TATA-MISTRY NCLAT JUDGMENT FOR BOARDROOMS & GOVERNANCE

Whatever the outcome of the Tata-Mistry feud, it will greatly impact the way majority shareholders conduct themselves and the way boards are managed in India going forward

The order of the National Company Law Appellate Tribunal (NCLAT) in Cyrus Investments Pvt. Ltd Vs. Tata Sons Ltd. & Ors. (Company Appeal (AT) No. 254 of 2018) is landmark and one that compels a relook at boardrooms and corporate governance.

Following his removal, Mistry, pursuant to the decision of the Board of Directors’ of M/s. Tata Sons Limited, dated 24th October, 2016 as its ‘Executive Chairman’, Mistry/ Minority group of shareholders had moved the NCLT alleging prejudicial and acts of oppression by the majority shareholders backing Tata. Upon the NCLT rejecting the pleas of Mistry/Minority shareholders, Mistry had appealed to the NCLAT.

The NCLAT, in its order finds fault with the conduct of Tata/Majority shareholders in as much as the affirmative voting power of the nominated Directors of the ‘Tata Trusts’ over majority decisions of the Board. Such affirmative voting power has been seen as going against the spirit of independent and effective functioning of Boards. Such voting rights are thus against the spirit of transparent board functioning as managements and boards are expected to conduct themselves as trustees for all stakeholders. The recent recommendations of the Kotak Committee on corporate governance give strength to this expected line of conduct of boards.

The NCLAT order therefore suggests that the fact that the Company (‘Tata Sons Limited’) has suffered loss because of ‘prejudicial’ decisions taken by the Board of Directors. The conduct of the board in the manner in which Mistry was suddenly and hastily removed without any reason and the absence of any discussion in the board meeting followed his removal as Director(s) of different ‘Tata Companies’ did not meet the requirements of transparent and independent functioning of the board.