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

The Supreme Court on Tuesday heard the appeals filed by Tata Sons Pvt Ltd against the NCLAT direction to reinstate Cyrus Mistry as Company Chairman.The bench headed by Chief Justice S. A. Bobde heard Senior Advocate Harish Salve for Tata Sons."This (Chairmanship) is not a post as understood in service law. In Company Law, this is designation. Tata Sons Ltd is a company of considerable vintage. It was created in 1917", began Mr. Salve. "Was it a public limited company?", asked the CJ. "Never. It has always been a private company. The curious thing which has happened in the case is that there is a provision in Tata Son's Articles which restricts the transfer of shares. It also has a remarkable feature that the Board could direct a shareholder to sell shares. The NCLAT overlooked the fact that the primary contract between the shareholders and the company is the Articles of Association", advanced Mr. Salve."The Article giving power to direct selling of shareholder is Article 137?", asked the CJ. "Yes. It is an unusual Article. At interim stage, we undertook not to invoke it against Mistry", said the Senior Counsel."After the new Act came in 2013, we asked the Registrar to add the name 'Private' to Tata Sons. The Registrar did it. By statutory definition, we are private. The NCLAT came down heavily on the Registrar for allowing the adding of 'private'", he continued."The NCLAT used a curious interpretation. The Ministry of Corporate Affairs has also filed an appeal against the observations made by the NCALT", he added."Tille 1965, Shapoorji Pallonji group was not in existence in Tata Sons. The shares to Tata Sons to the extent of 68% are with the Tata Trust. We all grew up with Mr. JRD Tata as the main person. After JRD retired, Ratan Tata. The trustees of Tata Trust which held 68% were always in the control of Tata Sons. It nominated eminent persons to the board. Tata Sons hold controlling stake in many listed companies of Tatas, like Tata Steel, Tata Chemicals etc", submitted Mr. Salve."It is a matter of pride that Jaguar cars are manufactured by Tata owned company. Jaguar has a hybrid version now. Having got one, I can tell it has the highest insurance because they are the most stolen cars in UK", he remarked."Pallonji Mistry, Cyrus Mistry's father was included in Tata Sons as non-executive Director in 1980. Cyrus Mistry joined Tata Sons in 2006. Mistry's appointment as Executive Chairman would have ended in March 2017. It was not a life long appointment. He was removed in October 2016. After March 2017, he had no right to seek re-appointment. Corporate democracies must have its places. Your lordships held in Escorts case held that these are mini democracies. He was removed only as Executive Chairman. He would have continued as Director", argued Mr. Salve."The company has made a remarkable corporate transformation. A homegrown youngster ((Natarajan Chandrasekaran, Chairman, Tata Group) who had joined Tata at the beginning of his career has now become chairman. The appointment was set aside by the tribunal. Your Lordships were kind enough to stay it. However, I was neither a party to it nor had I ever challenged it", contended Mr. Salve."What is special about the Chandrasekhar appointment?", asked the CJ."He is one of the finest in-house persons. He was promoted as Executive Chairman because he is connected to anybody but only on account of his sterling performance in the company!", replied Mr. Salve."Are there any suo motu powers to this effect for the CLB or the NCLT to appoint a director?", asked the CJI."Maybe in case of mismanagement. The CLB may appoint or remove a director provided his conduct merits such a drastic action. Section 244 shows that the step may only be taken if there is a reason and the reason must stem from one of the two sources! In case of oppression, the test is completely different", explained Mr. Salve."Is there a power to select the director?", wondered the CJ."Say, there is an allegation of siphoning off money or any questionable transaction, if the majority director is acting contrary to the interest of the company or the public interest or to the shareholders to whom he has a fiduciary duty, you may remove him. But the test is different. Here, the appointment is on account of the oppression of the minority. Can you remove the director, if even he is a very fine person, saying that the slot should go to the nominee of the minority shareholders?", advanced Mr. Salve."Appointment include selection. But the NCLT cannot choose. Ultimately, it is for the shareholders to appoint the director. Where the NCLT make the appointment, it must be Protem. Once the company is back on its feet, the democracy has to be brought back. It is the shareholders who have the power to elect the person they have faith in", he continued."Cyrus Mistry had written an email which was supposedly for the eyes of the board and the trustees but the media got it and carried it first. It was against Ratan Tata ...

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

Mehal Jain

The court-room exchange of the first day of arguments in Tata Sons v Cyrus Mistry case in Supreme Court.

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