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TMI Blog2021 (3) TMI 1181X X X X Extracts X X X X X X X X Extracts X X X X ..... tances and in the interest of the Company - seeking to declare as illegal, the decision of the Registrar of Companies for changing the status of Tata Sons Limited from being a public company into a private company - sections 241 and 242, Companies Act, 2013. Whether the formation of opinion by the Appellate Tribunal that the company s affairs have been or are being conducted in a manner prejudicial and oppressive to some members and that the facts otherwise justify the winding up of the company on just and equitable ground, is in tune with the well settled principles and parameters, especially in the light of the fact that the findings of NCLT on facts were not individually and specifically overturned by the Appellate Tribunal? - HELD THAT:- For invoking the just and equitable standard, the underlying principle is that the Court should be satisfied either that the partners cannot carry on together or that one of them cannot certainly carry on with the other, The advantage that the English courts have is that irretrievable breakdown of relationship is recognised as a ground for separation both in a matrimonial relationship and in commercial relationship, while it is not so in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... glish Companies Act, 1985 continued to be almost similar. Section 461(1) enabled the Court to make such order as it thinks fit for giving relief in respect of the matters complained of . Section 996 of the English Companies Act, 2006 retained the very same wordings. The purpose of an order both under the English Law and under the Indian Law, irrespective of whether the regime is one of oppressive conduct or unfairly prejudicial conduct or a mere prejudicial conduct , is to bring to an end the matters complained of by providing a solution. The object cannot be to provide a remedy worse than the disease. The object should be to put an end to the matters complained of and not to put an end to the company itself, forsaking the interests of other stakeholders. It is relevant to point out that once upon a time, the provisions for relief against oppression and mismanagement were construed as weapons in the armoury of the shareholders, which when brandished in terrorem, were more potent than when actually used to strike with. While such a position is certainly not desirable, they cannot today be taken to the other extreme where the tail can wag the dog. The Tribunal should always keep in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial, is justified especially after the challenge to these Articles have been given up expressly and whether the Tribunal could have granted a direction to RNT and the Nominee Directors virtually nullifying the effect of these Articles? - HELD THAT:- Whether the re conversion of Tata Sons from a public company into a private company, required the necessary approval under section 14 of the Companies Act, 2013 or at least an action under section 43A(4) of the Companies Act, 1956 during the period from 2000 (when Act 53 of 2000 came into force) to 2013 (when the 2013 Act was enacted) as held by NCLAT? - HELD THAT:- The right to claim proportionate representation is not available for the S.P. group even contractually, in terms of the Articles of Association. Neither S.P. Group nor CPM can request the Tribunal to rewrite the contract, by seeking an amendment of the Articles of Association. The Articles of Association, as they exist today, are binding upon S.P. Group and CPM by virtue of Section 10(1) of the Act - Realising the fact that they have no right, statutorily or contractually or otherwise to demand proportionate representation on the Board, S.P. Group has come up with a ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith first preference, second preference etc. Moreover, it is only an enabling provision and it is upto the company to make a provision for the same in their Articles, if they so choose. There is no statutory compulsion to incorporate such a provision. The fourth question of law is also to be answered in favour of the Tata group and the claim in the cross appeal relating to affirmative voting rights and proportionate representation are liable to be rejected. Whether the re conversion of Tata Sons from a public company into a private company, required the necessary approval under section 14 of the Companies Act, 2013 or at least an action under section 43 A(4) of the Companies Act, 1956 during the period from 2000 (when Act 53 of 2000 came into force) to 2013 (when the 2013 Act was enacted) as held by NCLAT? - HELD THAT:- Once the company had become a deemed public company with effect from 1 2 1975, the privileges of a private company stood withdrawn and the company was entitled in law to allow renunciation of shares under rights issue. In any case, the validity of what was done in 1995 was not in question. That they accepted deposits from public till September 2002, is the reason wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e else in the place of CPM as Executive Chairman; (iv) restraining Shri Ratan N. Tata (“RNT” for short) and the nominees of Tata Trust from taking any decision in advance; (v) restraining the Company, its Board of Directors and Shareholders from exercising the power under Article 75 of the Articles of Association against the minority members except in exceptional circumstances and in the interest of the Company; and (vi) declaring as illegal, the decision of the Registrar of Companies for changing the status of Tata Sons Limited from being a public company into a private company. 1.2 RNT has come up with two independent appeals in Civil Appeal Nos.1920 of 2020 against the same Order of the NCLAT, on similar grounds. 1.3 The trustees of two Trusts namely Sir Ratan Tata Trust and Sir Dorabji Tata Trust have come up with two independent appeals in Civil Appeal Nos.444445 of 2020, challenging the impugned order of the Appellate Tribunal. A few companies of the Tata Group, which were referred to in the course of arguments, as the operating companies or downstream companies, such as the Tata Consultancy Services Limited, the Tata Teleservices Limited and Tata Industries Limited have co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 420 of the Companies Act, 2013. Therefore, Tata Sons have come up with these 2 appeals in C.A.Nos. 263 and 264 of 2020. 1.6 Thus we have on hand, 15 Civil Appeals, 14 of which are on one side, assailing the Order of NCLAT in entirety. The remaining appeal is filed by the opposite group, seeking more reliefs than what had been granted by the Tribunal. 1.7 For the purpose of easy appreciation, we shall refer to the appellants in the set of 14 Civil Appeals as “the Tata Group” or “the Appellants”. We shall refer to the other group as “SP Group” (Shapoorji Pallonji Group) or “the respondents”. Similarly we shall refer to Tata Sons Limited (or Tata Sons Private Limited) merely as ‘Tata Sons’, as there is a controversy regarding the usage of the word “Private” before the word “Limited”. 2. Background of the Litigation 2.1 On 08.11.1917, Tata Sons was incorporated as a Private Limited Company under the Companies Act, 1913. 2.2 Two companies by name Cyrus Investments Private Limited and Sterling Investment Corporation Private Limited, forming part of the SP Group respectively acquired 48 preference shares and 40 equity shares of the paidup share capital of Tata Sons, from an exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agement. 2.10 But these two companies, hereinafter referred to as ‘the complainantcompanies’, together had only around 2% of the total issued share capital of Tata Sons. This is far below the deminimus qualification prescribed under Section 244(1)(a) to invoke sections 241 and 242. Therefore, the complainant companies filed a miscellaneous application under the proviso to Subsection (1) of Section 244 seeking waiver of the requirement of Section 244(1)(a), which requires atleast one hundred members of the company having a share capital or onetenth of the total number of fixed members or any member or members holding not less than onetenth of the issued share capital of the company alone to be entitled to be the applicant/applicants. 2.11 Along with the application for waiver of the requirement of Section 244(1)(a), the complainant companies also moved an application for stay of an Extraordinary General Meeting (“EGM” for short) of Tata Sons, in which a proposal for removing CPM as a Director of Tata Sons had been moved. The NCLT refused stay, as a consequence of which the EGM proceeded as scheduled and CPM was removed from the Directorship of Tata Sons, by a Resolution dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. (iv) The decision of the Registrar of Companies changing the Company (‘Tata Sons Limited’) from ‘Public Company’ to ‘Private Company’ is declared illegal and set aside. The Company (‘Tata Sons Limited’) shall be recorded as ‘Public Company’. The ‘Registrar of Companies’ will make correction in its record showing the Company (‘Tata Sons Limited’) as ‘Public Company’.” 2.16 After NCLAT disposed of the appeals by its order dated 18122019, the Registrar of Companies moved 2 interlocutory applications seeking the deletion of certain remarks made by NCLAT against them. These applications were dismissed by NCLAT by order dated 06012020. Therefore, as against the final Order of NCLAT dated 18122019, (i) Tata Sons Private Limited (ii) RNT (iii) the Trustees of the two Tata Trusts and (iv) three operating companies of Tata Group have come up with 2 Civil Appeals each (totalling to 12 appeals) and the complainant companies have come up with one Civil Appeal. In addition, Tata Sons have also come up with 2 more appeals against the order dated 06012020 passed by NCLAT on the applications of the Registrar of Companies. 3. Case set up by the complainants in their petition under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (xiii) fraudulent transactions in the deal with Air Asia which led to financing of terrorism. 3.3 On the foundation of the above, the complainantcompanies contended before NCLT: (i) that the directors of Tata Sons are not carrying out their fiduciary responsibilities for and on behalf of the shareholders, but have become mere puppets controlled by RNT and the Trustees of the two Trusts; (ii) that the powers contained in the Articles of Association are being exercised in a malafide manner prejudicial to the interest of the petitioners and to public interest; (iii) that various operating decisions are taken either for emotional reasons or for pampering the ego of RNT; (iv) that attempts are made to shield persons responsible for fraudulent transactions at Air Asia; (v) that attempts are made to ensure that no legal action is initiated against Siva who owes ₹ 694 crores; (vi) that Ratan Tata enabled his associates to unjustly enrich themselves at the cost of Tata Sons; and (vii) that the present directors of Tata Sons are not promoting the interests of shareholders of Tata Sons and the interests of the shareholders of various operating companies of the Tata group. 3.4 In the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of India; (M) strike of Articles numbered 86, 104(B), 118, 121 and 121A in their entirety and in so far as Article 124 of the Articles of Association of Respondent No. 1 is concerned, the following portion of the said Article, which is offending and/or repugnant, should be deleted: “… Any committee empowered to decide on matters which otherwise the Board is authorised to decide shall have as its member at least one director appointment pursuant to Article 104B. The Provisions relating to quorum and the manner in which matters will be decided contained in Articles 115 and 121 respectively shall apply mutatis mutandis to the proceedings of the committee. “from the Articles of Association of Respondent No. 1; and substitute these articles with such articles as the nature and circumstances of this case may require; (N) direct the Respondents (excluding Respondent Nos. 4, 10 &11) to bring back into Respondent No. 1, the funds used by Respondent No. 1 for acquiring shares of Tata Motors; (O) restrain Respondent No. 1 from initiating any new line of business or acquiring any new business; (P) restrain the trustees of the Trusts from interfering in the affairs of Respondent No. 1 and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... davit limiting to the proposal for the removal of Cyrus Pallonji Mistry from the Board. 4.6 Accordingly, an additional affidavit was filed on 21.01.2017. However, the NCLT, by an order dated 31.01.2017 rejected the prayer of S.P. Group for stay of EGM scheduled to be held on 06.02.2017. 4.7 S.P. Group filed an appeal against the order refusing the stay of EGM. The appeal was disposed of on 03.02.2017, merely permitting the S.P. Group to file a petition for amendment, in the event of CPM being removed in the EGM. In the EGM held on 06.02.2017, CPM was removed. 