Tata Sons' Process Of Removal Of Cyrus Mistry Against Corporate Democracy: Divan Argues In Supreme Court

The courtroom battle in the Tata Sons case reached to day 6 of continuous hearings by the parties. A three judge bench headed by Chief Justice of India SA Bobde heard the arguments advanced by Mr. Shyam Divan, another Counsel appearing on behalf of Cyrus Mistry. Mr. Divan presented his arguments on three aspects. First, 10 main aspects relating to corporate governance and relationship between the SPG and Tata Sons; second, two Articles from the AoA and three, statutory provisions of the Companies Act, 2013. According to Mr. Divan, the following were the main points of consideration in the case: The essence of the case rests upon the concept of corporate governance and how law has evolved from corporate majority to corporate democracy to a higher set of values and a higher standard ensuring transparency.Sec. 135 of the Act which talks about Corporate Social Responsibility, Sec. 149 which provides for the provision relating to Board of Directors and Sec. 151 provides that directors are to be elected by small shareholders. This also includes duty of directors and of the audit committee. "All this is a bouquet of provisions to strengthen corporate governance." Mr. Divan said.Law enjoins companies to be managed within a prescribed statutory framework managed by Board of Director and no one else.The fiduciary role and responsibility of the Directors towards the Company is the highest level of duty that law imposed to them. A fiduciary cannot delegate his duty as to allegiance with respect to company alone.Breach of Articles of Association and their misuse thereof. These violations affect the essential understanding between two groups.Lack of integrity or honesty in dealings is much broader than siphoning of money.Long good faith relationship between the two groups that has developed over decades. "It developed in the context of a specific statutory framework operated between 1964 and 2000 which restricted the activities of public trust." Mr. Divan said.The importance of status of Tata Sons as a controlling entity and its actions in the board have impacted the minority shareholders, group entities, employees of other group companies as well.The relief sought with regards to proportionate representation applying to listed company is consistent with Sec 163 and Sec. 242 of the Act which deals with alteration of AoA. Mr. Divan began with arguing on the point of corporate governance and how the process of removal of Cyrus Mistry goes against the concept of Corporate Democracy. He called the removal procedure as prescribed under the AoA as an "express black letter provision". The provision requires that in order to remove a chairperson, the same process of appointment has to be followed which was not done in the present case. According to Mr. Divan the management of the Company has to be controlled by the Board of Directors in accordance with AoA and Companies Act. "We have the Executive Chairman, Cyrus Mistry in our case. If his tenure has to be terminated for any reason, this has to be done in compliance of the article which is not done." he argued. Mr. Divan argued on the importance of duties of Directors under Sec. 166 of the Act. "Directors must act in accordance of articles and shall act in good faith for the benefit of its members as whole, employees, shareholders and community" he argued. He stressed on the importance of exercising independent judgment of the directors. "If you are not a director, you cannot breach or abet the breach of statutory provision. You can suggest or advise but can you dictate, compel etc. The Answer is no." he continued. Mr. Divan then argued on the relevance of Sec. 118 of the Act which minutes of proceedings of general meeting, board of directors and other meetings and resolutions passed by postal ballot. "This is a mandatory provision as it used the word 'shall'. The mandatory notice for the meeting held in 2016 wasn't served. This is not in compliance of the provision." He argued. According to his arguments, Mr. Ratan Tata exercised an overriding authority on the decisions of the Board of Directors. He informed the Bench that the communications between the year 2013 to 2016 show that there was a complete confusion in the Board. All the decisions were taken by Ratan Tata himself. "On 28th June 2016, the Board didn't have any grievance from Cyrus Mistry. The board noted that Mistry in fact worked in the welfare of the company and the Board applauded his contribution. There is no agenda of removal of his termination. No reasons for removal of Mistry were recorded. One of the directors was a nominee of Tata Trust. Other 2 were appointed as personal nomination by Ratan Tata. Other 2 who voted for his removal had just 4 months prior to the removal praised his work. No reason was given by them on their vote." He argued. Divan: The importance of selecting...

Tata Sons' Process Of Removal Of Cyrus Mistry Against Corporate Democracy: Divan Argues In Supreme Court

LIVELAW NEWS NETWORK

Tags