- (1.) Lis in the Appeals 1.1 Tata Sons (Private) Limited has come up with two appeals in Civil Appeal Nos. 13-14 of 2020, challenging a final order dated 18-12-2019 passed by the National Company Law Appellate Tribunal ("NCLAT" for short) (i) holding as illegal, the proceedings of the sixth meeting of the Board of Directors of TATA Sons Limited held on 24.10.2016 in so far as it relates to the removal of Shri Cyrus Pallonji Mistry ("CPM" for short); (ii) restoring the position of CPM as the Executive Chairman of Tata Sons Limited and consequently as a Director of the Tata Companies for the rest of the tenure; (iii) declaring as illegal the appointment of someone 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. 19-20 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. 444-445 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 Tele services Limited and Tata Industries Limited have come up with separate appeals in Civil Appeal Nos. 440-441 of 2020, 442-443 of 2020 and 448-449 of 2020. The grievance of RNT as well as the Trustees of the two Trusts, is as regards the injunctive order of the Appellate Tribunal restraining them from taking any decision. The grievance of the three operating companies which have filed 6 Civil Appeals is that CPM has been directed to be reinstated as Director of these companies by the impugned Order, for the rest of the tenure. 1.4 The original complainants before the National Company Law Tribunal ("NCLT" for short), who initiated the proceedings under Sections 241 and 242 of the Companies Act, 2013 namely (i) Cyrus Investments Private Limited (ii) Sterling Investment Corporation Private Limited, have come up with a cross appeal in Civil Appeal No. 1802 of 2020. Their grievance is that in addition to the reliefs already granted, the NCLAT ought to have also granted a direction to provide them proportionate representation on the Board of Directors of Tata Sons Limited and in all Committees formed by the Board of Directors. They have one more grievance namely that the Appellate Tribunal ought to have deleted the requirement of an affirmative Vote in the hands of select Directors under Article 121 or at least ought to have restricted the affirmative vote to matters covered by Article 121A. 1.5 In addition to C.A.Nos. 13 and 14 of 2020, Tata Sons shave also come up with 2 more appeals in C.A.Nos. 263 and 264 of 2020. These appeals arise out of an order passed by NCLAT on 06-01-2020 in two interlocutory applications filed by the Registrar of Companies, Mumbai, seeking amendment of the final order passed by NCLAT in the main appeals. The reason why the Registrar of Companies was constrained to file 2 interlocutory applications in the disposed of appeals, was that in the final order passed on 18-12-2019 by NCLAT in the 2 company appeals, there were some remarks against the Registrar of Companies for having issued an amended certificate of incorporation to Tata Sons by striking off the word "Public" and inserting the word "Private". NCLAT dismissed these 2 applications by an order dated 06-01-2020, not merely holding that there were no adverse remarks against the Registrar of Companies but also giving additional reasons to justify its findings in the disposed of appeals, in the purported exercise of the power available under 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 paid-up share capital of Tata Sons, from an existing member by name Mrs. Rodabeh Sawhney. Over the years, the share-holding of SP Group in Tata Sons has grown to 18.37% of the total paid-up share capital. 2.3 The shareholding pattern of Tata Sons Limited is as follows: JUDGEMENT_77_LAWS(SC)3_2021_1.html The balance is held by RNT and a few others. 2.4 From 25.06.1980 to 15.12.2004 Shri Pallonji S. Mistry, the father of CPM was a Non-Executive Director on the Board of Tata Sons. On 10.08.2006 CPM was appointed as a Non-Executive Director on the Board. 2.5 By a Resolution of the Board of Directors of Tata Sons dated 16.03.2012, CPM was appointed as Executive Deputy Chairman for a period of five years from 01.04.2012 to 31.03.2017, subject however to the approval of the shareholders at a General Meeting. The General Meeting gave its approval on 01.08.2012. 2.6 By a Resolution dated 18.12.2012, the Board of Directors of Tata Sons redesignated CPM as its Executive Chairman with effect from 29.12.2012, even while designating RNT as Chairman Emeritus. 