4.8 Therefore, the complainantcompanies filed an amendment application dated 10.02.2017 seeking addition of two more prayers namely: (i) to direct the respondents to reinstate the representative of the complainantcompanies on the Board of Tata Sons; and (ii) to direct the amendment of Articles of Association of Tata Sons to provide for proportional representation of shareholders on the Board of Directors of Tata Sons. 4.9 But the petition for contempt, the petition for interim stay of EGM and the application for amendment to include additional prayers, all turned out to be exercises in futility, with the NCLT passing two or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tricted. The prayer in the Memo was as follows: a. Prayer M, which sought the striking of Articles 86, 104(B), 118, 121 and 121A, and striking of a portion of Article 124, is restricted as under: i. The necessity of an affirmative vote of the majority of directors nominated by the Trusts, which are majority of shareholders, be deleted; ii. The Petitioners be entitled to proportionate representation on Board of Directors of Respondent No.1; iii. The Petitioners be entitled to representation on all committees formed by the Board of Directors of Respondent No.1; and iv The Articles of Association be amended accordingly. b. Prayers A, B and C were not pressed. c. Prayers F, Q and R, being infructuous were not pressed 5. Response of Tata Sons to the allegations made in the Company Petition 5.1 Tata Sons filed a reply to the company petition contending interalia : (i) that CPM, who was removed from the post of Executive Chairman, after having lost the confidence of 7 out of 9 Directors, has sought to use the complainant companies to besmirch the reputation of Tata Group; (ii) that even the decisions to which CPM was a party have been questioned in the petition; (iii) that Tata Group fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (xv) that though the mail was marked confidential, it was simultaneously leaked to the press; (xvi) that CPM also breached his fiduciary and contractual duties by disclosing confidential information and documents pertaining to Tata Sons to third parties; (xvii) that CPM made representations to the shareholders of all operating companies, with unsubstantiated and false allegations, thereby attempting to make the operating companies vulnerable to make confidential data available for public inspection; (xviii) that the shareholders of Tata Industries Limited, Tata Consultancy Services and Tata Teleservices Limited passed Resolutions respectively on 12.12.2016, 13.12.2016 and 14.12.2016 to remove CPM from Directorship; (xix) that, therefore, CPM resigned from the Directorship of the other companies also on 19.12.2016, when he faced the prospect of being removed in the impending meetings; (xx) that the actions and conduct of CPM after 24.10.2016 compelled Tata Sons to issue a special notice and requisition for his removal from the Directorship of Tata Sons; (xxi) that the company petition was not about espousing the cause of corporate governance or seeking remedies for oppression and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns constitute the ingredients of sections 241 and 242 of the Act. 6. The approach of NCLT 6.1 The NCLT, in its order dated 9.7.2018, went into each of the allegations of oppression, mismanagement and prejudice and recorded categorical findings. In brief, these findings, allegation-wise, were as follows: On the allegations revolving around Siva and Sterling group of companies (i) Tata Teleservices shares were acquired in the year 2006 with the approval of the Board and hence almost after 10 years, it cannot be raised as an issue. It is also a fact that the very complainant companies had acquired same TTSL shares two months before, for ₹ 15 per share. (ii) The loan taken from Kalimati Investments was already paid back by Siva Group of Companies and the company was relieved of its undertaking by Siva himself who provided personal guarantee for the loan taken from Standard Chartered Bank. (iii) As to the allegation that Siva made a big profit by selling shares to NTT DoCoMo @ ₹ 117 per share, it is evident from the record that these shares were sold in the year 2008 to NTT DoCoMo, while NTT DoCoMo was acquiring shares in bulk from TTSL as well as from some of the shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough hawala with diversion of Air Asia India funds. On the Transactions with Mehli Mistry, including the sale of the flat (Bhakthawar) and a land (Alibaug) (i) There is nothing to indicate that RNT got enriched at the cost of the company. Forbes Golak was not made a Party and the transaction happened somewhere in the year 2002, but the allegation is raised in the year 2016. (ii) As to these allegations relating to Mehli deriving hugebenefits, the only document that the Petitioners and CPM filed and relied on, is an email Mr. Mehli addressed to Mr. Padmanabhan of TPC among others. (iii) In respect of the 1993 contract for dredging at Trombay, it was awarded by Tata Power to MpCL for 9 years after choosing them from amongst three vendors. Thereafter it was renewed 5 times for various tenures from October 2002 to September, 2014 after obtaining requisite approvals. When these approvals were given, CPM was a Director of Tata Power. He held directorship from 1996 to 2006 and again from 2011 to 2016, but never raised any objection. Nano car project and the losses suffered by Tata Motors (i) RNT has not been the director of Tata Motors at any point of time during which the actions compla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minee Directors stepped out of the meeting of the Board held on 29.06.2016 to take instructions from RNT on the issue of acquisition of Welspun by Tata power, cannot be projected as an incident where Article 121 was abused, since the issue of acquisition of Welspun should have come up before the Board of Tata Sons even prior to Tata Power taking a decision, in view of Article 121A(h). Since Tata Power had already signed the papers for the acquisition of Welspun on 12.06.2016 itself, CPM really made the Directors of Tata Sons as fait accompli. Therefore, it was the action of CPM that was prejudicial to the interests of Tata Sons and not the other way around. (iii) None of the Articles have ever been opposed either by the complainant companies or by CPM at any point of time in the past. And Article 75 has been in place even before the complainant companies acquired shares. Allegation of Breach of fiduciary duties by the Directors (i) In support of their allegation that there was breach of fiduciary duties by the Trust nominee Directors and to prove that the Directors of the Company were guilty of dereliction of duties in the teeth of Sections 149 and 166 of the Companies Act, 2013 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... move Executive Chairman; no selection committee recommendation is required before removing him as Executive Chairman. b) Removal of Mr. Cyrus Mistry from the position of Director is because he admittedly sent the company information to Income Tax Authorities; leaked the company information to Media and openly come out against the Board and the Trusts, which hardly augurs well for smooth functioning of the company, and we have not found any merit to believe that his removal as director falls within the ambit of section 241 of Companies Act 2013. c) We have not found any merit to hold that proportional representation on Board proportionate to the shareholding of the petitioners is possible so long as Articles do not have such mandate as envisaged under section 163 of Companies Act, 2013. d) We have not found any merit in purported legacy issues, such as Siva issue, TTSL issue, Nano car issue, Corus issue, Mr. Mehli issue and Air Asia issue to state that those issues fall within the ambit of section 247 and 242 of Companies Act 2013. e) We also have not found any merit to say that the company filing application under section 14 of Companies Act 2013 asking this Tribunal to make it fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs 101 and 102 of the impugned order) (ii) In the general meeting of the shareholders of ‘Tata Sons Limited’ or the Board of Directors, the majority decision is fully dependent upon the affirmative votes of nominated Directors of ‘Tata Trusts’. The affirmative vote of the Directors nominated by ‘Tata Trusts’ has an overriding effect and renders the majority decision subservient to it. (paragraph 115 of the impugned order) (iii) The Tribunal/Appellate Tribunal has no jurisdiction to hold any of the Articles as illegal or arbitrary, the terms and conditions being agreed upon by the shareholders. However, if any action is taken even in accordance with law which is ‘prejudicial’ or ‘oppressive’ to any member or members or ‘prejudicial’ to the Company or ‘prejudicial’ to the public interest, the Tribunal can notice whether the facts would justify the winding up of the Company and in such case, if the Tribunal holds that it would unfairly prejudice member or members or public interest or interest of the Company, it may pass appropriate orders in terms of Section 242. (paragraph 119 of the impugned order) (iv) The email correspondence dated 18.07.2013, 28.02.2014, 11.03.2015, 28.05.2015, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in the ‘Press Statement’ dated 10th November, 2016 appears to be an afterthought as the aforesaid matter was not discussed in any of the meetings of the Board of Directors. The allegations in the ‘Press Statement’ as not supported by record cannot be accepted. (paragraph 139 of the impugned order) (xii) Correspondence between CPM, RNT, Mr. Nitin Nohria and Mr. N.A. Soonawala show that all the time CPM had been pointing out that some of the ‘Tata Companies’ were suffering losses and if appropriate steps were not taken, it may aggravate in future. In spite of such communications no decision for the revival or restructuring of Tata Companies was taken. (paragraph 140 of the impugned order) (xiii) If there was a failure and loss caused to one or other Tata Company which also affected the ‘Tata Sons Limited’, the ‘Tata Trusts’ or the Board of Directors could not be absolved of its responsibility, particularly when the nominee Directors of the Tata Trusts who have affirmative vote to reverse the majority decision. (paragraph 141 of the impugned order) (xiv) If all major decisions are taken in advance by the ‘Tata Trusts’ and for taking every decision, matters are to be placed before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Even before decision of ‘Tata Trusts’, RNT in presence of Mr. Nitin Nohria called CPM and asked him to resign. (paragraph 152 of the impugned order) (xxi) In view of what transpired, it is not open to the Respondents to state or allege that loss in different ‘Tata Companies’ was due to mismanagement of CPM. If that be so, why the nominated Directors who have 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 amply demonstrates that impairment of confidence with reference to conduct of affairs of company was not attributable to probity qua CPM but to unfair abuse of powers on the part of other Respondents. (paragraph 155 of the impugned order) (xxii) Even in the absence of a right of minority members (‘Shapoorji Pallonji Group’), because of the healthy atmosphere and clear understanding between two groups i.e. ‘Tata Group’ and ‘Shapoorji Pallonji Group’ for the last 40 years, except for few years in between thereof, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 14(2) and 14(3), for converting the company as a private company. (paras 173 to 175). The General Circular No.15 of 2013 dated 13.09.2013 and Notification dated 12.09.2013 issued by the central Government cannot override Section 14 of the Act (para 177) and hence the action taken by Tata Sons hurriedly to get the word “public” struck off in the certificate of incorporation, after the order of NCLT is absolutely illegal. (xxvii) The aforesaid action on the part of the company and 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 the filing 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 (‘Tata Sons Limited’) (paragraph 181 of the impugned order) (xxviii) The affirmative voting power of the nominated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 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 parties 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 mistrust between the two groups, already developed and has caused global effect as admitted in the ‘Press Statement’ of the Company. (paragraph 185 of the impugned order) 8. Important difference between the approach of NCLT and the approach of NCLAT 8.1 As pointed out at the beginning of chapter 7, NCLT dealt with every one of the allegations of oppression and mismanagement and recorded reasoned findings. But NCLAT, despite being a final court of facts, did not deal with the allegations one by one nor did the NCLAT render any opinion on the correctness or otherwise of the findings recorded by NCLT. Instead, the NCLAT summarised in one paragraph, namely paragraph 183, its conclusion on some of the allegations, without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Act, 2013, this court will not normally interfere with a finding of fact reached by NCLAT, unless it is found to be wholly perverse. 9. Contentions on behalf of Tata Sons, group companies and Trustees 9.1 Assailing the judgment of NCLAT, Shri Harish Salve and Dr. Abhishek Manu Singhvi, learned Senior counsel for Tata Sons contended as follows: (i) The entire focus of NCLAT was only on the justification for the removal of CPM from the post of Executive Chairman of Tata Sons, despite the fact that the positive case of the complainant companies as well as CPM was that they were not seeking the reinstatement of CPM; (ii) In focusing entirely upon the removal of CPM from Executive Chairmanship of Tata Sons, NCLAT lost track of the law that such a removal cannot be termed as oppression or mismanagement; (iii) NCLAT went completely overboard by directing the reinstatement of CPM as the Executive Chairman of Tata Sons and also annulling the appointment of the new Chairman N. Chandrasekaran; (iv) NCLAT went completely out of the way in directing thereinstatement of CPM as a Director of even the operating companies, the management of affairs of which, were not even the subject matter. