Hail the verdict and appeal against it!

In December last year, soon after the National Company Law Appellate Tribunal (NCLAT) reinstated him as the executive chairman of the Tata group and said the action taken by Ratan Tata and others was oppressive and illegal, Cyrus Mistry hailed the order as a “victory of good governance and minority shareholders’ rights”. It was a natural response from a man who had just won a major victory in his battle against Mr Tata and others at Bombay House.

But just five months later, Mr Mistry filed a cross appeal in the Supreme Court, saying the NCLAT order did not do full justice to his appeals. This means he has appealed against the very same judgment that he had welcomed. That may look like quite a puzzle, but it is not. Mr Mistry and his lawyers might have realised later that while the NCLAT order was definitely good optics, it didn’t give them anything concrete apart from screaming headlines in the next morning’s papers and the huge embarrassment of the Tatas. 

For example, his reinstatement as chairman and director of the Tata companies for the rest of his tenure was symbolic at best as he hardly had any significant tenure left. Also, the NCLAT did not give the Mistry family any right to appoint anybody to the board by virtue of its 18 per cent shareholding in Tata Sons. The order only gave them consultative right — which meant the Mistry group would have to be consulted for all future appointments of directors. At best, this only gave the Mistrys an opportunity to disrupt the appointment processes. Worse, the NCLAT did not get into the question of amending the Article of Association, which the Mistrys claimed was “misused”to undermine the Pallonji Group. 

While that perhaps explains the reason for the decision to move the Supreme Court against the tribunal’s order, many in legal circles are surprised by the Mistry camp’s decision to attach with the petition handwritten letters written by Mr Tata to his father, Pallonji Mistry. Very few can fathom how would personal letters (some dating as far back as 1991), purportedly appreciating the senior Mistry’s contribution to the Tata group, have any legal bearing.

Sample the first letter: Two days after taking over as Tata Sons chairman in 1991, Mr Tata said he would never hurt him (Pallonji Mistry) or his family. “...our common agreement and mutual faith will foster a true and lasting relationship without any misunderstanding — and in the best interest of Tata Sons as a company,” the letter said. Mr Mistry has ostensibly used these letters to back up his claim of a quasi-partnership, which refers to the relationship of a personal character and good faith between the shareholders of a company, analogous to partners in a partnership.

No one disputes that the Tatas and Mistrys had a close relationship for years. The senior Mistry was, in fact, known as the Phantom of Bombay House for his quiet and measured interference in the Tata empire. He started working when he was 18 and built a close relationship with the Tata group over the decades. Tata group old-timers recall how Pallonji’s father built steel and automobile factories for the Tatas and, in return, received a 12 per cent stake in Tata Sons in 1930 because the Tatas had no money to pay at that point of time. Since then, the Mistrys kept on increasing their stake in Tata Sons and today are the largest shareholders in Tata Sons after the Tata Trusts. Pallonji, in fact, was born just a year after the Mistrys acquired Tata Sons shares. Also, Mr Tata's half brother Noel Tata is married to Aloo Mistry, the daughter of Pallonji Mistry. The latter had been the director of Tata Sons before Cyrus took over the same post in 2006.

But it’s doubtful whether this demonstration of personal relationship between the two can be interpreted as having the effect of a contractual obligation. The Companies Act, 2013, does not recognise minority shareholding as a basis for directorship.

The moot point is there is no place for personal hurt in law. Mr Mistry may have felt slighted by Mr Tata’s and the board’s sudden action to terminate his service. He may have a point there as several of the Tata group’s way of operating are open to questions. For example, the group’s opaque corporate structure — two-thirds of Tata Sons’ shares are held by trusts — must be modernised. 

But the legal position in such cases is pretty simple: As an employee, Mr Mistry was answerable to his board and shareholders as any management would be. As such, his hiring and firing was in line with the change shareholders could effect within any company. Also, in order to protect the minority shareholder, the majority’s viewpoint can’t be overlooked. The Indian corporate law is clear that the rights of a shareholder are essentially economic rights, which — in the absence of a contract — do not include legal right to participate in the management of the company. 

After all, the Supreme Court itself has time and again held that the powers entrusted upon the minority shareholders cannot be used as a weapon against the majority.




Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel