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TMI Blog2019 (12) TMI 895X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Cyrus Pallonji Mistry but to unfair abuse of powers on the part of other Respondents. The Press Statement of Tata Sons Limited dated 10th November, 2016 facts of which were never discussed by Board is an afterthought of Respondents to put all blame on Mr. Cyrus Pallonji Mistry (11th Respondent). The Board of Directors majority decision of which is guided by the affirmative vote of the nominated members, have failed to explain as to why the Board failed in its duties and not noticed the loss of any of the Tata Companies . The fact of investment of ₹ 1,00,000 Crores out of ₹ 6,00,000 Crores by Shapoorji Pallonji Group to consider the effect of absence of a nominee Director of minority group ( Shapoorji Pallonji Group ) or a Director who can take care of minority members (group). On the other hand, in terms of Article 104B read with Article 121 and 121A, the nominee Directors of the Tata Trusts have control over the meeting of the Board of Directors, having power to annul the majority decision by refraining from exercise of affirmative vote - Even in absence of such right of minority members ( Shapoorji Pallonji Group ), because of healthy atmosphere an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enly removed as Executive Chairman from the Tata Sons Limited -(1st Respondent Company). Since before his removal for more than one year, a number of correspondences had taken place between Mr. Cyrus Pallonji Mistry- (11th Respondent) ( Executive Chairman ) and other members, including Mr. Ratan N. Tata (2nd Respondent) about the performances of different Group Companies. 2. Because of sudden removal of Mr. Cyrus Pallonji Mistry- (11th Respondent) from the post of Executive Chairman , the Appellants- Cyrus Investments Private Limited and Sterling Investment Corporation Pvt. Ltd. , the minority group of shareholders/ Shapoorji Pallonji Group ( SP Group for short) moved an application under Sections 241-242 of the Companies Act, 2013 alleging prejudicial and oppressional acts of the majority shareholders (Tata Groups). 3. There being a doubt as to whether the Appellants had more than 10% of the equity of shareholding of the Company, the Appellants- Cyrus Investments Private Limited Anr. also filed a petition for waiver under Section 244 of the Companies Act, 2013. The National Company Law Tribunal ( Tribunal for short), Mumbai Bench, initially dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich has given rise to a legitimate expectation of being treated in a mutually just, honest and fair manner. After sudden removal of Mr. Cyrus Pallonji Mistry (11th Respondent), the mutual trust and confidence has broken down, which according to the Appellants is on account of the conduct of the contesting Respondents, which lacks in probity, is inequitable, unfair, unjust and against the fundamental notions that govern the relationship between partners. 10. According to Appellants, the SP Group entered into the Tata Group as business partners based upon the personal relationship that existed between the two families both in business and outside. The relationship was not based purely on commercial considerations but because of factors outside of pure economic factors. In fact, a few members of the Tata Group divested their shareholding in 1st Respondent Company in favour of SP Group which transfer was approved at the meeting of Board of Directors of Tata Sons Limited (1st Respondent Company) which then comprised of Directors of Tata Group only. 11. The business relationship between the two groups as Shareholders of Tata Sons Limited (1st Respondent C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... professional selection process as Executive Chairman on merits. When he was appointed, Mr. Cyrus Mistry (11th Respondent) was expressly referred to as a significant shareholder and both an insider and outsider, pointing to the nexus between his appointment and his status as a significant shareholder and in the same spirit of mutual confidence, Mr. Cyrus Pallonji Mistry (11th Respondent) availed of advice from time to time on matters of transition and historical legacy hotspots on which vital decisions were to be taken to cut losses or to restructure, in the interests of Tata Sons Limited (1st Respondent Company) and the Tata Group Companies. Mr. Cyrus Pallonji Mistry (11th Respondent) displayed due deference and respect to the past leadership of Tata Sons Limited (1st Respondent Company) and went out of his way to protect their legacy. Mr. Cyrus Pallonji Mistry (11th Respondent) addressed these legacy hotspots internally and 11th Respondent and his team did not comment on these issues in the public domain, during 11th Respondent s tenure as Executive Chairman . Removal of SP Group from management and 11th Respondent as Executive Chairman 15. Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta Teleservices Limited ( TTSL ) etc. These became contentious. Mr. Ratan N. Tata (2nd Respondent) and Mr. N.A. Soonawala (14th Respondent) justified interference under the guise of their legacy being undermined. However, even on new matters (not just decisions involving legacy hotspots), Mr. Ratan N. Tata (2nd Respondent) and Mr. N.A. Soonawala (14th Respondent) demanded pre-consultation and pre-approval, undermining the concept of the institution of the Board of Directors and the consciously laid down retirement policy. 20. According to Appellants, the scale and depth of the involvement and interference of these two Trustees in the affairs of 1st Respondent Company and Tata Group Companies is evident from the record which shows a range of topics over which pre-consultation was demanded under the threat of alleging a violation of the Articles of Association and went far beyond offering solicited advice or guidance. The interference is evident from the numerous presentations and discussions held with Mr. Ratan N. Tata (2nd Respondent) and Mr. Cyrus Pallonji Mistry (11th Respondent) on a wide range of topics and these extended well beyond even legacy hotspots. Over 550 em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich destroys the credibility of these arguments. No legal opinion was taken by the Board of Directors to determine whether the removal of the Executive Chairman in such a hasty manner was in accordance with the Articles. Instead, the directors strangely, purported to act on opinions allegedly taken by the Trust shareholders. Yet, at the Board meeting, 11th Respondent was told that opinions have been taken and it was later stated that the opinions referred to were opinions taken by the Trusts and not by 1st Respondent Company, and therefore, would not be shared. 24. It was further submitted that as a retribution for these proceedings in an act of vengeance for various Tata Group Companies independent directors objecting to 11th Respondent s ouster, notices were issued by 1st Respondent Company at the behest of the Trustees of the Tata Trusts to the Tata Group Companies to remove 11th Respondent as a director of the Tata Group Companies. A few independent directors resigned. Others fell in line. Similarly, 11th Respondent who was the SP Group s representative on the Board of Directors of 1st Respondent, was also removed as a director by requisitioning a special genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffirm significant / important decisions. 27. According to Appellants, Article 121 provides a veto on every decision to be taken by the Board of Tata Sons Limited to trustee nominee directors- as opposed to conventional affirmative rights provisions being available to the minority on select matters. Article 121 is also repugnant to the scheme of the Companies Act which for the first time requires the Boards of certain large unlisted public companies (such as 1st Respondent Company), to comprise independent directors who are inter-alia duty bound to safeguard the interests of minority shareholders. 28. It was submitted that veto power is never meant to be formally used - its existence ensures conduct in line with expectation. 29. It was further submitted that Article 121B- with 15 days notice for a director to introduce a matter is rendered redundant since decisions would be subject to Article 121. The effect of all this is that important matters which would rightly benefit from the deliberation by all members of the Board would be deprived of such inputs by not even being brought before the Board. 