traditional Indian Companies as "Pater Familias". Today, CJI asked Mr. Sundaram to refer to another relevant doctrine "patria protestas" which might be well suited in the present case to which Sundaram replied "I am a legitimate son in the case, your lords. Even prior to 1985 when SPG group took shares in Tata group, the relationship of trust with the company existed. After amendment of 2013 Companies Act, SP group was on boarded with Tata Sons. It was the SP group that had voting rights and was acting in the interest of Tata Sons."

    On the argument of a quasi partnership, Mr. Sundaram relied on the judgment of Sangramsingh P. Gaekwad & Ors. v. Shantadevi P. Gaekwad (2005) "when more than one family or several friends and relatives together form a company and there is no right as such agreed upon for active participation of members were sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked." He argued that a pre existing partnership is not a requirement of quasi partnership.

    CJI: What was the personal relationship between Cyrus Mistry and Ratan Tata?

    Mr. Sundaram: Ratan Tata's half brother is married to Cyrus Mistry's sister. Connections are personal also. In January 1965 less than a month after Tata trust was deprived of voting rights, SP group had then held 64% rights. Mistry's earlier family also served and worked with the family.

    While discussing the relationship between the TATAs and family of Cyrus Mistry, the bench asked Mr. Sundaram to clarify their position with respect to the issue of reinstatement of Mistry as Executive Chairman. The bench also showed their astonishment on some of the aspects of the case. "We are completely surprised by some of the issues of this case. This is shocking. We are referring to the proceedings and not what has happened before." CJI said.

    "We are not seeking pre appointment of Cyrus Mistry. That has been dealt by the NCLAT for it being as an illegal removal as per Labour Laws. In fact, Mistry never said that he now wants to become a chairman again. That is not the prayer here." Sundaram argued.

    Mr Sundaram: The nature of relationship being such, I have been prejudiced by the way this company has been run. This was a board managed company. We want to get some kind of representation in the company to end the prejudice.

    CJI: We asked Mr. Salve at the very beginning of the case that is there any power with NCLAT to exercise suo moto powers and apparently there is none. Inherent power doesn't mean having a suo moto power. Even a civil court will not be able to exercise a suo moto power. Inherent power can be exercised for those powers the court is permitted to do and not in matters that are not conferred to the Court.

    Mr. Sundaram also argued on the shift of Tata Sons from being a Public Company to a Private Company. "By the stroke of a pen at midnight, when the application of stay was filed in NCLT, the name "private" was added before the name." he argued. According to him, there cannot be an automatic conversion under the provisions of Companies Act, 2013. "Sec 14 of the new Act provides various criteria for this. There is no provision of automatic conversion under the Act" he continued. To substantiate this, he also referred to the certificate of incorporation and other relevant documents.

    The Bench will now convene to hear to matter tomorrow and will hear Mr. Shyam Divan's arguments in the case.

    Reports of previous hearings :

    Tata Sons v Cyrus Mistry : NCLAT Has No Power To Appoint Chairman, Submits Salve

    Tata Sons v Cyrus Mistry : CJI Bobde Says His Son Appeared For SPG Subsidiary; Lawyers Express No Objection To CJI Hearing

    Tata Sons v Cyrus Mistry : Live Updates From Supreme Court Hearing -Day 2

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