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing down Article 75 of the Articles of Association, though the said Article was not found to be illegal; (x) Curiously NCLAT did not find any actual misuse of the Articles of Association, which envisaged a crucial role for the nominee Directors of the two Trusts. CPM himself had proposed a Governance framework which recognised preconsultation with the Trusts. Therefore, the findings of NCLAT as though the preconsultation as well as the affirmative voting right conferred upon the Directors nominated by the Trust, undermined the role of the Board of Directors of Tata Sons, are completely perverse; (xi) The direction issued by NCLAT to the majority (Tata Group) toconsult the S.P. Group, for all future appointments of Executive Chairman or Director, is wholly unsustainable in law. This direction tantamount to striking down Articles 104B and 118, even though the challenge to these Articles had already been given up. 10. Contentions on behalf of S.P. Group: 10.1 Shri C. Aryama Sundaram, learned Senior counsel, appearing on behalf of the S.P. Group raised the following contentions, both in defense of that portion of the judgment of NCLAT which had gone in their favour and also for attac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of Tata Sons to raise funds, thereby increasing borrowing costs. Due to this conversion, Tata Sons became obliged to refund money to insurance companies which held substantial investments in the instruments issued by the company. Therefore the conversion of the company into a private company lacked probity and prejudiced the proprietary rights of minority shareholders; (v) The removal of CPM was contrary to the provisions of Article 118, which required the setting up of a Selection Committee both for appointment as well as removal. In fact Article 121B contemplates a 15 days’ notice, but the same was also not complied. Therefore, the removal of CPM, carried out without there being any agenda for the same and without there being any deliberation or discussion, was wholly illegal. The manner in which three Directors were inducted into the Board without being vetted by the Nomination and Remuneration Committee and the manner in which the resolution for removal was passed would show that it was preplanned. It was quite strange that CPM’s performance came to be appreciated by the Nomination and Remuneration Committee in June2016 and this Committee had two members, who later became ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the provisions of the Companies Act, 2013 including Section 163 (proportionate representation) and subSections (1), (5), (7) and (8) of Section 242 of the Act. 10.3 Mr. Janak Dwarakadas, learned counsel appearing on behalf of CPM, the original composer of this musical ensemble, raised the following contentions: (i) Lack of financial probity is not the only ground on which the ‘just and equitable’ clause for winding up can be invoked. Infraction of a legal and/or proprietary right is also a ground for invoking it. (ii) Proprietary right includes the right to be governed in accordance with the Articles of Association and the provisions of the Act. Independence and autonomy of Board is guaranteed by law. Interference by majority shareholders that encroaches upon the Board’s autonomy and independence, is an infraction upon the proprietary rights of minority shareholders. (iii) Art. 104B, 121 and 121A have been misinterpreted, misconstrued and misapplied to mean that majority shareholders have a right to seek preconsultation or preclearance before matters can be placed before the Board of Tata Sons or Tata Operating Companies. The right to nominate 1/3rd directors by Tata Trusts (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of corporate democracy by taking away basic rights of shareholders (ix) By directing that all future appointments to directorial positions in Tata Sons can be made only through mutual “consultation” with the SP Group and that only a person “on whom both the groups have trust” can be appointed, NCLAT has undermined the role of majority. This could create a stalemate and an impasse by giving minority shareholders a veto power. (x) This direction also renders mute, the right of the Tata Trusts to nominate directors under Art.104B even though its validity was not under challenge before NCLAT. (xi) Impugned judgment’s interpretation of affirmative voting rights u/ Art 121 is conceptually and legally wrong. (xii) NCLAT took the affirmative right to mean unilateral power to implement decisions (referencing para 155 of the judgment). 12. Contentions of Tata Consultancy Services (TCS) Attacking one portion of the judgment of NCLAT which issued a direction to TCS to reinstate CPM as a Director, Ms. Fereshte D. Sethna, learned counsel appearing for TCS argued as follows: (i) NCLAT lacked jurisdiction to direct CPM’s reinstatement, as TCS was not party to the original proceedings or appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during CPM’s tenure as Director. He has not attended a single meeting of the Board of Directors of Tata Sons since his retirement. He was requested to act as advisor to Tata Sons which received unanimous approval of the Board in 2010. CPM would therefore, approach him from time to time for advice on financial matters of Tata Sons. Soonawala has, on his own initiative, sent only two notes to CPM and RNT which were purely advisory in nature and cannot be construed as being “directions” or “instructions” from him. The Note dated 04.12.2015 was an analysis of Tata Sons’ past financial results pointing out areas of concern and the Memo dated 09.07.2015 concerned Tata Tele Services Limited, an unlisted company having financial problems. Therefore, he argued that NCLAT was wrong in attributing to him, interference with the affairs of Tata Sons. 14. Questions of law arising for consideration 14.1 Though the learned counsel for the parties have raised innumerable contentions touching upon every aspect, micro or macro, and which we have faithfully recorded in paragraphs 9 to 13 above, the jurisdiction of this Court under Section 423 of the Companies Act, 2013, is primarily to answer questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to haunt us (fortunately or unfortunately), both in legislative drafting and in judicial decision making even till date. In England 15.2 The history of legislative action to regulate incorporated companies, in England, is just 176 years old. It begins with the Joint Stock Companies Act, 1844. Until then, the government created corporations under a Royal Charter or an Act of Parliament with the grant of a monopoly over a specified territory. The best known example is the British East India Company, to which Queen Elizabeth I granted the exclusive right to trade with all countries to the east of the Cape of Good Hope. During this period, Corporations essentially used to act on the government's behalf, bringing in revenue from their exploits abroad. 15.3 A chartered company (similar to East India Company), known as the South Sea Company, was established in 1711 to trade in the Spanish South American colonies. The South Sea Company's monopoly rights were supposedly backed by the Treaty of Utrecht, signed in 1713 as a settlement following the War of Spanish Succession. Investors in the UK were promised high returns of unimaginable proportions, which led to the shares of the company bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fraudulent practices in relation to the formation and management of companies came to the fore, an investigation was ordered by a Committee chaired by Lord Davey. The Committee submitted a report along with a draft Bill in June, 1895. This Bill became the Companies Act, 1900. This Act also did not contain any provision relating to oppression and mismanagement. So was the case with the Companies (Consolidation) Act, 1908. The Act of 1908 was examined by a committee presided over by Lord Wrenbury in 1918 and again by a committee headed by Greene, K.G. in 1926, which led to the Companies Act, 1929. 15.9 During the second world war, a Company Law Reforms Committee chaired by Lord Cohen was appointed (in 1943) by the President of the Board of Trade to consider and report what major amendments are needed to the 1929 Act, particularly “to review the requirements prescribed in regard to the formation and affairs of companies and the safeguards afforded for investors and for the public interest”. This Committee’s report dealt specifically with 2 problems, namely (i) the hardship caused to the legal heirs of a deceased shareholder of a private company in the matter of disposal of the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he only remedy open to the minority shareholder is to commence an action to restrain the company from paying the remuneration on the ground that such payment is a fraud on the minority, since the Court would not make a windingup, order in view of the alternative remedy. 60. Oppression of minorities.We have carefully examinedsuggestions intended to strengthen the minority shareholders of a private company in resisting oppression by the majority. The difficulties to which we have referred in the two preceding paragraphs are, in fact, only illustrations of a general problem. It is impossible to frame a recommendation to cover every case. We consider that a step in the right direction would be to enlarge the power of the Court to make a windingup order by providing that the power shall be exercisable notwithstanding the existence of an alternative remedy. In many cases, however, the windingup of the company will not benefit the minority shareholders, since the breakup value of the assets may be small, or the only available purchaser may be that very majority whose-oppression has driven the minority to seek redress. We, therefore, suggest that the Court should have, in addition, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers of the company or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company's capital, or otherwise. (3) Where an order under this section makes any alteration in or addition to any company's memorandum or articles, then, notwithstanding anything in any other provision of this Act but subject to the provisions of the order, the company concerned shall not have power without the leave of the court to make any further alteration in or addition to the memorandum or articles inconsistent with the provisions of the order; but, subject to the foregoing provisions of this subsection, the alterations or additions made by the order shall be of the same effect as if duly made by resolution of the company and the provisions of this Act shall apply to the memorandum or articles as so altered or added to accordingly. (4) An office copy of any order under this section altering or-adding to, or giving leave to alter or add to, a company's memorandum or articles shall, within fourteen days after the making thereof, be delivered by the company to the registrar of companies for registration; and if a company makes default in complying with this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any company- (a) the Secretary of State has received a report under section437, or exercised his powers under section 447 or 448 of this Act or section 44(2) to (6) of the [1982 c. 50.] Insurance Companies Act 1982 (inspection of company's books and papers), and (b) it appears to him that the company's affairs are being orhave been conducted in a manner which is unfairly prejudicial to the interests of some part of the members, or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial. he may himself (in addition to or instead of presenting a petition under section 440 for the winding up of the company) apply to the court by petition for an order under this Part. (2) In this section (and, so far as applicable for its purposes, in the section next following) "company" means any body corporate which is liable to be wound up under this Act. 461 Provisions as to petitions and orders under this Part (1) If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of. (2) Without prejudice to the genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he heading “Protection of Members against Unfair Prejudice”. Paragraph 1265 of the Explanatory Notes to the 2006 Act, confirms that Sections 994998 restate sections 459, 460 and 461 of the 1985 Act. 15.15 Sections 994 to 996 of the Companies Act, 2006 read as follows: “994 Petition by company member (1) A member of a company may apply to the court by petition for an order under this Part on the ground- (a) that the company’s affairs are being or have beenconducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or (b) that an actual or proposed act or omission of thecompany (including an act or omission on its behalf) is or would be so prejudicial. (2) The provisions of this Part apply to a person who is nota member of a company but to whom shares in the company have been transferred or transmitted by operation of law as they apply to a member of a company. (3) In this section, and so far as applicable for the purposesof this section in the other provisions of this Part, “company” means- (a) a company within the meaning of this Act, or (b) a company that is not such a company but is a stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make any, or any specified,alterations in its articles without the leave of the court; (e) provide for the purchase of the shares of any membersof the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company’s capital accordingly. Legislative history in India 15.16 In India, the earliest legislation made for the ‘Regulation of Registered Joint Stock Companies’ was Act No. XLIII of 1850. This Act provided for the registration of every unincorporated company of partners, associated under a deed containing a provision that the shares in the stock or business of the said company, are transferable without the consent of all the partners. It will be fascinating for those interested in history, to know that under this 1850 Act, the Supreme Courts of Judicature at Calcutta, Madras and Bombay were conferred not only with the power of registration of such companies but also with a power to enforce the performance by the directors of any of their duties under the Act or the deed of partnership. These courts also had a consequential power to punish a person for contempt, if there was any disobedience of the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner or oppresses any part of its members .