30. Article 121A specifies a list of matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lonji Mistry (11th Respondent), an honorary title for his contributions to the Tata Group. However, Mr. Ratan N. Tata (2nd Respondent) clearly and unequivocally stated that he would be available only for advice and there was to be no overhang from his previous role. Pertinently, Mr. N.A. Soonawala (14th Respondent) thereafter held no official position in Tata Sons Limited (not even of an Emeritus ). The 14th Respondent retired at the Board Meeting of June 15, 2010, even before 2nd Respondent retired in December 2012. An advisor s role is to provide advice when sought. In contrast, a person seeking to control would do more than provide advice when sought. Mr. Cyrus Pallonji Mistry (11th Respondent) indeed sought advice from Mr. N.A. Soonawala (14th Respondent) on areas where Mr. N.A. Soonawala (14th Respondent) could add value as an advisor. 36. The record demonstrates that far from providing advice when sought, Mr. Ratan N. Tata (2nd Respondent) and Mr. N.A. Soonawala (14th Respondent) actively interfered in the affairs of 1st Respondent Company. Contrary to the claims being made now noteworthy feature of these grievances and breach of Articles are raised not by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard to management of a company. This attitude was made further apparent and the situation was compounded by the stealthy and illegal removal of Mr. Cyrus Pallonji Mistry (11th Respondent), first as Executive Chairman of 1st Respondent Company, and then as a Director of various Tata Group Companies and finally as a Director of 1st Respondent Company itself. The chronology of events set out in the Annexure would show that these exclusionary actions were taken because Mr. Cyrus Pallonji Mistry (11th Respondent) insisted that 1st Respondent Company and the Tata Group Companies are run in a professional manner without interference from shareholders and bringing into place a clear demarcated system of corporate governance. Conversion of Public Limited Company to Private Limited Company 39. Learned counsel for the Appellants submitted that to further ensure that such prejudicial and oppressive acts could proceed unchecked and to further the attempts at complete unilateral control of the company, pendente lite these proceedings, a sudden attempt has been made to convert the company from public limited to private limited, which is also under challenge. The entire b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erous decisions with regard to various group companies have also arisen where such acts of mismanagement occurred due to the use of the majority shareholding group of their strength, including the misuse of the Articles, hitherto complained of. Such acts of mismanagement not only dealt with the investments by 1st Respondent Company, but also extended to decisions pertaining to various group companies. Inasmuch as 1st Respondent Company is a Core Investment Company and over 90% of its income is in the form of dividend from its investments in the various group companies that it controls. 44. It was submitted that the consequences of mismanagement of such group companies directly and substantially visits 1st Respondent Company and its shareholders. Insofar as the affairs of such group companies are concerned, decisions of such companies are dependent on the will of the 1st Respondent Company. 1st Respondent Company as the promoter, the single largest shareholder; is the owner of the Tata brand; and by virtue of Article 121-A, in effect controls the management and policy decisions of such companies. Therefore, various instances of mismanagement in how decisions relating to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1th Respondent) are in the nature of directorial complaints which cannot be raised in a petition under Sections 241 of the Companies Act, 2013. 52. Referring to different Articles of Articles of Association including Article 121 etc., it was submitted that all actions have been taken as per the provisions of the Articles of Association , Companies Act, 2013 and the Secretarial Standard on Meetings of the Board of Directors (SS1) , framed under Section 118(10) of the Companies Act, 2013, including particularly Clause 6.3, as quoted below: 6.3. Approval 6.3.1 The Resolution is passed when it is approved by a majority of the Directors entitled to vote on the Resolution, unless not less than one-third of the total number of Directors for the time being require the Resolution under circulation to be decided at a meeting. Every such Resolution shall carry a serial number. If any special majority or the affirmative vote of any particular Director or Directors is specified in the Articles, the Resolution shall be passed only with the assent of such special majority or such affirmative vote. An Interested Director shall not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny and binding on the Company and its shareholders. 59. For maintaining an appropriation under Sections 241-242, according to learned Counsel, it is important for a party to make out two essential points namely- (i) that the affairs of the company are being conducted in a manner prejudicial or oppressive to any member or members of the company and; (ii) that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. 60. Mr. Harish Salve, learned Senior Counsel, also referred to the decision of the Hon ble Supreme Court in S.P. Jain v. Kalinga Tubes Ltd.─ AIR 1965 SC 1535 . 61. In the said case, similar observations have been made that the affairs of the company are being conducted in a manner prejudicial or oppressive to any member or members of the company and that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lection Committee. 67. According to Contesting Respondents, Mr. Cyrus Pallonji Mistry- (11th Respondent) was appointed as Director of Tata Sons Limited (1st Respondent Company) in the year 2006 was not in the capacity of a nominee of the Shapoorji Pallonji Group ( S.P Group ) nor in recognition of any such right of representation of the said S.P Group on the board of Tata Sons Limited (1st Respondent Company). Therefore, replacement of Mr. Cyrus Pallonji Mistry- (11th Respondent) as Chairman and removal as Director of Tata Sons Limited (1st Respondent Company) cannot be canvassed as a case of oppression or prejudice to the proprietary rights of the Appellants since Mr. Cyrus Pallonji Mistry s- (11th Respondent) appointment (either as Deputy Chairman or Executive Chairman or as a Director of Tate Sons Limited ) was never in recognition of any entrenched right of representation/management enjoyed by the Appellants as shareholders of Tata Sons Limited (1st Respondent Company). 68. Further, according to him, Mr. Cyrus Pallonji Mistry s- (11th Respondent) removal would also not impinge on any right enjoyed by the Appellants as shareholders of Tata Sons L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent) had failed to deliver on the promises that he had made at the time of his selection as the Chairman of Tata Sons Limited (1st Respondent Company), was unable to lead the Tata Group in a cohesive manner and failed in providing proper guidance and support to the Group. There was a lack of confidence in Mr. Cyrus Pallonji Mistry s- (11th Respondent) ability to sustain the growth objective of the Tata Group as he was too consumed by the so called legacy issues rather than working towards resolving them. Furthermore, there were lapses of governance observed during his tenure, including the acquisition of Welspun Renewable Energy Ltd. by Tata Power Ltd. . Thus, in short, there was a clear view that Mr. Cyrus Pallonji Mistry- (11th Respondent) lacked the ability and strategy for managing a large and complex group, such as the Tata Group. These issues, along with Mr. Cyrus Pallonji Mistry s- (11th Respondent) failure to establish a healthy and constructive governance relationship with Tata Trusts, caused an untenable trust deficit between Mr. Cyrus Pallonji Mistry- (11th Respondent) and the Tata Trusts. 73. It was submitted that prior to a board meeting on 24th October ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) mentioned that there was a need to recognize what Mr. Cyrus Pallonji Mistry- (11th Respondent) had done over the last four years and that it was important for the Group to move forward in as seamless a manner as one can. The choice of whether Mr. Cyrus Pallonji Mistry- (11th Respondent) would continue as the non-executive director of Tata Sons Limited (1st Respondent Company) was left to Mr. Cyrus Pallonji Mistry- (11th Respondent), who stated that he would continue on the board of Tata Sons Limited (1st Respondent Company). 