2.7 By a Resolution passed on 24.10.2016, the Board of Directors of Tata Sons replaced CPM with RNT as the interim Non-Executive Chairman. It is relevant to note that CPM was replaced only from the post of Executive Chairman and it was left to his choice to continue or not, as Non-Executive Director of Tata Sons. 2.8 As a follow up, certain things happened and by separate Resolutions passed at the meetings of the shareholders of Tata Industries Limited, Tata Consultancy Services Limited and Tata Teleservices Limited, CPM was removed from Directorship of those companies. CPM then resigned from the Directorship of a few other operating companies such as the Indian Hotels Company Limited, Tata Steel Limited, Tata Motors Limited, Tata Chemicals Limited and Tata Power Company Limited, after coming to know of the impending resolutions to remove him from Directorship. 2.9 Thereafter, 2 companies by name, Cyrus Investments Private Limited and Sterling Investment Corporation Private Limited, belonging to the SP Group, in which CPM holds a controlling interest, filed a company petition in C.P No. 82 of 2016 before the National Company Law Tribunal under Sections 241 and 242 read with 244 of the Companies Act, 2013, on the grounds of unfair prejudice, oppression and mismanagement. 2.10 But these two companies, hereinafter referred to as 'the complainant-companies', together had only around 2% of the total issued share capital of Tata Sons. This is far below the de-minimus 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 Sub-section (1) of Section 244 seeking waiver of the requirement of Section 244(1)(a), which requires at least one hundred members of the company having a share capital or one-tenth of the total number of fixed members or any member or members holding not less than one-tenth 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 Extra-ordinary 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 16.02.2017. 2.12 Subsequently, by an Order dated 06.03.2017, NCLT held the main company petition to be not maintainable at the instance of persons holding just around 2% of the issued share capital. This was followed by another order dated 17.4.2017, by which NCLT dismissed the application for waiver. 2.13 The complainant companies filed appeals before NCLAT against both the Orders dated 06.03.2017 and 17.04.2017. These appeals were allowed on 21.09.2017, granting waiver of the requirement of Section 244(1) (a) and remanding the matter back to NCLT for disposal on merits. Tata Group did not challenge this order. 2.14 Thereafter, NCLT heard the company petition on merits and dismissed the same by an Order dated 09.07.2018. 2.15 Challenging the order of the NCLT, the two complainant companies filed one appeal. CPM filed another appeal. Both these appeals were allowed by the Appellate Tribunal by a final Order dated 18.12.2019 granting the following reliefs: (i) The proceedings of the sixth meeting of the Board of Directors of Tata Sons Limited' held on Monday, 24th October, 2016 so far as it relates to removal and other actions taken against Mr. Cyrus Pallonji Mistry (11th Respondent) is declared illegal and is set aside. In the result, Mr. Cyrus Pallonji Mistry (11th Respondent) is restored to his original position as Executive Chairman of Tata Sons Limited' and consequently as Director of the Tata Companies' for rest of the tenure. As a sequel thereto, the person who has been appointed as 'Executive Chairman' in place of Mr. Cyrus Pallonji Mistry (11th Respondent), his consequential appointment is declared illegal. (ii) Mr. Ratan N. Tata (2nd Respondent) and the nominee of the Tata Trusts' shall desist from taking any decision in advance which requires majority decision of the Board of Directors or in the Annual General Meeting. (iii) In view of 'prejudicial' and 'oppressive' decision taken during last few years, the Company, its Board of Directors and shareholders which has not exercised its power under Article 75 since inception, will not exercise its power under Article 75 against Appellants and other minority member. Such power can be exercised only in exceptional circumstances and in the interest of the company, but before exercising such power, reasons should be recorded in writing and intimated to the concerned shareholders whose right will be affected. (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 18-12-2019, 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 06-01-2020. Therefore, as against the final Order of NCLAT dated 18-12-2019, (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 06-01-2020 passed by NCLAT on the applications of the Registrar of Companies.
