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Top legal experts expect the Supreme Court to provide clarity while dealing with the NCLAT order to reinstate Mistry, whose official term would have ended two years ago. He was appointed Tata Sons’ chairman from December 2012 to March 2017, but was ousted by the board in October 2016. Employment contracts can only offer compensation as relief and not reinstatement, and at best the SC may offer relief to Mistry as a minority director, said the general counsel of a leading multinational.
“For a director to be reinstated, he or she has to be either co-opted by board members or re-elected by shareholders through postal ballot,” the executive added.
Section 14 of the Specific Relief Act 1963 states that the contract for personal service cannot be enforced, top legal experts ETspoke to said. “Reinstatements are possible only for contract unionised workers and not managerial staff or management cadre,” another top legal expert associated with the development said.
The NCLAT in its ruling last week has directed to reinstate Mistry also as a director of Tata Sons as well as three group companies, and ruled to comply with the order “forthwith”.
According to Sudip Mahapatra, a partner at law firm S&R Associates, the portion of the NCLAT order that rendered the appointment of the current chairman illegal would become operative only after four weeks, the time given for Tata Sons to appeal in the Supreme Court.
“With respect to the reinstatement of Cyrus Mistry as a director, the NCLAT order is immediately effective. However, the corporate procedure for such reinstatement is unclear. The law does not provide a mechanism for reinstatement,” he said.
A division bench of the NCLAT, comprising Justice SJ Mukhopadhyay and Justice Bansi Lal Bhat, declared also an October 24, 2016 board meeting, which decided to oust Mistry, as illegal and set it aside. “In my opinion, Cyrus Mistry will be inducted on the board for his remaining term … since the appellate tribunal has termed that the very meeting where the decision was taken was illegal,” said Ravi Singhania, the managing partner of law firm Singhania & Partners.
“However, the ruling has raised a question that if shareholders have at a validly convened general meeting
removed someone following due process, then how can you substitute that judicially by another outcome? This will be tested in the Supreme Court.”
Tata Sons declined to comment. In an earlier statement, its general counsel had said it was unclear as to how the NCLAT order sought to overrule the decisions taken by shareholders of Tata Sons and listed Tata operating companies at validly constituted shareholder meetings.
Ican Investments Advisors chairman Anil Singhvi said the primacy of the law cannot be undermined, howsoever majority shareholders may have in terms of voting power. “No majoritarian rule can throw law out of the
window.
Tata Sons was a public limited company and it was converted into a private limited company with amendments to many articles which are contrary to law and which cannot be made legal by majoritarian rule.
The statement of Tata Sons is very amusing when it says that the appellate tribunal overreached its authority over majority shareholders’ right,” he said, adding: “It is like asking if the Supreme Court lacks its authority over Parliament if an illegality has been committed by legislators in passing a law.”
A lawyer who represented Mistry’s Shapoorji Pallonji Group said the NCLAT had very special and wide powers to remedy actions of “oppression” and “mismanagement”. Once the conduct or action meets these thresholds, the tribunal can exercise wide remedial powers not only to negate the prejudice or wrongfulness of the actions already taken, but also to regulate future conduct of the company so as to protect the rights of minority shareholders, the lawyer said.
The reliefs granted have nothing to do with enforcing contracts or personal status, but emanate from this special and extraordinary jurisdiction to remedy oppressive conduct perpetuated on the minority shareholders. Once it held the removal of Mistry to be illegal, it puts parties back into their respective positions prior to the illegal act, he added.
“If ever there is a jurisdiction in our legal system that confers a wide amplitude of powers and options to redress a wrong, it is Sections 241 and 242 of the Companies Act, 2013,” the lawyer said.
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