74. While reiterated that the Board Resolution replacing Mr. Cyrus Pallonji Mistry- (11th Respondent) as the Chairman is not contrary to Article 118 of the Articles of Association of Tata Sons Limited (1st Respondent Company), it was submitted that Article 118 deals with Appointment of Chairman and provides for constitution of a Selection Committee for the purpose of selecting a new Chairman of the Board of Directors of Tata Sons . The Selection Committee so constituted has to recommend the appointment of a person as the Chairman of the Board of Directors . Therefore, according to him, the limited role of the Selection Committee under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent Company) at the general meeting held on 1st August 2012, while leaving it to the Board of Directors of Tata Sons Limited (1st Respondent Company) to re-designate Mr. Cyrus Pallonji Mistry- (11th Respondent) as the Board may deem fit. 79. In this background, by the Board resolution passed on 18th December, 2012, Mr. Cyrus Pallonji Mistry- (11th Respondent) was appointed as the Chairman by the Board of Directors of the Tata Sons Limited (1st Respondent Company) and then designated as the Executive Chairman with effect from 29th December, 2012. 80. It was submitted that on 15th September, 2016, Mr. Cyrus Pallonji Mistry- (11th Respondent) had presented the latest annual business plan to the Board of Directors of Tata Sons which was found lacking in several respects by his fellow Board member. Critical feedback regarding the business plan has been recorded in the minutes of the board meeting. Therefore, it is clear that the concerns of the Board of Directors of Tata Sons with Mr. Cyrus Pallonji Mistry s- (11th Respondent) performance were communicated to Mr. Cyrus Pallonji Mistry (11th Respondent) and his performance was not universally applauded as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in a manner prejudicial to the best interests of the Tata Group by making unfounded allegations against Tata Sons and other Tata Companies. Further, after Mr. Cyrus Mistry s employment as the Executive Chairman ceased on 24th October 2016, it was incumbent upon Mr. Cyrus Mistry to resign from the Board of Directors of all other companies in the Tata Group where he served as non-executive director and Chairman. However, in yet another demonstration of his disregard for governance and policies which he had approved himself, Mr. Cyrus Mistry failed to resign and therefore, was removed as a Director. In this section, the Appellants/ Mr. Cyrus Pallonji Mistry- (11th Respondent) also makes certain sundry allegations and only those warranting a response are being dealt below. 84. With regard to conversion of the Tata Sons from Public Limited Company to Private Limited Company , it was submitted that the conversion from Public Limited Company to Private Limited Company has been made by the Registrar of Companies in view of the definition of Private Company , as defined under Section 2(68) of the Companies Act, 2013 and for such changing, according to learned counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MP). 90. Article 121 of the Articles of Association of Tata Sons merely suggests affirmative vote which is permissible under the law, therefore, the right to exercise affirmative vote vests with nominee directors and not the trusts. 91. It was submitted that the affirmative rights / veto rights do not grant any special rights to the holders of such rights to ensure that any particular business is necessarily decided as per their wish and/or that any particular Board Resolutions are passed. 92. Learned Senior Counsel for 7th Respondent- (Mr. Nitin Nohria) denied the allegation that the Respondents have all been acting as puppets , handmaidens , poodles and postmen for Mr. Ratan N. Tata (2nd Respondent) and Mr. N.A.Soonawala (14th Respondent) ( outsiders , super directors and shadow directors ) as they have been purportedly acting on the instructions of and in the interest of Mr. Ratan N. Tata (2nd Respondent) and Mr. N.A.Soonawala (14th Respondent). It was contended that the allegation is sought to be supported on an entirely distorted narrative of facts. 93. Learned counsel submitted that 7th Respondent had joined the Board of Tat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the board of directors of 1st Respondent Company ( Tata Sons ). b) In the board meeting of 1st Respondent Company ( Tata Sons ) held on 29th and 30th June, 2016, Mr. Nitin Nohria (7th Respondent) and Mr. Vijay Singh (9th Respondent) being Trust Nominee Directors repeatedly reiterated the view that the Welspun Acquisition should have been deliberated at the board meeting of 1st Respondent Company ( Tata Sons ) at a much earlier stage, as Opposed to being presented as a fait accompli. Although the Trust nominee Directors approved the financing structure of the Welspun Acquisition, given that definitive agreements had already been executed and the deal had been announced in the public domain. c) This led to a concern that proper process to seek approval for the Welspun transaction was not followed and this incapacitated the board of 1st Respondent Company ( Tata Sons ) including the trust nominee directors from effectively deliberating on this issue. Mr. Vijay Singh (9th Respondent) wanted to formally note this concern in the minutes of the board meeting which in his view was in breach of the Articles of Association of 1st Respondent Company ( Tata Sons ). Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members, may apply to the Tribunal, provided such member has a right to apply under section 244, for an order under this Chapter. (2) The Central Government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter. 242. Powers of Tribunal.- (1) If, on any application made under section 241, the Tribunal is of the opinion- (a) that the company s affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company; and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the Tribunal may, with a view to bringing to an end the matters complained of, make such orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other matter for which, in the opinion of the Tribunal, it is just and equitable that provision should be made. (3) A certified copy of the order of the Tribunal under sub-section (1) shall be filed by the company with the Registrar within thirty days of the order of the Tribunal. (4) The Tribunal may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company s affairs upon such terms and conditions as appear to it to be just and equitable. (5) Where an order of the Tribunal under subsection (1) makes any alteration in the memorandum or articles of a company, then, notwithstanding any other provision of this Act, the company shall not have power, except to the extent, if any, permitted in the order, to make, without the leave of the Tribunal, any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles. (6) Subject to the provisions of sub-section (1), the alterations made by the order in the memorandum or articles of a company shall, in all respects, have the same effect as if they had been duly made by the company in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground that their rights got infringed due to breach of some promises or undertaking. It is true that the word unfairly prejudicial has not been used in Section 241. Unfairness may arise or may not arise from what the parties have agreed upon, but in the context of Indian Law, it is only to be seen whether the power exercised by majority in circumstances to which the minority can reasonably say that it is prejudicial or oppressive to their interest or interest of any member or interest of the Company or public interest. 102. The Indian Law (Sections 241 242 of the Companies Act, 2013) does not recognise the term legitimate expectations to hold any act prejudicial or oppressive. 103. In S.P. Jain v. Kalinga Tubes Ltd.─ AIR 1965 SC 1535 , the Hon ble Supreme Court held that the Indian Companies Act, 1913 complies with Section 210 of the English Companies Act, 1948 and observed: 13. We shall first take up the case under s. 397 of the Act and proceed on the assumption that a case has been made out to wind-up the Company on just and equitable grounds. This is a new provision which came for the first time in the Indian C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case, if the affairs of a company are being conducted in a manner oppressive to any member or members including any one or more of those applying. The court then has power to make such orders under Section 397 read with Section 402 as it thinks fit, if it comes to the conclusion that the affairs of the company are being conducted in a manner oppressive to any member or members and that wind up the company would unfairly prejudice such member or members, but that otherwise the facts might justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. The law however has not defined what is oppression for purposes of this section, and it is left to courts to decide on the facts of each case whether there is such oppression. as calls for action under this section. 