Sidhartha Shankar, law student from Chanakya National Law University, Patna
Corporate India at this time is witness to what probably will shape the future of the country’s economy as Cyrus Mistry moved to the National Company Law Tribunal against his removal from Tata Sons on the grounds that he did not respect and had transgressed from the core values of the Tata group. The $103 billion salt-to-software conglomerate is facing what no one had expected to crop up in 2012 when Mr Tata chose Cyrus Mistry as his successor as the chairman of Tata Sons, ignoring the long running custom of making a Tata as the head of the business. Noel Tata, half-brother to Ratan Tata would have been a good option, as had been the advice of many to Mr Tata, but contrary to expectations Ratan Tata crowned Irish-Indian businessman, Cyrus Mistry as the new emperor of the 148 year old kingdom which has an enormous impact on the economy of the country. Along with it, Ratan Tata retired from all authoritative positions in the Tata Sons but remained the chairman of the Tata Trusts, monitoring the workings of the conglomerate and as alleged by Mistry shadow directing the different boards of the group.
The tussle started around a year before Mistry was unceremoniously removed from his position of the chairman of Tata Sons by the board. A series of events led to October 24 when the board of directors decided to remove Mistry on the grounds of Mistry’s non observance of the Tata group’s long followed values, culture and ethos. For starters, Mistry’s sense of business and the fact that his family holding were the biggest stakeholders of Tata group after Tata Trusts inspired Ratan Tata to appoint him his successor but his citizenship was always a road block. Officials at the Bombay House, the headquarters of Tata Group wanted Mistry to give up his Irish citizenship as for the Tatas, it was very important that the general populace of the country should not feel that the most trusted brand of the country is run by an outsider. For them, Tata was not just a business but a group that shared Indian values and with which the population of the country could associate themselves without any doubt. All this could be hampered because Mistry was not an Indian and the reason why John Thain, the American investment banker was not selected as the chairman of the group.Despite insistence by the seniors at Bombay House, Mistry chose not to leave his Irish citizenship.
After this, Mistry had a different manner of conducting business. Although, he had been associated with the Tata group since 2006 in various capacities, he didn’t quite ascribe to the way business was conducted. The Tata group always focussed to giving back to the country and it showed in several of its endeavours like Tata Nano and Corus. Mistry felt Nano to be a huge loss for the group but couldn’t do anything about it because it was Ratan Tata’s brain child, a car for the common people. But, he did change a lot of things in the business that didn’t go down with the seniors at Bombay House like removing Raymond Bickson as the MD and CEO of the Indian Hotels and appointing Rakesh Sarna instead or the spar with Docomo. Another reason for discontent was when Shapoorji Paloonji & Co., Mistry’s family business, was paid a sum of Rs. 2926.35 Crore for construction of TCS Building and a host of other work for the Tata group. This was a clear conflict of interest as Mistry’s family should not have benefitted from Tata contracts.
The final blow was Mistry’s appointment of a Group Executive Council, which violated the supremacy of the Tata Sons board as the GEC members were pushed to supervise the CEOs of different individual companies. It was alleged by the board that Mistry had a number of meeting with Welspun, to acquire its assets without informing the Tata Sons board. By the end, all the directors of the board has met Mistry in private asking him to step down as he was fiddling with the culture of the age old company. Alongside these happenings, a multi-million dollar endowment was made to Yale University from the house of Tatas at around the same time when Mistry’s son joined Yale. All of this finally led to the board meeting on October 24when Ratan Tata along with Nitin Nohria entered the office of Mistry and asked him to step down today. Mistry did not accept the proposition, but the board did.
After Mistry’s removal, many conjectures were made about legal actions to be taken up by Mistry. On 25th October, Tata Sons filed 4 caveats in the NCLT and the Bombay High Court requesting the court to not issue ex-parte orders against Tata Sons without hearing them. Finally, on 20th December, Cyrus Mistry knocked the doors of the NCLT and filed a case against the Tata Sons board, specifically Ratan Tata. He filed a case under Sections 241 and 242 of the Companies Act, 2013 alleging oppression and mismanagement by the board. The section 241 gives the right to any member of a company in case he feels that he is being oppressed because of the handling of the affairs of the company by the board in a prejudicial manner. Mistry based his arguments on the grounds that Tata Trusts, which holds 66% shares of the Tata Sons, specifically Ratan Tata and Noshir Soonawala were acting as shadow directors for Tata Sons and interfering with the working of the company. He further claimed that Ratan Tata and Noshir Soonawala were involved in several security law violations as they had procured several unpublished price sensitive information from Tata companies. He claimed that many loans taken by C. Sivasankaran, chairman of Siva group were written off by the Tata Sons without his knowledge.
