on Apr 28, 2021)MUMBAI: In its review petition filed before the Supreme Court (SC), the Shapoorji Pallonji (SP) Group has contended that the apex judiciary’s March 26 judgment dismissing all allegations of oppression and mismanagement at Tata Sons has led to “miscarriage of justice”. It argued that the judgment incorrectly interpreted provisions in the Companies Act, eroding governance standards and rendering a large swathe of minority shareholders remediless.
Additionally, SP scion and former Tata Sons chairman Cyrus Mistry filed an application seeking removal of certain adverse remarks like “setting his own house on fire” from the judgment. The law permits “patent errors” in a ruling to be rectified in a review petition.
The verdict, read SP’s review petition, has narrowed the test of “just and equitable” for minority shareholders to claim relief under sections 241 and 242 of the Companies Act. Such a narrow test would leave a large swathe of minority shareholders, including private equity investors and foreign companies, remediless.
The apex court held that removal of a director “can never be oppressive” but, at the same time, it held that where the removal is oppressive, relief can be granted. It, however, did not specify the circumstances that will merit the removal of a director or justify grant of relief under section 242. Though, at many places, the judgment declared Mistry to be SP’s representative on Tata Sons board, yet it held his removal to be not an act of oppression, the construction-to-consumer durables group said.
The top court also held that Mistry was not an MD of Tata Sons but only its executive chairman and hence the requirement of a shareholder resolution to remove an MD, according to the company’s Articles of Association (AoA) No. 105, would not be breached. This finding, said SP, was contrary to the record and stand of Tata Sons that held Mistry was indeed an MD.
The judgment further declared that Tata Trusts nominee directors were unlike ordinary directors appointed under section 152(2). It, said SP, failed to recognise that all directors, including nominee directors, are appointed by shareholders at a general meeting. It overlooked the fact that while a director may be nominated by an institution, once appointed s/he has to act in the interests of the company and of all its shareholders under section 166(2).
The judgment confused the duty of “independent judgment” expected of all directors with the qualification criteria for “independent director”.
This confusion can set a dangerous precedent that will dilute the fiduciary duties of directors and erode governance standards under sections 149(1) and 166(3), which require every company to be managed by a board exercising independent judgment, SP said. Tata Sons is controlled by Tata Trusts and the public charitable organisation nominates a third of the directors on the board of the company. SP added that section 166 (2) requires independent decision making by the Tata Sons board, which would be rendered redundant if decisions are pre-cleared by Trusts nominee directors. The judgment has virtually licensed unrestricted sharing of information with majority shareholders ahead of board meetings, which is inconsistent with universal principles of insider trading, SP said.
The top court had declined SP relief of separation on the reasoning that it had challenged Tata Sons AoA no. 75, which the judiciary erroneously held as an exit option. “This finding is contrary to Tata Sons’s own stand in these proceedings,” said SP, adding that the court could have put an end to further litigation by articulating the principles of valuation for the separation.
“Leaving the valuation to be decided by an inimical majority would only lead to further oppression and deprive SP of just and fair compensation for its legitimate interest as a partner in Tata Sons for over 50 years.”
