The National Company Law Appellate Tribunal (NCLAT) on Thursday granted the family firms of Shapoorji Pallonji Mistry a waiver from a shareholding clause which prohibited them from filing cases against Tata Sons for mismanagement and oppression of minority shareholders. The NCLAT ruling is a big reprieve for former Tata Sons chairman Cyrus Mistry, son of Shapoorji Pallonji Mistry, whose firms own 18.4% in Tata Sons, the holding company for the Tata Group. The appellate tribunal directed the Mumbai bench of the National Company Law Tribunal (NCLT) to allow the Mistry family firms to present their case and decide on it on merits within three months.
Setting aside the NCLT’s April 17 order, which had rejected the waiver plea of Mistry’s firms, the bench headed by justice SJ Mukhopadhyay said there was a prima facie case for granting the firms a waiver from the minimum shareholding requirement to allow them to raise the issue before the NCLT, Mumbai. However, the appellate tribunal upheld the NCLT’s order that the petition of the family firms was not maintainable because it lacked the minimum shareholding necessary to raise such issues. Mistry had appealed against this order too. With the waiver to the rule having been granted, Mistry’s firms can now present their case. As such, this part of the order confirms the legal position and does not in anyway impact the petitioners. Mistry’s family firms had moved NCLAT when in March-April the Mumbai bench of the NCLT had dismissed two of their petitions — one alleging mismanagement and oppression of minority shareholders at Tata Sons and the other that sought a waiver from the minimum shareholding clause to present their case. On March 6, the NCLT dismissed the petition of Cyrus Investments and Sterling Investment Corporation saying it was not maintainable.
It noted that since the combined shareholding did not add up to the required minimum of 10% of the issued share capital of Tata Sons, they did not fulfil the eligibility criteria for approaching the tribunals. According to Section 244 of the Companies Act, to seek relief from oppression, the petitioner(s) need to comprise “not less than 100 members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company”. Mistry’s family investment arms hold 18.4% of the ordinary shares of Tata Sons but their holding goes down to just 2.17% of the issued share capital when the preference shares are considered. Mistry’s lawyers had argued that equity shareholders were a different class of shareholders from preference shareholders. Further, Mistry’s firms, they pointed out, have met the one-tenth requirement if only equity shares are considered. They also noted that given the substantially larger size of preference share capital of the company, if both equity and preference shares are considered, then at least 81% of equity shareholding is required to meet the one-tenth eligibility criteria.
After the dismissal of this plea, the firms approached the NCLT pleading they be given waiver from the 10% shareholding norm and their case be heard. However, the NCLT dismissed the plea on April 17. As per law, the discretion to grant a waiver lies with the tribunal. Mistry, who had first moved the tribunal in December, 2016 had initially not filed for a waiver. Later, when the issue was raised by the lawyers of Tata Sons, Mistry had sought a waiver saying that if it is not granted, “the grave issues raised in the petition would go entirely uninvestigated”. The NCLT had initially insisted Mistry’s lawyers should argue their main case — that of oppression of minority shareholders and mismanagement at Tata Sons. However, Mistry’s lawyers insisted that it first rule on maintainability and waiver. Once the NCLAT passed a direction to this effect, the NCLT first heard the maintainability petition and subsequently the waiver petition. The order was welcomed by Mistry, whose office said it was a vindication of what he stood for and the values he was pursuing. “ We will continue to pursue highest standards of corporate governance and demand complete transparency of the group for the benefit of all the millions of shareholders, and indeed, the employees of the Tata Group companies. These are proceedings to protect and reinforce the values for which the Founders of the Tata Group have given us the legacy that we should strive never to lose,” a statement noted.
Tata Sons on its part, said, “Tata Sons has taken note of the order of the NCLAT and will examine it. We strongly believe that the allegations made by the petitioners are without basis and incorrect. Tata Sons will continue to defend its position at all appropriate forums.” The legal battle between Mistry and the Tatas is a fallout of the ouster of the former by Tata Sons board on October 24, 2016. Subsequently, Mistry was removed as director/chairman of all the group firms leaving him with no option but to take the legal route.