(1) Without prejudice to any other action that may be taken, whether in pursuance of this Act or any other law for the time being in force, any member of a company who complains that the affairs of the company are being conducted (a) In a manner prejudicial to the interest of the company, or (b) In a manner oppressive to some part of the members (including himself) may make an application to the court for an order under the section. (2) An application under subsection (I) may also be made by the Central Government if it is satisfied that the affairs of the company are being conducted as aforesaid. (3) No application under subsection (I) shall be made by any member, unless (a) In the case of a company having a share capital, the member complaining (i) has obtained the consent in writing of not less than one hundred in number of the members of the company or not less than onetenth in number of the members, whichever is less or (ii) holds not less than onetenth of the issued share capital of the company upon which all calls and other sums due have been paid; and (b) In the case of a company not having a share capital the member compla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company within three months before the date of the application under subsection (I), which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference. (6) Where an order under this section makes any alteration in, or addition to, the memorandum or articles of any company, then notwithstanding anything contained in any other provision of this Act, but subject to the provisions of the order, the company concerned shall not have power without the leave of the court to make any further alteration in, or addition to, the memorandum or articles inconsistent with the provisions of the order, but subject to the foregoing provisions of this subsection the alterations or additions made by the order shall have the same effect as is duly made by a resolution of the company, and the provisions of this Act shall apply to the memorandum or articles as so altered or added to accordingly. (7) A certified copy of every order under this section altering or adding to, or giving leave to alter or add to, the memorandum or articles of any company shall, within fifteen days after the making thereof, be delivered by the company to the registrar for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which would justify the making of a windingup order on the ground that it would be just and equitable that the company should be wound up: Provided that the court is satisfied that by reason of the change the interests of the company or any part of its members are or are likely to be unfairly and materially prejudiced” 15.21 After the country attained independence, a Company Law Committee was appointed by the Government of India for the revision of the Companies Act with particular reference to Indian trade and industry. The Committee submitted its report in March1952. After circulating the Report to all State Governments, Chambers of Commerce, Trade Associations and other bodies and after examining the inputs received, the Companies Act, 1956 (Act no.1 of 1956) was passed. This Act included a full Chapter in Chapter VI of Part VI, containing elaborate provisions for the prevention of oppression and mismanagement. This Chapter was divided into two parts, with Part A dealing with the powers of the Court/Tribunal and Part B dealing with the powers of the Central Government. Sections 397, 398 and 402 of the Act are of significance and, hence, they are extracted as follows: “397. Appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined of or apprehended, make such order as it thinks fit. 402 Powers of Court on application under section 397 or 398. Without prejudice to the generality of the powers of the Court under section 397 or 398, any order under either section may provide for (a) the regulation of the conduct of the company's affairs in future; (b) the purchase of the shares or interests of any members of the company by other members thereof or by the company; (c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital; (d) the termination, setting aside or modification of any agreement, howsoever arrived at, between the company on the one hand, and any of the following persons, on the other, namely: (i) the managing director, (ii) any other director, (iii) the managing agent, (iv) the secretaries and treasurers, and (v) the manager. upon such terms and conditions as may, in the opinion of the Court, be just and equitable in all the circumstances of the case. (e) the termination, setting aside or modification of any agreement between the company and any person not referred to in clause (d), provided that no such agreement shall be terminat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essive to him or any other member or members or in a manner prejudicial to the interests of the company; or (b) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company‘s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company may be appointed subsequent to an order removing the existing managing director or manager of the company made under clause (h); (k) appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal on such matters as the Tribunal may direct; (l) imposition of costs as may be deemed fit by the Tribunal; (m) any 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 subsection (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 Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of language and the consequential change of parameters for an inquiry relating to oppression and mismanagement from 1951 to 1956 and from 1956 to 2013 and thereafter can be best understood, if the anatomy of the statutory provisions are dissected and presented in a table : 1913 Act (After the Amendment Act 52 of 1951) 1956 Act (with the amendment made under Act 53 of 1963) 2013 Act (1) Company’s affairs are being conducted in a manner – (a) Prejudicial to the company’ interest; or (b) Oppressive to some part of the members; and (2) Winding up will unfairly and materially prejudice the interests of the company’s or any part of its members (3) The object should be to bring to an end, the matters complained of. (1) Company’s affairs are being conducted in a manner- (a) Prejudicial to public interest; or (b) Oppressive to any member or members; or (c) Prejudicial to the interests of the company; and (2) Winding up will unfairly prejudice such member or members. (1) Company’s affairs have been or are being conducted in a manner– (a) Prejudicial to any member or members; (b) Prejudicial to public interest; or (c) Prejudicial to the interests of the company; or (d) Oppressive to any mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the members, though winding up on just and equitable ground may be justified. (iii) the order of the Court should be passed with a view to bringing to an end the matters complained of. (i) the company’s affairs are being or have been conducted in a manner unfairly prejudicial to the interests of some part of its members or: (ii) that any actual or proposed act would be so prejudicial then the Court may pass such order as it thinks fit for giving relief in respect of the matters complained of. (i) the company’s affairs are being or have been conducted in a manner unfairly prejudicial to the interests of the members generally or of some part of its members and: (ii) that any actual or proposed act would be so prejudicial then the Court may pass such order as it thinks fit for giving relief in respect of the matters complained of. 15.29 There are a few notable features of the shift that happened in England. They are (i) from a “conduct oppressive to some part of the members” the focus has shifted to “conduct unfairly prejudicial to the interests of the members generally or of some part of its members”: (ii) conduct prejudicial to public interest or prejudicial to the company’s inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company or (d) Oppressive to any member or members and (2) that though the facts would justify the making of a winding up order on the basis of just and equitable clause, such a winding up would unfairly prejudice such member or members. 16.3 Keeping in mind the above statutory prescription, if we go back to the pleadings, it will be seen that the complainant companies forming part of the S.P. Group pitched their claim in their original petition on the ground: (i) that the affairs of Tata Sons are being carried as though it was the proprietary concern of RNT; and (ii) that though the oppressive conduct of the respondents was such that it would be just and equitable to wind up Tata Sons under Section 241, but such winding up would unfairly prejudice the interests of the complainants. 16.4 The specific allegations on which the complainant companies (of the S.P. Group) sought relief are as follows: (i) The abuse of a few Articles of Association and the control exercised by the Tata Trust and its nominee Directors over the Board of Directors of Tata Sons; (ii) The removal of CPM as Executive Chairman; (iii) Transactions with Mr. C. Sivasankaran of Sterling Infotech and the transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, this did not prove any special relationship with RNT.(Para 221, 230, 233,234) 4. Acquisition price of TTSL by both Siva and Temasek had unanimous approval of the shareholders. (Para 230) 5. Transaction was not done not behind the back of CPM and connected parties. (Para 230) 6. The reason for the difference in the acquisition prices between Temasek (₹ 26/ share) and Siva Group (₹ 17/share) was owing to more shareholding rights with Temasek. (Para 230) 7. CPM made more profits from the acquisition of shares of TTSL than Siva Group. (the latter had sold its shares to NTT-Docomo in 2008). Complainant companies also acquired shares of Tata Teleservices Ltd. at ₹ 15/ per share. (Para 230) 8. NTT-DoCoMo also acquired shares from brother and father of CPM. CPM was also a beneficiary like Siva but this was not disclosed by the complainant companies. The rate at which the petitioners acquired the shares of TTSL is less than the rate at which Siva acquired them and the gain made by the petitioners by selling shares of NTT DoCoMo was more than the gain made by the Siva Group. (Para 230) 9. The acquisition happened in 2006 and it is sought to raise after 10 years, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irming party to the sale deed. 3. Sale of Bakhtawar Apartment at Colaba to MPCPL (which belongs to Forbes Gokak Ltd.) The contract for dredging at Trombay was awarded in 1993 and renewed for various tenures (5 times) from 2002 – 2014. CPM held directorship of Tata Power from 1996-2006 & 2011- 2016, but never raised any objection. (Para 258) 2004 barging cum dredging contract – with regard to the award of contract by Tata Power to MPCL, there is nothing on material to prove that this caused loss to TPC. (Para 259) 2006 Shipping Contract awarded by Tata Power to a consortium (comprising of MPSPL and Mercator Lines Ltd.) – Letter written by Mr. Mehli to Tata Power dated 04.05.2013 pertained to issue of coal storage, which does not prove any expropriation or bullying by him. Since, the company of Mr. Mehli was the contractor, he only wrote to Tata Power to ensure proper coordination and joint decision making to sustain a smooth supply chain to Trombay Power house. (Para 263) This (Alibaug) was a regular transfer that took place in 1993. Previously, Aqua Farms had made payments to the original landowner for purchase, but the sale deed did not fructify. Aqua Farms was made a confirming p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isits of RNT to the Jayem Auto factory and about the enquiries sought apropos to the projects, no personal benefit to RNT or harm to Tata Motors has been proved. (Para 281-282) No evidence of the UPSI causing prejudice to the interest of Tata Motors has been placed by CPM, upon whom the burden of proof was. (Para 284) Seeking information does not amount to conducting affairs of the company. (Para 285) The correspondences of RNT to CPM regarding the supply of cars to Ola/ Uber, were done to try to get into business with either of the two. (Para 290-293) No specific finding Wellspun Acquisition by Tata Power Since the acquisition of Welspun was not put up to the Board of Tata Sons for prior approval and it came up only