Mistry can move Sebi, MCA: Lawyers

Ousted Tata Sons Chairman, Cyrus Mistry, arrives for Tata Steel's board meeting at Bombay House
Former Tata Sons chairman Cyrus Mistry’s legal options would be to move the stock market regulator, the Securities and Exchange Board of India (Sebi), and the Ministry of Corporate Affairs for violations of insider trading norms and the Companies Act, 2013 that deals with duties and responsibilities of directors, say lawyers. 

On Monday, Mistry had asked the government to intervene in the Tata dispute so that it becomes accountable and improve corporate governance standards. The Tatas had rejected the charges and said Mistry was trying to convert the group into his ‘personal fiefdom’. 

According to corporate and securities lawyers, the legal options before Mistry now is to move Sebi and MCA and highlight his communication on Monday, which alleges that Tata trustees were interfering in the working of listed Tata companies and seeking information. “Such conduct posed a serious moral hazard apart from a real legal risk to the very foundation of the Tata group, exposing the trustees, the directors and management of Tata Sons as indeed the directors and management of the Tata group operating companies to risk of violating the need-to-know principles under securities regulations for sharing unpublished price-sensitive information. In recent weeks, a company promoted by a recently inducted Tata Sons director has been penalised by the securities regulator for violating this very need-to-know principle,” wrote Mistry on December 5. 

“This will certainly come under the Sebi scanner under the insider trading laws and it would seek information from all the concerned parties,” said R S Loona, senior partner of DV Alliance, a Mumbai-based law firm. 

“Besides, the MCA can probe whether the directors – both independent and non-independent – had performed their fiduciary roles,” he said. Section 166 of the Companies Act, 2013 is clear on the role and responsibilities of directors. Another senior corporate lawyer, who did not wish to be identified, agreed on the recourse in front of Mistry.

In his letter on Monday, Mistry had listed several “governance  breakdowns” that are likely to be challenged by him. 
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Mistry alleged the General Counsel of Tata Sons was pressuring Tata Motors’ company secretary to circulate an unsigned legal opinion from a law firm that was advising Tata Sons to gag the independent directors from expressing any view on Mistry’s performance as chairman of Tata Motors. 

On governance failure at Tata Consultancy Services, Mistry said the company informed stock exchanges that its chairman stood replaced at the request of Tata Sons without either calling a board meeting or passing a circular resolution of the board. 

On Tata Chemicals, Mistry said key officials of the company had been asked to stage a mutiny against their board, with a signature campaign against a potential independent view being expressed by independent directors, with an incentive that those who signed would be “protected by their promoter”. This was after the independent directors of Tata Chemicals had issued a statement supporting Mistry in its September quarter results board meeting. 

Besides, Mistry said Tata’s continued treatment of a director on Tata Global Beverages and Tata Steel Boards as an “independent director” despite being the spouse of a newly inducted trustee-nominated director of Tata Sons, who was also promptly made a trustee of Tata Trusts. Mistry also highlighted the flip-flop at the Tata Global board meeting in which the company reported that the audio-video recording of the meeting had broken down, thereby nullifying a record of proceedings. “This was only to be followed by an acknowledgement of illegality by seeking to re-conduct the business of replacing me as chairman, by circular resolution,” he said. 

Mistry added the Tata Steel board passed a circular resolution for change of chairman of a board meeting, minutes before a pre-scheduled board meeting. “In parallel, The Guardian, a newspaper in the UK carrying a report with extensive quotes from one Lord Kumar Bhattacharya, who has no position in the Tata Group other than being a close confidant of Tata that Tata Steel, would remain committed to the UK for at least a decade more,” said Mistry about Bhattacharya who has no official role to take a decision on behalf of Tata Steel. However, Bhattacharya was on the selection committee that chose Mistry as chairman, Tata Sons, and is also part of the committee to choose the next Tata Sons chairman. 

On Nusli Wadia, Mistry said Wadia was being removed for speaking up against Tata’s misconduct and misgovernance and to intimidate other independent directors of other companies to speak out. 

In Tata Motors, Mistry said Tata nixed a productivity-based agreement with labour unions that was under negotiations for the first time. “Tata called the labour unions and asked their union leaders for their public support and in return undermined the introduction of the incentive linked to productivity. The union leaders were paraded before the waiting media and Tata Motors did not get the benefit of a key work reform measure,” he said.

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