Introduction

In this case the Supreme Court reiterated that to get relief, the shareholders must establish that the oppression or prejudice conduct is so grave that it is just and equitable for winding up the company.

• A mere removal of Executive Chairman or Director is not a ground for winding up the company.

Facts

• Tata Sons was incorporated as a Private Limited Company under the Companies Act, 1913 in 1917.
• Two companies, one is Cyrus Investments Private Limited (CIPL) and other is Sterling Investment Corporation Private Limited (SICL) from Shapoorji Pallonji Group (SP Group) acquired 48 preference shares and 40 equity shares of the paid-up share capital of Tata Sons.
• Later the shareholding of SP group was increased to 18.37% of the total paid-up share capital.
• Pallonji S. Mistry, the father of Cyrus Pallonji Mistry (CPM) was appointed as a Non-Executive Director of the Board of Tata Sons from 1980 to 2004.
• In 2006, CPM was appointed as Non-Executive Director of the Board of Tata Sons and in 2012 he was appointed as Executive Deputy Chairman for 5 years.
• In the same year Board of Directors (BOD) changed his designation and he was appointed as Executive Chairman.
• Ratan Tata was appointed as Chairman Emeritus.
• A resolution was passed in 2016 and BOD replaced CPM with Ratan Tata as the interim Non-Executive Chairman.
• CPM was only replaced from the post of Executive Chairman and the choice left on him to continue or not as Non-Executive Director.
• However, CPM was removed from the post of Director of few companies (like Tata Industries Limited, Tata Consultancy Services Limited and Tata Teleservices Limited).
• After that he resigned from the post of Director of other companies as well (like Indian Hotels Company Limited, Tata Steel Limited, Tata Motors Limited, Tata Chemicals Limited etc.).
• Thereafter two companies CIPL and SICL of SP group filed a company petition under Section 241 and 242 read with Section 244 of the Companies Act, 2013 on the grounds unfair prejudice, oppression and mismanagement before the National Company Law Tribunal (NCLT).
• But these 2 companies together had only around 2% of the total issued share capital. It is below the qualification required under Section 244(1)(a) to invoke Sections 241 and 242 of Companies Act, 2013.
• These 2 companies filed a miscellaneous application under proviso of Section 244 (1) for waiver of the requirement under Section 244 (1)(a) of the Companies Act, 2013.
• These companies also filed an application for stay on Extra Ordinary General Meeting (EGM) in which the proposal of removing CPM was moved.
• NCLT refused stay and CPM was removed.
• And NCLT held that the main company petition is not maintainable as the person holding just around 2% of the issued share capital. NCLT also dismissed the application for waiver.
• The companies filed an appeal before the National Company Law Appellate Tribunal (NCLAT) against both the orders of NCLT.
• NCLAT granting waiver of the requirement of Section 244(1)(a) of Companies Act, 2013 and send matter back to NCLT for disposal on merits. Tata Group did not challenge this order.
• Thereafter NCLT heard the case and dismissed the petition on merits. To challenge the order of NCLT, these 2 companies filed an appeal before NCLAT and CPM filed another appeal. Both the appeals were allowed and NCLAT granted following relief:
• The meeting related to the removal of CPM was declared illegal and set aside.
• The person who has been appointed as Executive Chairman in place of CPM, his consequential appointment is declared illegal.
• Restraint Ratan Tata and the nominees of Tata Trust from taking any advance decision.
• Set aside the decision of Registrar of Companies recognizing Tata Sons conversion into a private company.
• Thereafter Tata Sons Private Limited filed an appeal against the order of NCLAT.

Issues Involved

• Whether removing CPM was oppressive or prejudicial to the company's interests?
• Whether the reliefs granted, and the directions issued by the Appellate Tribunal, including the reinstatement of CPM into the Board of Tata Sons and other Tata companies, are in consonance with the pleadings made, the reliefs sought and the powers available under Sub­-Section (2) of Section 242 of Companies Act, 2013?
• Whether the reconversion of Tata Sons from a public company into a private company required the necessary approval under Section 14 of the Companies Act, 2013?

Observations

• The Supreme Court (SC) has stayed the decision of NCLAT to restore Cyrus Mistry as Executive Chairman.
• The SC stated “the fact that the removal of CPM was only from the Executive Chairmanship and not the Directorship of the company as on the date of filing of the petition and the fact that in law, even the removal from Directorship can never be held to be an oppressive or prejudicial conduct was sufficient to throw the petition under Section 241 of Companies Act, 2013 out, especially since NCLAT choose not to interfere with the findings of fact on certain business decisions.”
• It is significant that Sections 241 and 242 of the Companies Act, 2013 do not specifically confer the power of reinstatement, nor we would add that there is any scope for holding that such a power to reinstate can be implied or inferred from any of the powers specifically conferred.
• Regarding the third issue, the SC observed that NCLAT was completely wrong in holding as though Tata Sons, in connivance with the Registrar of Companies did something clandestinely, contrary to the procedure established by law. The request made by Tata Sons and the action taken by the Registrar to amend the Certificate of Incorporation were perfectly in order (conversion of private company from public company).
• All the questions were answered in favor of Tata Sons and all the previous observation against Tata Sons (appellant) are set aside by the SC.

Conclusion

• In this case the SC determined that a removal of person from the post of Executive Chairman is not a subject matter under Section 241 of the Companies Act, 2013 unless it is proved that it was oppressive or detrimental.