after Tata Power had signed the papers for acquisition, making Tata Sons a fait accompli, the nominee directors had to indulge in consultations and the same did not tantamount to interference by the Trusts. (Para 384, 385, 543) No specific finding. The oppressive nature of Articles 104B, 121, 121A and 75 CPM’s father was a director at the time when amendments were made to the Articles of Association on 13/09/2000. (Para 371) Article 118 was amended on 06/12/2012 when C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a scrutiny and reversed the findings of NCLT. Therefore, for answering the first question of law, we need to focus mainly on these issues on which NCLAT expressly overruled NCLT. 16.10 Out of these 4 specific issues on which NCLAT overruled NCLT, 3 issues will also be covered in our discussion on questions of law 4 and 5.. Therefore, we shall take up in this chapter, the question (i) whether the removal of CPM could have been the basis for the allegation that the company’s affairs have been or are being conducted in a manner oppressive or prejudicial to the interests of some of the members and (ii) whether the findings recorded by NCLAT about the existence of just and equitable clause is in accordance with the well established principles of law. Removal of CPM 16.11 CPM was first removed only from the post of Executive Chairman of Tata Sons, but not from the Directorship, by the resolution of the Board dated 24.10.2016. This acted as the trigger point for CPM, to launch an offensive. On the very next day namely 25.10.2016, CPM wrote a mail alleging total lack of corporate governance and failure on the part of the directors to discharge their fiduciary duties. He also called all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) that the conduct of the Trustees posed several regulatory risks; and (iv) that the office of RNT, in his capacity as Chairman Emeritus was funded by Tata Sons, including the cost of his overseas travel by private jet. To this letter to the Deputy Commissioner of Income Tax was enclosed certain files purportedly containing the information sought. 16.15 Upon coming to know of CPM’s letter to the Deputy Commissioner of Income Tax, Tata Sons lodged a protest through a letter dated 26.12.2016. It was followed by a legal notice issued by Tata Sons to CPM on 27.12.2016 pointing out that he was guilty of breach of confidentiality and that he had passed on confidential and sensitive information contained in 4 box files, without any authority. CPM sent a legal reply dated 05.01.2017 claiming that he had a statutory obligation to cooperate with Income Tax authorities. As if to display his courage of conviction, CPM sent another letter dated 12.01.2017 to the Deputy Commissioner of Income Tax sending one more file and assuring the authorities that he would continue to check the records and submit any additional data/information as and when available. 16.16 In the light of whatever transpired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the complainant companies on the Board of Tata Sons; and (ii) amendment of the Articles of Association to provide for proportional representation. 16.20. However, eventually the prayers made in clauses (A), (B) and (C) were not pressed. Prayers in clauses (F), (Q) & (R) were also not pressed on the ground that they had become infructuous. In Paragraph 3.4 above we have extracted the reliefs as originally sought in the main company petition and in the table in Paragraph 4.11 we have indicated the prayers additionally made and the reliefs either given up or sought to be modified. 16.21 In fact the real reason why the complainant companies thought fit, quite tactfully, not to press for the reinstatement of CPM is that the mere termination of Directorship cannot be projected as something that would trigger the just and equitable clause for winding up or to grant relief under Sections 241 and 242. A useful reference can be made in this regard to the decision of this Court in Hanuman Prasad Bagri & Ors. vs. Bagress Cereals Pvt. Ltd. (2001) 4 SCC 420 16.22 It must be remembered : (i) that a provision for inclusion of a representative of small shareholders in the Board of Directors, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l even from the Directorship of Tata Sons and other group companies. A person who tries to set his own house on fire for not getting what he perceives as legitimately due to him, does not deserve to continue as part of any decision making body (not just the Board of a company). It is perhaps this realisation that made the complainant companies give up their original prayer for restraining the company from removing CPM and singing a different tune seeking proportionate representation on the Board. 16.26 For assailing the decision to remove CPM from the Chairmanship of Tata Sons, it is contended (i) that Tata Group performed exceedingly well under his stewardship; (ii) that the Nomination and Remuneration Committee for the Financial Year 201516 endorsed his performance and even recommended a pay hike and performance linked bonus; and (iii) that the Board unanimously approved these recommendations on 29.6.2016 just four months before his unceremonious removal. 16.27 First of all, the above contention is in direct conflict with the entire foundation on which the whole case of the complainant companies was erected. If CPM and the members of the Nomination and Remuneration Committee as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utorily recognised or regulated, though the post of a Director is. At the cost of repetition it should be pointed out that CPM was removed only from the post of (or designation as) Executive Chairman and not from the post of Director till the Company Petition was filed. But CPM himself invited trouble, by declaring an all out war, which led to his removal from Directorship. 16.32 It is true that as per the evidence available on record he was requested before the Board meeting, to step down from the post of Executive Chairman. That does not tantamount to the act being premeditated. The induction of new members on 8.8.2016 into the Board and the Board securing a legal opinion prior to the Board meeting, cannot make the act a premeditated one. There is a thin line of demarcation between a wellconceived plan and a premeditated one and the line can many times be blurred. 16.33 Article 118 around which arguments were advanced reads as follows: “118. APPOINTMENT OF CHAIRMAN For the purpose of selecting a new Chairman of the Board of Directors and so long as the Tata Trusts own and hold in the aggregate at least 40% of the paid up Ordinary Share Capital of the Company for the time being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or, Joint/Deputy Managing Director or Whole Time Director. The provision relating to Executive Chairman is not to be found in Article 105(a) but in Article 105(b) which reads as follows: “The Board shall have the power to designate the Chairman of the Board as the Executive Chairman and pay him such remuneration as, in their opinion, they deem fit”. Therefore, the argument on the basis of Article 105(a) is illfounded. 16.37 The contention that the removal was in violation of the second proviso to Section 179(1) read with Article 122(b) is also illconceived. The second proviso to Section 179(1) prohibits the Board from exercising any power that could be exercised by the company only in a General Meeting. Article 122(a) is only a reiteration of the principle behind the second proviso to Section 179(1). Article 122(b) says that the Board may exercise all such powers as are not required to be exercised by the company in General Meeting. The designation of a person as Executive Chairman, is not one of the functions to be performed in a general meeting, either under the Act or under the Articles of association. 16.38 It is also contended that no advance notice of his removal was given t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em “any other item”, will not also go to the rescue of the complainant companies, since the matter in M.I. Builders concerned the permission granted by the Municipal Corporation to a builder to construct an underground shopping complex in a park. The Court found the decision taken by the Mahapalika to be in clear breach of Sections 91 and 119 of the U.P. Municipal Corporation Act, 1959. Therefore, the said decision has no application. 16.42 In any event the removal of a person from the post of Executive Chairman cannot be termed as oppressive or prejudicial. The original cause of action for the complainant companies to approach NCLT was the removal of CPM from the post of Executive Chairman. Though the complainant companies padded up their actual grievance with various historical facts to make a deceptive appearance, the causa proxima for the complaint was the removal of CPM from the office of Executive Chairman. His removal from Directorship happened subsequent to the filing of the original complaint and that too for valid and justifiable reasons and hence NCLAT could not have laboured so much on the removal of CPM, for granting relief under Sections 241 and 242. Invocation of jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors who was voted out of office by the other two Directors (fatherson duo) petitioned for an order under Section 210 of the English Companies Act, 1948. The very relief sought by the ousted director was for a direction to the other two persons to purchase his shares in the Company or to sell their shares to him on such terms as the Court should think fit. Alternatively, he prayed for winding up. The Court of the first instance held that a case for winding up had been made out, as the majority was guilty of abuse of power and a breach of good faith which the partners owed to each other not to exclude one of them from all participation in the business. The court of Appeal reversed it by applying the tests of (i) bonafide exercise of power in the interest of the company; and (ii) whether a reasonable man could think that the removal was in the interest of the Company. While reversing the decision of the Court of Appeal, the House of Lords held, that “the formula ‘bonafide interest of the company’ should not become little more than an alibi for a refusal to consider the merits of the case.” Holding that, “equity always does enable the Court to subject the exercise of legal rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round for just and equitable winding up In Re Sailing Ship Kentmere Co. [1897] WN 58. The second of these is where a company is a corporate quasi partnership and an irretrievable breakdown in trust and confidence between the participating members has taken place. In the first type of these cases, where there is a complete functional dead lock, winding up may be ordered regardless whether the company is a quasi partnership or not. But in the second type of cases, a breakdown of trust and confidence is enough even if there is not a complete functional dead lock. 16.50 Therefore, for invoking the just and equitable standard, the underlying principle is that the Court should be satisfied either that the partners cannot carry on together or that one of them cannot certainly carry on with the other, The advantage that the English courts have is that irretrievable breakdown of relationship is recognised as a ground for separation both in a matrimonial relationship and in commercial relationship, while it is not so in India. 16.51 In the case in hand there was never and there could never have been a relationship in the nature of quasi partnership between the Tata Group and S.P. Group. S.P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 242. 17.2 As we have indicated in Para 3.4 above, the complainant companies originally sought a set of 21 reliefs listed in para 153 (A) to (U). Subsequently, the complainant companies sought the addition of two more prayers, through an application for amendment filed on 10.2.2017. The additional reliefs sought to be included were for: (i) reinstatement of a representative of the complainant companies on the Board of Tata Sons and (ii) Amendment of the Articles of Association so as to provide for proportional representation on the Board. 