14. We may in this connection refer to four cases where the new Section 210 of the English Act came up for consideration, namely, (1) Elder v. Elder and Watson, (2) George Meyer v. Scottish Cooperative Wholesale Society Ltd., (3) Scottish Co-operative Wholesale Society Ltd. v. Meyer and another, which was an appeal from Meyer's case, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o held that the result of applications under Section 210 in different cases must depend on the particular facts of each case, the circumstances in which oppression may arise being so infinitely various that it is impossible to define them with precision . The circumstances must be such as to warrant the inference that there had been, at least, an unfair abuse of powers and an impairment of confidence in the _probity with which the company's affairs are being conducted, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy . The phrase oppressive to some part of the members suggests that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely. ... But, apart from this, the question of absence of mutual confidence per se between partners or between two sets of shareholders, however relevant to a winding up seems to have no direct relevance to the remedy granted by S. 210. It is oppression of some part of the shareholders by the manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t while referred to its earlier decision in S.P. Jain v. Kalinga Tubes Ltd.─ AIR 1965 SC 1535 held: 44. Coming to the law as to the concept of oppression section 397 of our Companies Act follows closely the language of section 210 of the English Companies Act of 1948. Since the decisions on section 210 have been followed by our Court, the English decisions may be considered first. The leading case on oppression under section 210 is the decision of the House of Lords in Scottish Co-op. Wholesale Society Ltd. v. Meyer. Taking the dictionary meaning of the word oppression , Viscount Simonds said at page 342 that the appellant society could justly be described as having behaved towards the minority shareholders in an oppressive manner, that is to say, in a manner burdensome, harsh and wrongful . The learned Law Lord adopted, as difficult of being bettered, the words of Lord President Cooper at the first hearing of the case to the effect that section 210 warrants the court in looking at the business realities of the situation and does not confine them to a narrow legalistic view . Dealing with the true character of the company, Lord Keith said at page 361 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The just and equitable provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust or inequitable, to insist on legal rights, or to exercise them in a particular way . (p379) Observing that the description of companies as quasi- partnerships or in substance partnerships is confusing, though convenient, Lord Wilberforce said: A company, however small, however domestic, is a company not a partnership or even a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in . (p 380) Finally, it was held that it was wrong to confine the application of the just and equitable clause to proved cases of mala fides, because to do so would be to negative the generality of the words. As observed by the learned Law Lord in the same judgment, though in another con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on a true construction of section 397, an unwise, inefficient or careless conduct of a Director in the performance of his duties cannot give rise to a claim for relief under that section. The person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as shareholder. It may be mentioned that the Jenkins Committee on Company Law Reform had suggested the substitution of the word Oppression in section 210 of the English Act by the words 'unfairly prejudicial' in order to make it clear that it is not necessary to show that the act complained of is illegal or that it constitutes an invasion of legal rights (see Gower's Company Law, 4th edn., page 668). But that recommendation was not accepted and the English Law remains the same as in Meyer and in Re H.R. Harmer Ltd., as modified in Re Jermyn St. Turkish Baths. (supra) We have not adopted that modification in India. 105. The questions that arise for consideration are: (i) Whether the company s affairs have been or are being con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sts own and hold in the aggregate at least 40% of the paid up Ordinary share capital, for the time being, of the company, the Sir Dorabji Tata Trust and Sir Ratan Tata Trust, acting jointly, shall have the right to nominate one third of the prevailing number of Directors on the Board and in like manner to remove any such person so appointed and in place of the person so removed, appoint another person as Director. The Directors so nominated by the Sir Dorabji Tata Trust and Sir Ratan Tata Trust shall be appointed as Directors of the Company. Explanation: the words acting jointly used in this Article shall mean that the Sir Dorabji Tata Trust and Sir Ratan Tata Trust shall together nominate such Directors. In the case of any difference, the decision of the majority of the Trustees in the aggregate of the Sir Dorabji Tata Trust and Sir Ratan Tata Trust shall prevail. 110. Article 121 mandates that the majority decision of the Board required affirmative vote of nominated Directors of Tata Trusts , otherwise majority decision cannot be given effect:- 121. Matters How Decided. Matters before any meeting of the Board which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt or immovable property of a value exceeding ₹ 100 Crores if not already approved as part of the annual business plan; (e) Any increase in the authorized, subscribed, issued or paid up capital of the Company and any issue or allotment of shares by the Company (whether on a rights basis or otherwise); (f) Any sale or pledge, mortgage or other encumbrance or creation of any right or interest by the Company of or over its shareholding in any Tata Company or of or over any part thereof, if not already approved as part of the annual business plan; (g) any matter affecting the shareholding of the Tata Trusts in the company or the rights conferred upon the Tata Trusts by the Articles of the Company or the shareholding of the Company in any Tata Company if not already approved as part of the annual business plan; (h) Exercise of the voting rights of the Company at the general meetings of any Tata Company, including the appointment of a representative of the Company under Section 113(1)(a) of the Companies Act, 2013 in respect of a general meeting of any Tata Company and, in any matter concerning the raising of capital, incurring of debt and di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sts . Independently, no majority decision can be taken either in the general meeting of the shareholders or by majority decision of the Board of Directors. 116. Article 121 B mandates advance notice of fifteen days to be given to the Company ( Tata Sons Limited ), its Directors and the Board about any matter/ resolution which is to be placed for deliberation by the Board. Decision of majority of Board on such matter/ resolution is dependant upon affirmative vote of the nominee Directors of the Tata Trust . 117. Article 75 empowers the Tata Sons Limited at any time to transfer ordinary shares of any of the shareholders without following the normal procedure of transfer:- 75. Company s Power of Transfer The Company may at any time by Special Resolution resolve that any holder of Ordinary shares do transfer his Ordinary shares. Such member would thereupon be deemed to have served the Company with a sale-notice in respect of his Ordinary shares in accordance with Article 58 hereof, and all the ancillary and consequential provisions of these Articles shall apply with respect to the completion of the sale of the said shares. Notice in writing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company; b. Board with the affirmative vote of nominated members of Tata Trusts issued equity shares of Tata Teleservices Limited (Tata Company) at a steep discount in comparison to the price at which shares were issued to other investors within few days. Such discounted investment was substantially funded by the Tata Companies ; c. Loans of ₹ 200 Crores extended to one Siva s companies by Tata Capital Limited when Mr. Ratan N. Tata (2nd Respondent) was Chairman. Said Tata Capital Limited subsequently suffered a loss of ₹ 200 crores, when Siva defaulted to pay the loans and the shares of Tata Tele Services Limited fully eroded in value; d. Tata Tele Services Limited , an overvalued company was purchased from the Siva Group , which had to be written off; and e. A penthouse apartment at IHCL s apartment hotel was let out at a price significantly lower than market price; all of which caused objective, discernible and serious prejudice to the Company. 