The NCLT on 22nd December heard the petition filed by Mistry. It directed the ousted chairman to prove the nexus he alleges. The tribunal opined that all the allegations had to be backed by proof. The tribunal pointed out the fact that Mistry came to the tribunal almost 2 months after the removal was done. “Why did you keep quiet for so long? You need to show me the nexus to prove that the majority shareholders were acting on the whims of Mr Tata and not for the majority shareholders,” said NCLT member B.S.V. Prakash Kumar. The tribunal did not grant any interim relief to Mistry. The Tata Sons board however has claimed at various points that the removal of Cyrus Mistry was legal and within the bounds of law citing Section 173 of the Companies Act. The tribunal has asked the parties to file replies and rejoinders in January, 2017.
The ousting of Mistry from the chairmanship by the board of Tata Sons, EGMs held by various holdings of the Tata Group removing Mistry as their chairman has paved way for shareholder activism which started in the 1990s in America. Such a move was unprecedented in India and Mistry had never thought of such an outcome but if the shareholders of a conglomerate as huge as Tata group have taken up the task to maintain transparency and value the ethos of business then there must be something wrong with how Mistry was dealing with the empire. Accountability and transparency is the call of the hour, and Mistry didn’t steer with the wind. Nusli Wadia, another independent director of Tata Sons, who sided with Mistry on the issue has been removed by the EGMs held by Tata Motors, Tata Chemicals and Tata Steel. The decisions of these EGMs show that the Tata group is not any other business group where power is held by the people at top, but it is an institution which respects the values of its shareholders and the shareholders share similar values. The NCLT might decide in favour of any faction but harm of the goodwill of one of the country’s oldest business group will surely take a lot of time to recover. Mistry wants that Ratan Tata and the entire current board be disallowed from handling the business of the group but if such a thing does happen, the ethos and culture of the group will be endangered. With the Tata’s being represented by legal stalwarts like Harish Salve, Abhishek Manu Singhvi along with tier-I firms like Shardul Amarchand and Karanjawala and Cyrus Mistry being backed by Desai and Diwanji along with Iqbal Chaqla, who also happens to be Mistry’s father in law, the ousting and subsequent litigation has turned out to be a brilliant platform for one of the biggest legal battles this year.
The issue for the country to consider although is, if indeed Ratan Tata was shadow directing the Tata Sons board and if he did have the final say over matters of importance, was his interference wrong or right. For a person who has been handed over the baton and is expected to the protect the culture, ethos and values of the 148 year kingdom, is it wrong to check any transgression from the ideals of conducting the business his forefathers left behind, entrusting in him the legacy of the Tata group.
- The Times of India
- The Hindu
- The Indian Express
- Economic Times
- First Post
- Bar and Bench (www.barandbench.com)
- European Corporate Governance Institute (www.ecgi.org)
 The Hindu, “Mistry moves National Company Law Tribunal against Tata Sons”. December 20, 2016.
 The Economic Times, “Behind the scenes: what led to Cyrus Mistry ouster”. October 25, 2016.
 The Times of India, “Cyrus moves tribunal, wants Tata Sons board sacked by ReebaZacharia. December 21, 2016.”
 First Post, “Cyrus Mistry removed as Tata Sons chairman, Ratan Tata returns in interim” October 24, 2016.
 First Post, “Tata-Mistry feud: Three incidents that lead to Cyrus’ ouster from Tata Sons” by Shantanu Ray. December 1, 2016.
 First Post,” Cyrus Mistry’s family and the Tatas have a long association: Here’s the backstory”. October 25, 2016.
 The Economic Times, “Behind the scenes”. (see footnote 2)
 The Economic Times, “Cyrus Mistry and Tatas spar over Docomo case” November 02, 2016.
 First Post, “Tata Mistry Feud” (See footnote 6).
 The Times of India, “Yale University and Tata Group form research alliance” by HemaliChapial. August 29, 2016.
 The Indian Express, “Day after ousting Cyrus Mistry, Tatas file caveats against him and his firm” October 26, 2016.
 The Times of India, “Cyrus moves court, wants Tata Sons board sacked” December 21, 2016.
 The Hindu, “Cyrus Mistry must prove Tata, Tata Sons nexus: NCLT”. December 23, 2016.
 The Hindu, “Nusli Wadia voted out of all Tata Group company boards” December 25, 2016.
 The Times of India, “wants Tata Sons board sacked” December 21, 2016. (See footnote 15).
 Bar & Bench, “Tata vs Cyrus Mistry: SAM, Karanjawala versus Desai Diwanji; Salve, Singhvi versus Dwarkadas, Somasekhar” by Pallavi Saluja. October 25, 2016.