17.3 Thereafter the complainant companies sought a few more prayers through an application for amendment dated 31.10.2017. However, by a Memo dated 12.01.2018 the complainant companies gave up certain prayers, sought a modification of some other prayers and recorded that they were not pressing certain reliefs. At the cost of repetition, we have to present in a tabular form, the reliefs originally sought and the metamorphosis that they underwent through applications for amendment or Memo. It is as follows: Reliefs as originally sought in the main Company Petition Reliefs that are added, given up or restricted through Additional affidavit dated 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent No. 1 or of which Respondent No. 1 is the promoter on the other hand, to determine and crystallize the breach of trust, violation of fiduciary duties and failure to discharge the duty of care, and fix accountability therefor; and (ii) all transactions involving Mr. Mehli Mistry and his associated entities with Respondent No. 1 and/or Tata Group companies whereby any unjust enrichment has been generated in favour of any these parties; and submit a report to this Hon’ble Tribunal such that this Hon’ble Tribunal can pass such further orders as may be necessary so as to recover from concerned persons the loss that has been caused inter alia to the Petitioners and such findings of the audit and investigation should be referred by the Hon’ble Tribunal to the Serious Fraud Investigation Office of the Ministry of Corporate Affairs, Government of India; (J) Appoint an inspector (under applicable law) to investigate into the breach of the SEBI (Prohibition of Insider Trading) Regulations, 2015, with particular regard to the breach by Respondent No. 2 and Respondent No. 14, of the obligation not to procure, demand or acquire unpublished price sensitive information and submit a report to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s discussed and decided upon by the Board of Directors of Respondent No. 1 without applying Article 121 of the Articles of Association; (P) restrain the trustees of the Trusts from interfering in the affairs of Respondent No. 1 and in the various companies that form part of the Tata Group; (Q) restrain the existing Selection Committee from acting any further and/or discharging any functions and a new Selection Committee be appointed. (R) direct that no candidate selected by the Selection Committee constituted pursuant to Article 118 of the Articles of Association of Respondent No. 1 to be appointed without leave of this Hon’ble Tribunal; (S) direct Respondent No. 1 not to demand and/or procure any unpublished price sensitive information from any listed operating companies within the Tata Group; (T) grant interim and adinterim reliefs in terms of Prayers (A) to (S) above; and (U) pass such further orders that this Hon’ble Tribunal may, in the interest of justice, deem necessary for bringing an end to the acts of oppression and mismanagement in the running of Respondent No. 1. Under Affidavit (31-10-2017) conversion of Tata Sons from being a Public Limited Company into a Private Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of Directors of Respondent No. 1 and Tata Group companies, and prohibit the Trustees from interfering in the affairs of Respondent No. 1 and Tata Group companies; (Relief clause H) (5) appoint an independent auditor to conduct a forensic audit and independent investigation into transactions and dealings of Respondent No. 1 with particular regard to: (i) Mr. C. Sivasankaran and his business entities; and (ii) Mr. Mehli Mistry and his associated entities; and submit a report to this Hon’ble Tribunal and investigation should be referred by the Hon’ble Tribunal to the Serious Fraud Investigation Office of the Ministry of Corporate Affairs, Government of India; (Relief clause I) (6) Appoint an inspector (under applicable law) to investigate into the breach of the SEBI (Prohibition of Insider Trading) Regulations, 2015. (Relief clause J) (7) direct Respondent No.2 to pay Respondent No. 1 the amount of unjust enrichment that has accrued to Respondent No. 2 on account of surrender of the subtenancy of the Bakhtawar flat; (Relief clause K) (8) appoint a forensic auditor to reinvestigate the transactions executed by Air Asia India with entities in India and Singapore; (Relief clause L) ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng question of law No.1, in the context of whether it was part of a scheme of oppressive and prejudicial conduct. Now we shall deal with the issue of reinstatement in the context of the contours of section 242(2) and the nature of the orders that could be passed. 17.8 As we have seen already, the original motive of the complainant companies, was to restrain Tata Sons from removing CPM as Director. Subsequently, there was a climb down and the complainant companies sought what they termed as “reinstatement” of a representative of the complainant companies. Thereafter, it was modulated into a cry for proportionate representation on the Board. 17.9 In this background it was repeatedly argued both before the NCLAT and before this Court that the objective of the litigation was not to have CPM reinstated, but only to set things right in the State of Denmark (of which CPM himself was the Premier for 4 years). But interestingly, NCLAT understood what the complainant companies and CPM actually wanted, though they attempted to camouflage their intentions with legal niceties. Therefore, despite there being no prayer for reinstatement of CPM either as a Director or as an Executive Chairman of T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case CPM’s tenure itself was to come to an end on 16.06.2017 but NCLAT passed the impugned order reinstating him “for the rest of the tenure”. In respect of other companies which had convened the EGM for considering the resolution for his removal, CPM submitted resignations. But now by virtue of the impugned order, CPM will have to be reinstated even on the Board of companies from which he has resigned. This is why even the complainant companies have found it extremely difficult to support the order. 17.13 As an aside, we should record here, the words of gratitude (if any) expressed by CPM himself in the meeting of the Board of Tata Sons on 18.12.2012, immediately after the resolution appointing him as Executive Chairman was carried through unanimously. This is what CPM said in the Board Meeting dated 18.12.2012: “Mr. Mistry responded by saying that – “the past one year has been a great learning experience under the direct guidance of Mr. Ratan Tata. The TATA Group is founded on strict values. We will face all the ups and down, whatever may lie in our path. We are ready to face all the challenges that will come our way. The Board recognises the stellar contribution of Mr. Ratan Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , where the power to make such an order is not specifically conferred but is found necessary to remove any doubts and give effect to an order for which the power is specifically conferred. For instance, subsection (2) of Section 242 confers the power to make an order directing several actions. The words by which subsection (1) of Section 242 ends, supra can be held to mean the power to make such orders to bring an end, matters for which directions are given under subsection (2) of Section 242. 17.19 The architecture of Sections 241 and 242 does not permit the Tribunal to read into the Sections, a power to make an order (for reinstatement) which is barred by law vide Section 14 of the Specific Relief Act, 1963 with or without the amendment in 2018. Tribunal cannot make an order enforcing a contract which is dependent on personal qualifications such as those mentioned in Section 149(6) of the Companies Act, 2013. Moreover, it has been held in the case of Vaish Degree College (supra) that the general rule is that a contract of personal services is not specifically enforceable unless a person who is removed from service is (a) a public servant who has been dismissed from service in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l not be inferred merely by use of general words. It is an application of the same principle that unless there be clearest provision to the contrary, Parliament is presumed not to legislate contrary to rule of law which enforces ‘minimum standard of fairness both substantive and procedural’. Thus a statutory power though conferred in wide terms has certain implied limitations; provisions excluding challenge to an order have no application when the order is a nullity and a provision excluding an appeal against an order of a criminal court does not bar an appeal against an order which the court had no power to make. For the same reason, unless the statute expressly or by necessary implication provides otherwise an administrative decision does not take effect before it is communicated to the person concerned.” 17.21 It is interesting to note that one of the grounds of challenge to the order of NCLAT, raised by SP group in their appeal C.A.No. 1802 of 2020 is that the Tribunal ought not to have granted the relief of reinstatement. In paragraph 4 of the Memorandum of Grounds of Civil Appeal C.A. No. 1802 of 2020, the complainant companies (SP group) have given a tabulation of the relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complainant companies sought to incorporate a prayer as Clause M2 for striking off/ deleting Article 75 on the ground that it is a tool in the hands of majority shareholders to oppress the minority. In the said application for amendment filed on 31.10.2017, the complainant companies sought to include five additional prayers, three of them as Clauses M1, M2 and M3, one of them as Clause F1 and the last as Clause G1. The prayer for striking off/deleting Article 75 was sought to be included in Clause M2 of Para 153 of the main petition. 17.25 But what happened thereafter is quite interesting. Through a Memo dated 12.1.2018, the complainant companies sought to “not press” the prayers in Clauses (A), (B), (C), (F), (Q) and (R). In addition they sought to restrict the prayer in Clause M, as we have indicated in the table above. There was no indication in the Memo filed on 12.1.2018 as to whether the prayers included as M1, M2 and M3 inserted under the application for Amendment dated 31.10.2017 are to be retained, despite their prayer for restricting the claim made in Clause M. 17.26 It is true that the rigors of CPC and the Evidence Act are not be applicable to Tribunals/Quasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act of 1948 used the very same words namely “the Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit”. Though the English Law made a paradigm shift from ‘oppressive conduct’ to ‘unfairly prejudicial conduct’ under the Companies Act, 1985, the object to be kept in mind by the Court while passing an order under Section 461 of the English Companies Act, 1985 continued to be almost similar. Section 461(1) enabled the Court to make “such order as it thinks fit for giving relief in respect of the matters complained of”. Section 996 of the English Companies Act, 2006 retained the very same wordings. 17.33 Therefore, despite the law relating to oppression and mismanagement undergoing several changes, the object that a Tribunal should keep in mind while passing an order in an application complaining of oppression and mismanagement, has remained the same for decades. This object is that the Tribunal, by its order, should bring to an end the matters complained of. 17.34 In other words the purpose of an order both under the English Law and under the Indian Law, irrespective of whether the regime is one of “oppressive conduct” or “ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Ordinary share under Article 69 hereof shall be deemed the holder of such share.” 18.3 At the outset it should be pointed out that the complainant companies did not make a grievance out of Article 75 on the ground that it had been misused in the past and that such misuse tantamount to conduct oppressive or prejudicial to the interests of some of the members. The sine qua non for invoking Section 241 is that the affairs of the Company should have been conducted or are being conducted in a manner oppressive or prejudicial to some of the members. No single instance even of invocation of Article 75, leave alone misuse, is averred in the main company petition or in the application for amendment. Therefore, NCLAT could not have and should not have made Article 75 completely ineffective by passing an order of restraint. 18.4 As a matter of fact, NCLAT has agreed, on first principles, that it has no jurisdiction to declare any of the Articles of Association illegal. After having set a benchmark correctly, NCLAT neutralised Article 75 merely on the basis of likelihood of misuse. Section 241(1)(a) provides for a remedy, only in respect of past and present conduct or past and present cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry rights of shareholders. But this is on the premise that the bringing up of amendment itself was a conduct that was oppressive or prejudicial. 18.9 It was contended that Article 75 was repugnant to Sections 235 and 236 of the Companies Act, 2013. We do not know how these provisions would apply. Section 235 deals with a scheme or contract involving transfer of shares in a Company called the transferor company, to another called the transferee company. Similarly, Section 236 deals with a case where an acquirer acquired or a person acting in concert with such acquirer becomes the registered holder of 90% of the equity share capital of the Company, by virtue of amalgamation, share exchange, conversion of securities etc. These provisions have no relevance to the case on hand. 18.10 Even the contention revolving around Section 58(2) is wholly unsustainable, as Section 58(2) deals with securities or other interests of any member of a Public Company. 18.11 Therefore, the order of NCLAT tinkering with the power available under Article 75 of the Articles of Association is wholly unsustainable. It is needless to point out that if the relief granted by NCLAT itself is contrary to law, the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall 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 Directos. 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. 