122. On the other hand, according to counsel for the Company ( Tata Sons Limited ), Mr. Ratan N. Tata (2nd Respondent), Mr. Nitin Nohria (7th Respondent) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y- (11th Respondent) made it clear to Mr. Ratan N. Tata (2nd Respondent) that in Tata Chem , the Company- Tata Sons Limited have a risk of further write down due to non-performance. At paragraph 5 of the said email, Mr. Cyrus Pallonji Mistry- (11th Respondent) intimated Mr. Ratan N. Tata (2nd Respondent) that Tata Motors will soon face a severe liquidity crunch. It was also informed that because of the bad results during the year of Tata Motors , the JLR Team has got very nervous. (iii) By another e-mail dated 11th March, 2015, Mr. Cyrus Pallonji Mistry- (11th Respondent) informed Mr. Ratan N. Tata (2nd Respondent) about his (Mr. Ratan N. Tata) deep concern about the loss of sales and market share. While Mr. Cyrus Pallonji Mistry- (11th Respondent) also shown concern intimated that a few months ago, Tata Sons Ltd. asked TBEM to go for deep dive into sales effectiveness and one Mr. Mayank was working on all those matters. Mr. Cyrus Pallonji Mistry- (11th Respondent) intimated that the matter requires more talent to do so. (iv) There were discussion relating to association of the Company with Ola and Uber . In reply to e-mail dated 28th May, 2015, Mr. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re taken by the Tata Trusts before the decision of the Board of Directors of Tata Sons Limited . In this background, Mr. Cyrus Pallonji Mistry- (11th Respondent) reiterated the need for development of a governance framework and volunteered to assist with the document on which Mr. Nitin Nohria (7th Respondent) and Mr. Ratan N. Tata (2nd Respondent) were working on. 127. Emails dated 13th March, 2016; 30th April, 2016 and 10th May, 2016 between Mr. Cyrus Pallonji Mistry- (11th Respondent) and Mr. Nitin Nohria (7th Respondent) show that Mr. Cyrus Pallonji Mistry- (11th Respondent) formulated a governance framework after obtaining the feedback from Mr. Nitin Nohria (7th Respondent) to clarify the role of the Trustees of Tata Trusts in the decision making processes of Tata Sons Limited . It was followed by e-mail dated 15th May, 2016 sent by Mr. Cyrus Pallonji Mistry- (11th Respondent) to Mr. Ratan N. Tata (2nd Respondent) forwarding a draft of the governance framework. 128. Mr. Cyrus Pallonji Mistry- (11th Respondent) by e-mail dated 27th June, 2016 to Mr. Nitin Nohria (7th Respondent) informed after learning that Mr. Ratan N. Tata (2nd Respondent) was upset a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M to 3.00 P.M, which reads as follows: MINUTES OF THE SIXTH MEETING OF THE BOARD OF DIRECTORS OF TATA SONS LTD. FOR F.Y. 2016-17 HELD ON MONDAY, OCTOBER 24, 2016 FROM 2.00 P.M TO 3.00 P.M IN THE BOARD ROOM, BOMBAY HOUSE, 24 HOMI MODY STREET, MUMBAI 400 001 PRESENT Mr. R N Tata Chairman Emeritus Mr. C P Mistry Executive Chairman Mr. Ishaat Hussain Mr. Vijay Singh Dr. Nitin Nohria Mr. Ronen San Mrs. Farida Khambata Mr. Venu Srinivasan Mr. Ajay Piramal Mr. Amit Chandra Mr. F. N Subedar Company Secretary The Chairman Mr. C. P Mistry was informed that Mr. R. N Tata will be joining the Board meeting. Before commencement of considerations of items in the agenda which was circulated to the directors on October 16, 2016. Dr. Nitin Nohria mentioned that the Tata Trusts has asked its nominees on the Board of Tata Sons to bring a motion to the Board of Tata Sons Ltd. Mr. Amit Chandra Mentioned that in a meeting of the trust Directors held earlier in the day it was agreed to move a motion to request Mr. C. P Mistry to step down from the position of executi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed inclusion of matters that were not on the Agenda Circulated to the Board of Director on October 15, 2016, and which Mr. Vijay Singh proposed should be taken up first. Accordingly, he moved the following resolution which was seconded by Mr. Ronen Sen. RESOLVED THAT the consent of the Board be and is hereby accorded to consider and resolve upon, in this meeting of the Board, the following matters which were not included in the agenda circulated for this meeting of the Board: a. Replacement of Mr. Cyrus P. Mistry as the Chairman of the Board and from each committee of the Board; b. While the Board has adopted and put in place certain age criteria for retirement of directors of the company, to approve the ceasation of applications of the age criteria for retirement of Directors in relation to the company; c. Re-constitution of the nomination and remuneration committee to consist of the following directors (i) Mr. Ronen Sen (Independent Director); (ii) Mr. Ajay Piramal (Independent Director); (iii) Mrs. Farida Khambata (Independent Director); (iv) Mr. Vijay Singh; and (v) Mr. Venu Srinivasan; d. Appointment of Mr. Ratan N. Tata as Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company continue to be a director of the company. RESOLVED FURTHER THAT any and all powers of attorney and / or other authorizations which permit or enable Mr. Cyrus P. Mistry to represent the company or to take any decisions or actions on behalf of the company are hereby revoked with immediate effect Mr. C.P Mistry recorded his objection to moving the resolution by stating his view that it was not legal for the resolution to be taken up. Mrs. Farida Khambata abstained from voting on this resolution. The other directors voted in favour of the resolution and the resolution was carried by the requisite majority. 4. Retirement policy shall cease to apply Mr. Amit Chandra proposed the following resolution, which was seconded by Dr. Nitin Nohria. RESOLVED THAT while the Board has adopted and put in place certain age criteria for retirement of Directors of the company, it is hereby approved that with immediate effect, the age criteria for retirement of Directors shall cease to apply in relation to the company. Mr. C.P Mistry recorded his objection to moving the resolution by stating his view that it was not legal for the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Interim Chairman of the Board of Director of the Company and be appointed on all committees of the Board, with immediate effect and until a new Executive Chairman is selected and appointed in terms of the companies act, 2013 and the articles of association of the company. Mr. C.P Mistry recorded his objections to moving the resolution by stating his view that it was not legal for the resolution to be taken Lip. Mrs. Farida Khambata abstained from voting on this resolution. The other directors voted in favour of the Resolution and the Resolution was carried by the requisite majority. 8. Constitution of a selection committee Mr. Ronen San proposed the following resolution for constitution of a Selection Committee, which was seconded by Mr. Vijay Singh RESOLVED THAT appropriate steps be taken to appoint a new Chairman in terms of the companies act 2013 and the articles of association of the company including by formation of a selection committee comprising of (i) Mr. Ratan N. Tata (Nominee of Tata Trust); (ii) Mr. Anil Chandra (Nominee of Tata Trust); (iii) Mr. Venu Srinivasan (Nominee of Tata Trust); (iv) Mr. Ronen San (Independent Director) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons Ltd. Mr. Tata said that to a great extent. It would be Mr. Mistry prerogative. As regard other Tata Companies, Mr. Mistry responded by saying that he shall decide on the same and revert. Mrs. Khambata asked whether the decisions taken at the meeting could be announced immediately since Mr. C.P Mistry had said he should have been given advance notice of his removal. Mr. Amit Chandra said that he was not carrying the opinions which he said were given by eminent lawyers and ex - supreme court judge. Mr. C.P Mistry asked for copies of the written opinion and wondered how the rest of the Board could set without these opinions being made available to them, Mr. C.P Mistry asked for the opinions to be provided today. It was agreed to share these opinions with Mr. C.P Mistry after checking with the lawyers. Mr. R. N Tata stated that the development at the meeting would need to be reported by way of a press conference as far as the company was concerned. The Board decided to move ahead with the press announcement. Since the development were material. As regard the items in the agenda the Board agreed that given the aforesaid developments, matters on the agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Mr. Ratan N. Tata (2nd Respondent) was determined to remove Mr. Cyrus Pallonji Mistry (11th Respondent) prior to the meeting of the Board and asked Mr. Cyrus Pallonji Mistry to step down. (ii) Mr. Ratan N. Tata (2nd Respondent) during the course of the meeting mentioned that there was a need to recognize what Mr. Cyrus Pallonji Mistry (11th Respondent) had done over the last 4 years. He specifically stated that it was important for the group to move forward in a seamless manner as one can . (iii) The majority shareholders of Tata Trusts represented by Mr. Ratan N. Tata (2nd Respondent) were knowing that advance notice was required for his removal, therefore, opinion had been obtained from eminent lawyers and the Hon ble ex- Supreme Court Judge, as apparent from the proceedings of the meeting wherein Mr. Amit Chandra said that he was not carrying the opinions which he said were given by eminent lawyers and ex - supreme court judge. Mr. C.P Mistry asked for copies of the written opinion and wondered how the rest of the Board could sit without these opinions being made available to them, Mr. C.P Mistry asked for the opinions to be provided today. It was agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Tata Sons are primarily concerned with the results of Tata Sons and their duty to all its shareholders, particularly, the Tata Trusts, who hold 66% of the equity capital. The following points are being made in this context a. Mr. Cyrus P. Mistry has been the Executive Vice Chairman (for one year) and Executive Chairman for nearly four years now a period long enough to show results in Tata Sons Itself, which was his primary executive responsibility. b. For assessing the results during his tenure, it would indeed be appropriate to exclude the income (i.e dividend) from Tata Consultancy Services (TCS) because Mr. Mistry does not really contribute materially to TCS s management and TCS has needed no funds from Tata Sons for its growth. In this way, it will be seen what Tata Sons has been getting from all the other 40 companies (listed and unlisted) In its portfolio. c. Dividends received from all the other 40 companies (many non-dividend paying) has continuously declined from ₹ 1,000 crores in 2012-13 to ₹ 780 crores in 2015-16 but the latter figure includes additional interim dividend of ₹ 100 crores which would have been normally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en existing structure of the group which had stood the test of a long period of nearly 100 years by the visionary founders and generations of Tatas seem to have been consciously dismantled so that now the operating companies are drifting farther away from the promoter company and their major shareholder (except for periodic presentations) through systematically reducing the effective control and influence of the promoter. Tata Sons has historically exercised control over its group companies through its shareholding and commonality of senior Directors (apart from the Chairman) which had acted as a binding force in the group for many years and which has enhanced the credibility and creditworthiness of the group companies. We now have an unacceptable new structure where the Chairman alone is the only common Director across several companies and this situation could not be allowed to go on. In addition, there were some significant issues of conflict of interest in relation to the Shapoorji Pallonji Group which he did not fully address. 3. Mr. Mistry s role in the past four years Unlike in the past, Mr. Mistry constantly used the strong public relations ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o write-off huge amounts against these companies - which is no solution because the problem companies continue to exist with their continuing losses and high debt and only the shareholders suffer from these write-offs. The media is fed with the total group figures over the past four years as evidence of the progress but it is not highlighted that these aggregate figures which show a good picture are largely (if not only) due to the excellent performance on all parameters of just two companies, namely; TCS and Jaguar and Land Rover (JLR) which is a wholly-owned U.K. subsidiary of Tata Motors. There is no-complaint about these good legacies. These two jewels in the Tata crown were also inherited by the new Chairman from the previous Chairman, Mr. R. N. Tata, who was also responsible for the acquisition of JLR by Tata Motors in 2008-09 and personally worked with the then management of Tata Motors to turn JLR around. These too companies probably account for around 50% of the total turnover and probably over 90% of the total profits of the whole group and have been performing successfully continuously over the past many years, for which Mr. Mistry cannot take credit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which emerged over the last four years, which have not keen mentioned at all. 4. Group Indebtedness and Return on Investment - Group Indebtedness has increased by ₹ 69,877 crores to ₹ 225,740 crores over the last four years. Despite huge investments by companies, the returns are not visible in increased profits, though, in all fairness, some major growth projects like the new steel plan at Kalinganagar will show results only in coming years. 5. Market share drop in Tata Motors- There has been a perilous drop in market share in both passenger cars and commercial vehicle areas over the past three years. In passenger cars, In the year ended March 2013, the market share was 13% which now stands at 5% It will be difficult if not impossible to retrieve the market share losses. However, even more concerning, is the market share in commercial vehicles which in March 2013 stood at 60% and now stands at 40+%- the lowest in the company s history as the market leader in commercial vehicles. The two passenger car launches of good products like Bolt and Zest introduced as turnaround products for the company have both been lackluster in market acceptance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence-on one single company, i.e. TCS, over a long period-of four years. This was not only disturbing but needed corrective action in the management of Tata Sons. In fact, many practical suggestions made to Mr. Mistry for the benefit of Tata Sons vis-a-vis some of his major investments have often been Ignored. b) Mr. Mistry conveniently forgets that he was appointed as the Chairman of the Tata operating companies by virtue of and following his position as the Chairman of Tata Sons. Therefore, It was fair expectation of Tata Sons that Mr. Mistry would gracefully resign from the boards of other Tata companies on being replaced from the position of the Chairman of Tata Sons, This expectation was in line with convention, past practice as well as the Tata governance Guidelines that were approved and adopted by Tata Sons under the aegis of Mr. Mistry. However, his departure from these requirements and conduct since his replacement as Chairman of Tata Sons demonstrates his absolute disregard of longstanding Tata traditions, values and ethos. c) The recent developments in the Indian Hotels Co. Ltd. (IHCL) now seems to reveal the true colours of Mr. Mistry and his ulteri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholding group, we have to express our very serious concern on the personal email dated October 25, 2016, from Mr. Mistry, addressed to the Directors of Tata Sons and purportedly to the Trustees of the Tata Trusts and which simultaneously, appeared in full in various newspapers. Here, we are only referring to the shocking statement of five or six major Tata companies having to take potential write downs of $18 billion in future in their assets investments and the following points/ queries need to be raised- a. Has Mr. Mistry, the Chairman, informed the Boards of these companies at any time in the past specifically of the above mentioned potential write-downs? if so, when was this done and why was it not made public as this is clearly a major item of information - apart from disclosing only the write-offs required to be made to date. Surety he could not have discovered such a large potential liability only a day or two after he was replaced as the Chairman of Tata Sons. Therefore, he must have been aware of this potential large provision much earlier but did not disclose it. It presumably relates to possible future provisions to he made (with no firm basis) b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen in the desired perspective . 138. If we accept the stand taken by the Contesting Respondents that the removal of Mr. Cyrus Pallonji Mistry (11th Respondent) is directorial in nature, in the interest of Company, in such case, there was no occasion to issue a Press Statement where it is noticed that many across the globe have raised concern in the manner Mr. Cyrus Pallonji Mistry (11th Respondent) was removed. The Company and its Board also understood that such removal may lead to a sense of uncertainty of Tata Sons Ltd. and Group Companies and result in winding up. 139. The allegations as made in the Press Statement dated 10th November, 2016 appears to be an afterthought as the aforesaid matter was not discussed in any of the meeting of the Board of Directors. No records have been placed by the Respondents with regard to the aforesaid loss nor any discussion took place in the Board Meeting of the Tata Sons and Mr. Cyrus Pallonji Mistry (11th Respondent) to suggest that it was of serious concern. The allegations in the Press Statement as not supported by record cannot be accepted. 