Mistry camp: Appeal to NCLAT will be test case

Cyrus Mistry
Cyrus Investments Private Limited and Sterling Investment Corporation Private Limited — companies of Tata Sons’ ex-chairman Cyrus Mistry — began their appeal on Thursday against National Company Law Tribunal (NCLT) dismissing the companies' pleas of oppression and mismanagement in Tata Sons.

Lawyer for Mistry companies began his arguments before the National Company Law Appellate Tribunal (NCLAT) by saying the NCLT had erred on interpreting the Companies Act on oppression and mismanagement. On March 6, the NCLT had come to the conclusion that the Mistry petitions were not maintainable as they had failed to satisfy the requirement under the Companies Act that shareholders must hold 10 per cent to be qualified to file such a petition. The Act is silent on whether this shareholding includes preference shares as well. The Mistry family owns 18.34 per cent of equity shareholding in Tata Sons, but when preference shares are taken into account, the total shareholding falls to 2.17 per cent. 

The Mistry camp then made a request to the tribunal to waive this requirement, according to a section of the Act that allowed the NCLT to admit such a petition regardless of the maintainability condition. When the tribunal refused this request on April 17, the Mistry camp approached the NCLAT to challenge both these decisions on April 27.

In Thursday’s hearing, Mistry lawyer said the Act’s requirement only pertained to one-tenth of members from a class that had been aggrieved and could not be held to include both equity and preference shareholders in such cases, as this interpretation would undermine the purpose of the provision to curb mismanagement in a company and remedy the mischief being caused. Highlighting articles of association of Tata Sons and relevant provisions of the Act, the lawyer for the Mistry companies said the rights of preference shareholders did not include making decisions on the affairs of the company and were merely akin to a debt. This distinction had not been considered by the NCLT while making its decision, he added and said the appeal to NCLAT would become a test case on issues of oppression and mismanagement.  

On the issue of waiver, the lawyer also said the Mistry petitions had significant aspects of public and national importance, and were a fit case for waiver, regardless of the issue of maintainability.

Rejecting any chance of a settlement between the two sides, the lawyer for the Mistry companies said the issue would have to be heard by the tribunal to finally put the matter to rest. This led NCLAT to remark the issue had now become one of prestige. After hearing the submissions, the court said it would look at the issue of maintainability in further detail and establish the grounds under which a waiver could be allowed. The appeal will be heard again on July 3.

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