121. Matters How Decided. Matters before any meeting of the Board which are required to be decided by a majority of the directors shall require *the affirmative vote of a majority of the Directors appointed pursuant to Article 104B present at the meeting and in the case of an equality of vote’s the Chairman shall have a casting vote.” **121A. The following matters shall be resolved upon by the Board of Directors: (a) a fiveyear strategic plan that should include an assessment of the proposed strategic path of the Company, business and investment opportunities, proposed business and investment initiatives and a comparative analysis of similarly situated holding companies, and any alterations to such strategic Plan. (b) an annual business plan structured to form part of the strategic plan, that should include pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited, Tata Industries Limited, Tata Teleservices Limited, Tata Communications Limited, Titan Company Limited and Infiniti Retail Limited and any other Company in which the Company (or its subsidiaries) holds twenty percent or more of the paid up share capital and whose name is notified in writing to the Company by the Directors nominated under Article 104B”. 19.3 But through a Memo dated 12.01.2018, the complainant companies restricted the relief prayed in Paragraph 153(M) to the extent as follows: (i) the necessity of affirmative voting of the majority of the Directors nominated by the Trusts, which are majority of shareholders be deleted; (ii) the petitioners be entitled to proportionate representation on the Board of Directors of Respondent No.1; (iii) the petitioners be entitled to a representation on all committees formed by the Board of Directors of Respondent No.1; and (iv) the Articles of Association be amended accordingly. 19.4 Therefore, what was actually sought by the complainant companies was the deletion of the Article that necessitated the affirmative voting right of the majority of the Directors nominated by the two Trusts. There was no prayer for restraining RNT a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative voting rights. Affirmative voting rights 19.7 Under Article 104B, Sir Dorabjee Tata Trust and Sir Ratan Tata Trust, acting jointly, shall have a right to nominate 1/3rd of the prevailing number of Directors on the Board, so long as the Trusts own and hold, in the aggregate, at least 40% of the paid up share capital. Article 121 provides that the matters which require to be decided by a majority of the Directors, shall require the affirmative vote of the majority of Directors appointed under Article 104B. 19.8 Article 121A contains the list of matters to be resolved by the Board of Directors. One of the items included therein is “ any matter affecting the share holding of the Tata Trusts in the Company…” 19.9 As seen from the Table under Paragraph 4 of the Memorandum of appeal filed by the S.P. Group in C.A.No.1802 of 2020, they are not seeking, even now, the scrapping of the affirmative voting rights. Interestingly, S.P. Group, through their Memo dated 12.01.2018 wanted the deletion of the Article providing for affirmative voting right. But as per the Table under Paragraph 4 of the Memo of their appeal in C.A.No.1802 of 2020, the complainant companies have now reconciled them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... became the ‘Taraka mantra’, families which promoted enterprises, retained ownership, but appointed professional managers to run the show. Thus ownership got divested from management. In the third time period, social participation increased by leaps and bounds through public issues and listing. This increased the social accountability and social responsibility of corporate entities. Every time a historical shift/change took place, the legal regime had to undergo a change, albeit at snail’s pace. 19.14 As a matter of fact, the Companies Act, 1956 suffered 24 amendments. Major amendments were made first in 1988 and then in 2002, respectively on the basis of the recommendations of the Sachar Committee and the Report of the Eradi Committee. On August 4, 2004, the Ministry of Company Affairs, published a Concept Paper on Company Law on its website, after which, the Government constituted an Expert Committee under the Chairmanship of Dr. J.J. Irani, Incidentally J.J. Irani was the Chairman of Tata Sons for sometime. The mandate of the Committee was to make recommendations on certain issues, one of which was “protecting the interests of stakeholders and investors, including small investors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain companies, with a detailed compliance Report on Corporate Governance. (xiv) After the advent of the Companies Act, 2013, SEBIRegulations were also amended, inserting Clause 49 in the Listing Agreement, to enforce compliance with Corporate Governance standards. 19.15 But it must be remembered that the shift under the Companies Act, 2013 is focused on listed and unlisted public companies. The requirement under Section 149(4) to have at least onethird of the total number of Directors as independent Directors applies only to every listed public company. The requirement under Section 151 to have one Director elected by small shareholders is also applicable only to listed companies. The requirement to constitute an Audit Committee in terms of Section 177(1), a Nomination and Remuneration Committee and the Stakeholders Relationship Committee in terms of Section 178(1) are also only on listed public companies. 19.16 Insofar as Tata Sons is concerned, the Articles of Association of the Company continue to contain the prescribed restrictions which make it a private company within the definition of the expression under Section 2(68). Therefore, the provisions discussed above do not appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to handover the mantle of heading the entire empire to a person like CPM (a rank outsider to the family); and (ii) that the identification of CPM as the successor to RNT was done by the very same nominees of the two Tata Trusts (who is now accused of interference), then it will be clear that Tata Group was guided by the principle of Corporate Governance (even without a statutory compulsion) and not by tightfisted control of the management of the affairs of the Group. 19.18 The provisions of sections 135, 149, 151, 166 and 177 around which the argument relating to corporate governance is fantasised, cannot advance the case of the SP group. Section 135 deals with corporate social responsibility, which in any case is more pronounced in this company due to the fact that charitable trusts hold majority of the shares. Section 149 deals with the requirement to have Directors, section 151 provides for appointment of a Director elected by small shareholders, section 166 enumerates the duties of directors and section 177 and 178 speak of some committees. Some of these provisions such as sections 151, 177 and 178 apply only to listed public companies. Yet, Tata Sons have complied with secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Trusts are not like any other Directors who get appointed in a General Meeting of the Company in terms of Section 152(2) of the Act. In fact it is a paradox to claim that by virtue of Subsections (2) and (3) of Section 166, every Director of a Company is duty bound to act in good faith in order to promote the objects of the company for the benefits of its members and in the best interests of all the stakeholders as well as environment and a duty to exercise independent judgment, and yet mandate the appointment of independent Directors under Section 149(4). If all Directors are required under Section 166(3) to exercise independent Judgment, we do not know why there is a separate provision in Section 149(4) for every listed Public Company to have at least 1/3rd of the total number of Directors as independent Directors. We do not also know whether the prescription in Section 149(4) is a tacit acknowledgment that all the Directors appointed in a General meeting under Section 152(2) may not be independent in practice, though they may be required to be so in theory. 19.24 A person nominated by a charitable Trust, to be a Director in a company in which the Trust holds shares, also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed. 19.27 Section 47(1)(b) of the 2013 Act (equivalent to Section 87(1)(b) of the 1956 Act), declares that the rights of a member of a company limited by shares, shall be in proportion to his share in the paid up equity share capital of the company. This right is subject to the provisions of Section 43, Section 50(2) and Section 188(1) of the 2013 Act. The restrictions under Sections 43, 50(2) and 188(1) respectively are, (i) shares with differential voting rights; (ii) disentitlement to voting rights, of a member who has not paid the unpaid share capital; and (iii) the disentitlement of a member to vote on a resolution for the approval of any contract entered into by the company with a related party. 19.28 Under Section 10(1) of the Companies Act, 2013, the Articles of Association bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member. However, this is subject to the provisions of the Act. 19.29 Article 94 of the Articles of Association of Tata Sons is in tune with Section 47(1)(b), as it says that upon a poll, the voting rights of every member, whether present in person or by proxy shall be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not in the interest of the subsidiaries. 19.33 The decisions Re: Neath Rugby Limited (2010) B.C.C. 597 and Central Bank of Ecuador and others vs. Conticorp SA and others (Bahamas) (2015) UKPC 11 Judicial Committee of the Privy council (UK), are relied upon to show that while a nominee director is entitled to take care of the interests of the nominator, he is duty bound to act in the best interests of the company and not fetter his discretion. 19.34 The question as to (i) what is in the interest of the company, (ii) what is in the best interest of the members of the company as a whole and (iii) what is in the interest of a nominator, all lie in locations whose borders and dividing lines are always blurred. If philosophical rhetoric is kept aside for a moment, it will be clear that success and profit making are at the core of business enterprises. Therefore, the best interest of the majority shareholders need not necessarily be in conflict with the interest of the minority or best interest of the members of the company as a whole, unless there is siphoning of or diversion. Such a question does not arise when the majority shareholders happen to be charitable Trusts engaged in phila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of any company, be it public or private. 19.39 The maximum extent, to which the Parliament has gone under the 2013 Act, is to make a provision under Section 151, enabling “a listed company” to have one Director elected by such small shareholders in such manner and on such terms and conditions as may be prescribed. Though a similar prescription was incorporated in Section 252(1) of the Companies Act, 1956, under Act 53 of 2000, it was not exactly the same. For the purpose of easy appreciation, the proviso to Subsection (1) of Section 252 of the 1956 Act and Section 151 of the 2013 Act are presented in a tabular column as follows: 1956 Act 2013 Act Section 252. Minimum number of directors. – (1) Every public company other than a public company which has become such by virtue of section 43A shall have at least three directors: (Provided that a public company having, (a) a paid-up capital of five crore rupees or more; (b) one thousand or more small shareholders, may have a director elected by such small shareholders in the manner as may be prescribed. Explanation. – For the purpose of this subsection “small shareholders” means a shareholder holding shares of nominal value of twenty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the value of investment, is also due to oppressive conduct or despite oppressive conduct. 19.43 Whatever it be, the right to claim proportionate representation is not available even to a minority shareholder statutorily, both under the 1956 Act and under the 2013 Act. It is available only to a small shareholder, which S.P. Group is certainly not. 19.44 The right to claim proportionate representation is not available for the S.P. group even contractually, in terms of the Articles of Association. Neither S.P. Group nor CPM can request the Tribunal to rewrite the contract, by seeking an amendment of the Articles of Association. The Articles of Association, as they exist today, are binding upon S.P. Group and CPM by virtue of Section 10(1) of the Act. 19.45 Realising the fact that they have no right, statutorily or contractually or otherwise to demand proportionate representation on the Board, S.P. Group has come up with a very novel idea, namely the claim of existence of a quasipartnership between the Tata group and SP group. It is contended by S.P. Group that there existed a personal relationship between those in management of the S.P. Group and those in management of Tata So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is statutorily recognised. But this argument is completely misconceived. Section 163 of the 2013 Act corresponds to section 265 of the 1956 Act. It enables a company to provide in their Articles of Association, for the appointment of not less than two-thirds of the total number of Directors in accordance with the principle of proportionate representation by means of a single transferable vote. First of all, proportionate representation by means of a single transferable vote, is not the same as representation on the Board for a group of minority shareholders, in proportion to the percentage of shareholding they have. It is a system where the voters exercise their franchise by ranking several candidates of their choice, with first preference, second preference etc. Moreover, it is only an enabling provision and it is upto the company to make a provision for the same in their Articles, if they so choose. There is no statutory compulsion to incorporate such a provision. 