140. On the other hand, the correspondences between Mr. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfidence on Mr. Cyrus Pallonji Mistry (11th Respondent) 145. Apart from the e-mails, as discussed earlier, with regard to Tata Companies, following facts emerge from other e-mail: Bidding for spectrum by Tata Teleservices Limited ( TTSL ) and editing the Board note (i). In Email dated 23rd May, 2016 from 11th Respondent to 2nd Respondent with a copy marked to 14th Respondent it is recorded that because the Trustees were not convinced on the strategy of TTSL going forward, 11th Respondent had to change an item that was to be placed for approval before the Board of 1st Respondent, into an item that was noted to be only for Information . (ii). Email dated 7th June, 2016 marked to 11th Respondent is from the company secretary of 1st Respondent, wherein it is recorded that 2nd Respondent had objections to any investment proposal for TTSL being taken to the Board of 1st Respondent. The email also documents that the Trustees particularly 2nd Respondent and 14th Respondent even made changes to the Board Agenda Item and note to the Board regarding investment in spectrum for TTSL. This clearly shows that without the pre-clearance of 2nd Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. The Board of 1st Respondent (in the presence of Trustee Nominee Directors) had discussed and approved funding requirements of Tata Motors on 30th September, 2013 and the same was reflected in the cash plan of 1st Respondent; b. A presentation on the need for a rights issue by Tata Motors was also presented to the Board of 1st Respondent, where the Trust Nominee Directors were present; c. Agenda and minutes of meetings of 1st Respondent were sent to the 2nd Respondent as Chairman Emeritus ; d. 14th Respondent (a Trustee) views were also sought by senior officials, of Tata Motors and thereafter the matter was taken to the Board of Tata Motors. ( vii). Email dated 31st January 2015 from 11th Respondent to a Trust Nominee Director 7th Respondent wherein 11th Respondent raises concerns about maintaining the integrity of the Board decision making process. 11th Respondent asked: the question one will have to ask is then are we going to present all of this to RNT or the Trusts? As an investment company, then what will the Board of Tata Sons take decisions on? . 146. The record suggests that the removal of Mr. Cyrus P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommittee was unanimously approved by the Board of Directors of Tata Sons in its meeting held on the next day i.e. on 29th June, 2016. Besides, at the level of the Board of Directors of Tata Group Companies , the performance of Mr. Cyrus Pallonji Mistry (11th Respondent) has been endorsed and praised by nearly 50 Independent Directors of Group Companies. 151. It is relevant to note that three Directors who also voted for removal of Mr. Cyrus Pallonji Mistry (11th Respondent), including Mr. Amit Chandra (3rd Respondent), who spearheaded the removal proceedings and Mr. Ajay Piramal (5th Respondent) and Mr. Venu Srinivasan (6th Respondent), had been inducted into the Board of Tata Sons Ltd. only on 8th August, 2016 i.e. after the appraisal report of Nomination and Remuneration Committee . They attended just one Board meeting prior to the meeting held on 24th October, 2016. 152. Two of the Directors, Mr. Ranendra Sen (8th Respondent) and Mr. Vijay Singh (9th Respondent), a Trust Nominee Director, who voted for the removal of Mr. Cyrus Pallonji Mistry (11th Respondent), were members of the Nomination and Remuneration Committee which just four months prior to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affirmative voting right over the majority decision of the Board or in the Annual General Meeting of the shareholders allowed the Tata Companies to function in a manner which caused loss, as accepted in the press release dated 10th November, 2016. The consecutive chain of events coming to fore from the correspondence referred elsewhere in this Judgment amply demonstrates that impairment of confidence with reference to conduct of affairs of company was not attributable to probity qua Mr. Cyrus Pallonji Mistry but to unfair abuse of powers on the part of other Respondents. 156. The Press Statement of Tata Sons Limited dated 10th November, 2016 facts of which were never discussed by Board is an afterthought of Respondents to put all blame on Mr. Cyrus Pallonji Mistry (11th Respondent). The Board of Directors majority decision of which is guided by the affirmative vote of the nominated members, have failed to explain as to why the Board failed in its duties and not noticed the loss of any of the Tata Companies . 157. It is not in dispute that Shapoorji Pallonji Group ( Appellants herein) are the minority shareholders. They are in business with Tata Group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of Tata Trusts , its nominee Directors, and Mr. Ratan N. Tata (2nd Respondent) and Mr. Nitin Nohria (7th Respondent) taken since the year 2013, as noticed and discussed above, and sudden and hasty removal of Mr. Cyrus Pallonji Mistry (11th Respondent) on 24th October, 2016, without any basis, and without following the normal procedure under Article 118, the minority group ( Shapoorji Pallonji Group ) (the Appellants), and others have raised no confidence and sense of uncertainty which was the reason for the Tata Sons Ltd. to issue a Press Statement . 163. In the opening sentence of the Press Statement dated 10th November, 2016, it has been accepted that some have shared concerns following the decision, while many have asked questions about the future course of the group and its companies and operations . The company in its turn has mentioned that we understand and appreciate that a period of change like this can lead to a sense of uncertainty and would like to put forward some facts so that the decision is seen in the desired perspective . 164. The language of the Company ( Tata Sons Ltd. ) in its Press Statement show that the Company and Contest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies (Amendment) Act, 1960 (65 of 1960), on and from the expiry of the period of three months from the date of such commencement unless within that period the aforesaid percentage is reduced below twenty-five per cent of the paid-up share capital of the private company, become by virtue of this section a public company: Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven: Provided further that in computing the aforesaid percentage, account shall not be taken of any share in the private company held by a banking company if, but only if, the following conditions are satisfied in respect of such share, namely: (a) that the share- (i) forms part of the subject matter of a trust, (ii) has not been set apart for the benefit of any body corporate, and (iii) is held by the banking company either as a trustee of that trust or in its own name on behalf of a trustee of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s within that period the aforesaid percentage is reduced below twenty-five per cent of the paid-up share capital of the public company, become, by virtue of this sub-section, a public company, and thereupon all other provisions of this section shall apply thereto: Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven. [(1C) Where, after the commencement of the Companies (Amendment) Act, 1988, a private company accepts, after an invitation is made by an advertisement, or renews, deposits from the public other than its members, directors or their relatives, such private company shall, on and from the date on which such acceptance or renewal, as the case may be, is first made after such commencement, become a public company and thereupon all the provisions of this section shall apply thereto: Provided that even after the private company has so become a public company, its articles of association may inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a first return, since the date of the incorporation of the private company, no body or bodies corporate has or have held twenty-five per cent or more of its paid-up share capital, *** (c) that the private company, irrespective of its paid-up share capital, did not have, during the relevant period, an average annual turnover of 6 [such amount as is referred to in sub-section (1A) or more], [(d) that the private company did not accept or renew deposits from the public.] (9) Every private company, having share capital, shall file with the Registrar along with the annual return a certificate signed by both the signatories of the return, stating that since the date of the annual general meeting with reference to which the last return was submitted, or in the case of a first return, since the date of the incorporation of the private company, it did not hold twenty-five per cent or more of the paid-up share capital of one or more public companies. Explanation.