(3.) Case set up by the complainants in their petition under sections 241 and 242, Companies Act, 2013 and Reliefs sought 3.1 In the company petition as it was originally filed by S.P. Group in December, 2016 before the NCLT, the complainant-companies claimed that the affairs of Tata Sons, are carried out as though it was a proprietary concern of RNT and that the oppressive conduct of the respondents was such that it would be just and equitable to wind up Tata Sons, but such winding up would unfairly prejudice the interest of the petitioners and that therefore the Tribunal should pass such orders so as to bring to an end, the acts of oppression and mismanagement. 3.2 The acts of oppression and mismanagement complained against Tata Sons revolved around (i) alleged abuse of the Articles of Association, particularly Articles 121, 121A, 86, 104B and 118, to enable the trusts and its nominee Directors to exercise control over the Board of Directors; (ii) alleged illegal removal of CPM as Executive Chairman without any notice and an all out attempt to remove him from the Directorship of all the operating companies of the Tata group; (iii) alleged dubious transactions in relation to Tata Teleservices Limited, alongwith one Mr. C. Sivasankaran; (iv) RNT allegedly treating Tata Sons as a proprietorship concern with all others acting as puppets, resulting in the Board of Directors failing the test of fairness and probity (v) acquisition of Corus Group PLC of UK at an inflated price and then jeopardising the talks for its merger with Thyssen Krupp (vi) Nano car project becoming a disaster with losses accumulating year after year and the conflict of interest that RNT had in the supply of Nano gliders to a company where he had stakes; (vii) providing corporate guarantee to IL and FS Trust Company for the loan sanctioned by Standard Chartered Bank to Sterling (viii) making Kalimati Investments Ltd, a subsidiary of Tata Steel to provide an inter corporate bridge loan to Sterling; (ix) the dealings with NTT DoCoMo and Sterling resulting in an arbitration award for a staggering amount; (x) leaking information to Siva of Sterling that resulted in Siva issuing legal notices to Tata Teleservices and Tata Sons (xi) RNT making a personal gain for himself through the sale of a flat owned by a Tata group company to Mehli Mistry; (xii) companies controlled by Mehli Mistry receiving favours due to the personal relationship that RNT had with him; and (xiii) fraudulent transactions in the deal with Air Asia which led to financing of terrorism. 3.3 On the foundation of the above, the complainant- companies 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 Rs. 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 light of the above pleadings and contentions, the petitioners before the NCLT sought a set of about 21 reliefs, whose abridged version is as follows: "(A) Supersede the existing Board of Directors of Respondent No. 1 and appoint an administrator; (B) In the alternative to prayer (A) above, appoint a retired Supreme Court Judge as the non-executive Chairman of the Board of Directors of Respondent No. 1 and appoint such number of new independent directors; (C) restrain the so-called "Interim Chairman" i.e. Respondent No. 2 from attending any meeting of the Board of Directors; (D) restrain Respondent No. 14 from interfering in the affairs of Respondent No. 1; (E) direct Respondent No. 1 not to issue any securities which results in dilution of the present paid-up equity capital; (F) direct the Respondents not to remove Respondent No. 11 as a director from the Board of Respondent No. 1; (G) restrain the Respondents from making any changes to the Articles of Association of Respondent No. 1; (H) order an investigation into the role of the Trustees of the Tata Trusts in the operations of Respondent No. 1 and/or Tata Group companies and prohibit the Trustees from interfering in the affairs of Respondent No. 1 and/or Tata Group companies; (I) appoint an independent auditor to conduct a forensic audit into transactions and dealings of Respondent No. 1 with particular regard to all transactions with C. Sivasankaran and his business entities and all transactions involving Mr. Mehli Mistry and his associated entities and such findings of the audit and investigation should be referred to the Serious Fraud Investigation Office; (J) Appoint an inspector (under applicable law) to investigate into the breach of the SEBI (Prohibition of Insider Trading) Regulations, 2015 and/or refer the findings of such investigation to the Serious Fraud Investigation Office of the Ministry of Corporate Affairs, Government of India. (K) 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 sub-tenancy of the Bakhtawar flat; (L) appoint a forensic auditor to re-investigate the transactions executed by AirAsia with entities in India and Singapore and such findings of the audit should be referred by the Hon'ble Tribunal to the Serious Fraud Investigation Office of the Ministry of Corporate Affairs, Government 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 the various companies; (Q) restrain the existing Selection Committee from acting any further. (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 ad-interim reliefs in terms of Prayers (A) to (S) above; and (U) pass such further orders that this Hon'ble Tribunal may, deem necessary for bringing an end to the acts of oppression and mismanagement in the running of Respondent No. 1." ;