19.50 Therefore, the fourth question of law is also to be answered in favour of the Tata group and the claim in the cross appeal relating to affirmative voting rights and proportionate representation are liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e records showing the Company as a Public Company. 20.8 The Registrar of Companies moved an application under Sections 420(2) and 424(1) of the Companies Act, 2013 read with Rule 11 of the NCLAT Rules, 2016, seeking removal of the observations made in Paragraphs 181, 186 and 187(iv) of the judgment. This application was dismissed by the NCLAT by an order dated 06.01.2020, not only holding that no aspersions were cast in the judgment of the NCLAT on the Registrar of Companies warranting any review/clarification, but also providing certain additional reasons. It is under these circumstances that the 5th question of law revolving around Section 43A of the 1956 Act as amended by Act 53 of 2000, and the Companies Act, 2013 has arisen for consideration. 20.9 A look at Section 43A would show that it was actually inserted under Companies (Amendment) Act 65 of 1960 with effect from 28.12.1960. This Section underwent two amendments, one under Act 41 of 1974 with effect from 01.02.1975 and another under Act 31 of 1988 with effect from 15.06.1988. Finally, by Act 53 of 2000, Section 43A was made inapplicable with effect from 13.12.2000. 20.10 Section 43A, as inserted by Act 65 of 1960, togethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public companies, or private companies which had become public companies by virtue of this section. (1A) Without prejudice to the provisions of subsection (1), where the average annual turnover of a private company, whether in existence at the commencement of the Companies (Amendment) Act, 1974, or incorporated thereafter, is not, during the relevant period, less than 2 [such amount as may be prescribed], the private company shall, irrespective of its paidup share capital, become, on and from the expiry of a period of three months from the last day of the relevant period during which the private company had the said average annual turnover, a public company by virtue of this subsection: 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 subsection (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven. (1B) Where not less than twentyfive per cent of the paidup share capital of a public company, having share capital, is held by a private company, the private company shall, (a) on and from the date on whicht ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titute the word `private company' for the word `public company' in the name of the company upon the register and shall also make the necessary alterations in the Certificate of Incorporation issued to the company and in its memorandum of association within four weeks from the date of application made by the company. (3) Subsection (3) of section 23 shall apply to achange of name under subsection (2) as it applies to a change of name under section 21. (4) A private company which has become a publiccompany by virtue of this section shall continue to be a public company until it has, with the approval of the Central Government and in accordance with the provisions of this Act, again become a private company. (5) If a company makes default in complying withsubsection (2), the company and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues. (6) & (7) omitted by Act 31 of 1988 (8) Every private company having a share capital shall, in addition to the certificate referred to in subsection (2) of section 161, file with the Registrar along with the annual return a second cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e public for acceptance of deposits. (11) Nothing contained in this section, except subsection (2A), shall apply on and after the commencement of the Companies (Amendment) Act, 2000.” 20.11 In its inception, Section 43A contained only one stipulation namely that a private company in which not less than 25% of the paid up share capital was held by one or more bodies corporate, shall become a public company. But by Act 41 of 1974, two additional stipulations were included. They are (i) that a private company whose average turnover during the relevant period is not less than an amount prescribed, shall become a public company, irrespective of its paid up share capital; and (ii) that a private company which holds not less than 25% of the paid up share capital of a public company, shall become a public company. 20.12 By Act 31 of 1988, the benchmark of the average annual turnover that would determine the applicability of Section 43A was prescribed as not less than ₹ 1 crore. In addition, Act 31 of 1988 also made a private company which accepts deposits from the public, other than its members or directors, to be a public company. 20.13 Two important prescriptions, which continued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e procedure to be followed by a company, which has earlier become a public company by virtue of Section 43A, but which has later become a private company after the commencement of Act 53 of 2000, to have necessary changes effected. The procedure prescribed by subsection (2A) for such reconversion (or Ghar Wapsi) is as follows: (i) The company shall inform the Registrar that the company has again become a private company; and (ii) The Registrar shall thereupon substitute the word “Private Company” for the word “Public Company” upon the register and also make necessary alterations in the Certificate of Incorporation and its Memorandum of Association.” 20.19 But Act 53 of 2000 did not stop with section 43A. It also amended section 3(1)(iii) by inserting an additional subclause, namely “(d)” along with subclauses (a), (b) and (c). Under this subclause (d) of clause (iii) of subsection (1) of section 3, the articles of association of a private company should also contain a prohibition on any invitation or acceptance of deposits from persons other than its members, directors or their relatives. Section 3(1)(iii) after amendment under Act 53 of 2000 read as follows: “3 (1) In this Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embers with which the company is to be registered. (3) In the case of a private company having a sharecapital, the articles shall contain provisions relating to the matters specified in subclauses (a), (b) and (c) of clause (iii) of subsection (1) of section 3; and in the case of any other private company, the articles shall contain provisions relating to the matters specified in the said subclauses (b) and (c).” 20.22 No corresponding amendment was made to Section 27 (3), by Act 53 of 2000, so as to make it in tune with the amended section 3(1)(iii). The result was that on and from 13122000 (the date of coming into force of Act 53 of 2000), section 3(1)(iii) contained 4 requirements for a private company, but section 27(3) referred only to 3 requirements. The incongruity can be stated thus. To fall within the definition of a private company, 4 stipulations contained in section 3(1)(iii) were to be satisfied. But under section 27(3), it is enough if the Articles of Association of a private company contained only 3 prescriptions. 20.23 Be that as it may, the consequence of the amendment to section 3(1)(iii), under Act 53 of 2000, was that a company which wanted to take the rout ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities of the company; 20.26 But Companies Act, 2013, created one confusion. Different provisions of the Companies Act, 2013, came into force on different dates (driving people crazy). Section 2(68) which defines a private company, came into force on 12092013 vide S.O. 2754 (E) dated 12092013. This notification issued under section 1(3) of the 2013 Act, fixed 12092013 as the appointed date for the coming into force of section 2(68). 20.27 But on 12092013, the date appointed for the coming into force of section 2(68) of the Companies Act, 2013, the old Act, namely the Companies Act, 1956 had not been repealed. The provisions for repeal are contained in Section 465 of The Companies Act, 2013. Section 465(1) repeals the 1956 Act, subject to certain stipulations mentioned in the provisos there under. Subsection (2) of Section 465 of the Companies Act, 2013 provides a list of matters which will stand saved despite the repeal of the 1956 Act. Subsection (3) of Section 465 makes it clear that the mention of particular matters in Subsection (2) shall not be held to prejudice the general application of Section 6 of the General Clauses Act, 1897. 20.28 The provisions of Section 465, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not disputed by anyone that today Tata Sons satisfy the parameters of section 2(68) of the 2013 Act. The dispute raised by the S.P. Group and accepted by NCLAT is only with regard to the procedure followed for reconversion. NCLAT was of the opinion that Tata Sons ought to have followed the procedure prescribed in Section 14(1)(b) read with Subsections (2) and (3) of Section 14 of the Companies Act, 2013 for getting an amended certificate of incorporation. NCLAT was surprised (quite surprisingly) that Tata Sons remained silent for more than 13 years from 2000 to 2013 without taking steps for reconversion in terms of Section 43A(4) of the 1956 Act. While on the one hand, NCLAT took note of the “lethargy” on the part of Tata Sons in taking action for reconversion, NCLAT, on the other hand also took adverse notice of the speed with which they swung into action after the dismissal of the complaint by NCLT. 20.34 But what NCLAT failed to see was that Tata sons did not become a public company by choice, but became one by operation of law. Therefore, we do not know how such a company should also be asked to follow the rigors of Section 14(1)(b) of the 2013 Act. As a matter of fact, Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived till 30012019 until the whole of the 1956 Act was repealed. There are two aspects to Subsection (2A). The first is that the very concept of “deemed to be public company” was washed out under Act 53 of 2000. The second aspect is the prescription of certain formalities to remove the remnants of the past. What was omitted to be done by Tata Sons from 2000 to 2013 was only the second aspect of Subsection (2A), for which Section 465 of the 2013 Act did not stand as an impediment. Section 43A(2A) continued to be in force till 30012019 and hence the procedure adopted by Tata Sons and the RoC in July/August 2018 when section 43A(2A) was still available, was perfectly in order. 20.39 As rightly held by this court in Darius Rutton Kavasmaneck vs. Gharda Chemicals Ltd (2015) 14 SCC 277 [see the editor’s note in the SCC report regarding the conflict between sec.27(3) and sec.3(1)(iii)(d)], Parliament always recognised the possibility of a deemed public company again reverting back to the status of a private company. Though this court took note of the conflict between section 27(3) and section 3(1)(iii) (d), after the amendment by Act 53 of 2000, this court nevertheless held in Gharda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... validity of what was done in 1995 was not in question. That they accepted deposits from public till September 2002, is the reason why they were not reconverted as a private company at that time. Once a new definition of the expression “private company” came into force with effect from 12092013 under section 2(68) of the 2013 Act, the only test to be applied is to find out if the company fits into the scheme under the new Act or not. We need not go to the circulars issued by the department or the RBI when statutory provisions show the path with clarity. The description of the company in the forms filed under Rule 10, reflected the true position that prevailed then and they would not act as estoppel when the company was entitled to take advantage of the law. That the ability of the company to raise funds has now gone and that the company will have to repay the investments made by insurance companies, are all matters which the shareholders and the Directors are to take care. The question before the court is whether the reconversion is in accordance with law or not. The question is not whether it is good for the company or not. 20.43 The real reason why SP group and CPM are aggrieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 423 of the Companies Act, 2013, this Court is concerned with questions of law arising out of the order of NCLAT. Therefore, we will not decide this prayer. It should be pointed out at this stage that Article 75 of the Articles of Association is nothing but a provision for an exit option (though one may think of it as an expulsion option). After attacking Article 75 before NCLT, the S.P. Group cannot ask this Court to go into the question of fixation of fair value compensation for exercising an exit option. What is pleaded in Paragraph 72 of the application for separation of ownership interests, require an adjudication on facts, of various items. The valuation of the shares of S.P. Group depends upon the value of the stake of Tata Sons in listed equities, unlisted equities, immovable assets etc., and also perhaps the funds raised by SP group on the security/pledge of these shares. Therefore, at this stage and in this Court, we cannot adjudicate on the fair compensation. We will leave it to the parties to take the Article 75 route or any other legally available route in this regard. 21.5 In the result, all the appeals except C.A. No.1802 of 2020 are allowed and the order of N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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