-For the purposes of this section,- (a) relevant period means the period of three consecutive financial years,- (i) immediately preceding the commencement of the Companies (Amendment) Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se covered in Part IX A of the Companies Act, 1956. Though the Companies Act, 1956 has not been repealed in totality in absence of any Notification issued by the Central Government under Section 465 giving it effect, but Section 31 of the Companies Act, 1956 which relates to Alteration of articles by special resolution has been repealed and substituted by Section 14 of the Companies Act, 2013 which relates to Alteration of articles and reads as follows: 14. Alteration of articles.─ (1) Subject to the provisions of this Act and the conditions contained in its memorandum, if any, a company may, by a special resolution, alter its articles including alterations having the effect of conversion of- (a) a private company into a public company; or (b) a public company into a private company: Provided that where a company being a private company alters its articles in such a manner that they no longer include the restrictions and limitations which are required to be included in the articles of a private company under this Act, the company shall, as from the date of such alteration, cease to be a private company: Provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities of the company 172. On the other hand, Public Company is defined under Section 2(71) of the Companies Act, 2013, as follows: 2. Definition.─ (71) public company means a company which- (a) is not a private company; (b) has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed: Provided that a company which is subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles 173. Like Section 43A (1A) of the Companies (Amendment) Act, 2000, there is no provision under the Companies Act, 2013 for automatic conversion of Public Company to Private Company or a Private Company to Public Company . Therefore, on the basis of definition of Private Company as defined under Section 2(68) of the Companies Act, 2013, there cannot be automatic conversion of a Public Company to Private Company . Similarly, on the basis of definition of Public Company as defined under Section 2(71) of the Companies Act, 2013, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. The aforesaid fact show that even after the removal of Mr. Cyrus Pallonji Mistry (11th Respondent) on 24th October, 2016 from the post of Executive Chairman of the Company ( Tata Sons Limited ) and the post of Directors of Tata Companies , during the pendency of the cases, in a hurried manner, the Company ( Tata Sons Ltd. ) and its Board moved before the Registrar of Companies for conversion of Company from Public Company to Private Company to give it colour of deemed conversion which is against the law and unsustainable. 181. The aforesaid action on the part of the Company, its Board of Directors to take action to hurriedly change the Company ( Tata Sons Limited ) from Public Company to a Private Company without following the procedure under law (Section 14), with the help of the Registrar of Companies just before filing of the appeal, suggests that the nominated members of Tata Trusts who have affirmative voting right over the majority decision of the Board of Directors and other Directors/ members, acted in a manner prejudicial to the members, including minority members ( Shapoorji Pallonji Group ) and others as also prejudicial to the Company ( Tat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a winding-up order on the ground that it was just and equitable that the company should be wound up and thereby, it is a fit case to pass order under Section 242 of the Companies Act, 2013. 184. In the facts and circumstances of the case, we declare the Resolution dated 24th October, 2016 passed by the Board of Directors of Company removing Mr. Cyrus Pallonji Mistry (11th Respondent) as the Executive Chairman of the Company ( Tata Sons ) illegal; all consequential decisions taken by Tata Companies for removal of Mr. Cyrus Pallonji Mistry (11th Respondent) as Directors of such companies are also declared illegal. 185. We are of the view that for better protection of interest of all stakeholders as also safeguarding the interest of minority group, in future at the time of appointment of the Executive Chairman, Independent Director and Directors, the Tata Group which is the majority group should consult the minority group i.e., Shapoorji Pallonji Group and any person on whom both the groups have trust, be appointed as Executive Chairman or Director as the case may be which will be in the interest of the Company and create healthy atmosphere removing the mist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es will make correction in its record showing the Company ( Tata Sons Limited ) as Public Company . 188. At this stage, it is apt to notice some observations in the Judgment dated 9th July, 2018 passed by the Tribunal are inappropriate and avoidable. 189. The Tribunal in its opening paragraphs was not required to highlight the products of Tata Sons Limited nor was required to appreciate its activities before deciding the case on merit. Sometimes, such observations or appreciation in favour of one or other party creates a wrong impression in the mind of the other party. The Tribunal is required to appreciate the merits and demerits of the case and should desist from highlighting the merits of a product or virtues of a party or appreciating any action taken by a party to a case. 190. We find certain observations made by the Tribunal against Mr. Cyrus Pallonji Mistry and other Appellants are undesirable and based on extraneously sourced material not on record. It casts impact on the reputation of the Appellants and Mr. Cyrus Pallonji Mistry which may affect them in pending proceedings, if any, and their business. These remarks are not only disparaging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Mr. Cyrus will remain whole and sole and call the shots in the company by virtue of he being appointed by the majority as Executive chairman, and keep Mr. Tata representing majority and the trust nominee directors remain as credit cards in his wallet to use them whenever board meetings and shareholder meetings take place? Para 396 6. His removal, who is taken as employee will not make any difference to the shareholders or the company. Therefore, unless an action is vitiated by fraud, it will not become a fraud or unfairness. This clause of prejudice will be only in respect to either the economic interest of the Petitioners or the economic interest of the company. Here, personal emotions or personal egos will not have any place to attribute it as a grievance under Section 241 Para 457 7. If you see the correspondence and transactions happened under the stewardship of Mr. Cyrus it is evident on record that Mr. Cyrus created a situation that since he being the executive chairman, he is not accountable either to majority shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who has been using such email id. Para 576 191. For the reasons aforesaid, the impugned Judgment dated 9th July, 2018 passed by the National Company Law Tribunal, Mumbai, is set aside. Remarks made against the Appellants, Mr. Cyrus Pallonji Mistry and others stand expunged. Both the appeals are allowed with aforesaid observations and directions. No costs. N.B. After the Judgment was pronounced, Dr. Abhishek Manu Singhvi, learned Senior Counsel appearing on behalf of the 1st Respondent Company prays for the suspension of the part of the judgment by which it has been ordered to replace the Executive Chairman and to reinstate Mr. Cyrus Pallonji Mistry as Executive Chairman and Director of the Tata Sons Limited . With a view to ensure smooth functioning of the Company, while we are not inclined to suspend the Judgment pronounced today in its totality, but suspend the part of the Judgment so far as it relates to replacement of the present Executive Chairman and reinstatement of Mr. Cyrus Pallonji Mistry as Executive Chairman of Tata Sons Limited for a period of four weeks. Rest of the Judgment and Directions in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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