Salty or Steely? – a Primer on the Tata-Mistry Endgame

Between a Rock and a Hard Place? Photographed by Piotr Makowski

We almost didn’t write this – I’m still divided on whether to write a piece on a judgment that in my opinion is based on such a singular weave of facts and circumstances that it cannot possibly be relevant to the average company or shareholder; if you’ve noticed, all our musings on this platform always coalesce into pointers on what to do (and more importantly, what not to do) on the basis of our otherwise academic and theoretical endeavours. Light reading of the three hundred page judgment apart (with all the excitement that comes along with indulging such prose […/s]), I wondered whether a Bridge Legal post on the conclusion of the Tata-Mistry saga would make any sense, or even have a point.

Then I read the headlines rippling through the aether, largely spelling a very different (and general) story of the Articles of Association of a company ‘trumping’ over minority shareholder rights (no) – such a contracted oversimplification of the jurisprudence and fact matrix may do more harm than the judgment itself, I thought, which is peppered with statements made in passing (or what common law lawyers like to call ‘obiter dicta‘). Some of the best legal minds I know themselves are a little confounded as to what elements of the judgment have binding precedental value (or what common law lawyers like to call ‘ratio decidendi‘) and what this means for corporates and corporate lawyers going forward. The real point, I went on to believe, was and is lost between the Scylla of condensed ‘news’ articles and the Charybdis of heavily extrapolated ‘legal luminary’ dissertations (many of which are on their way to being published), between which the average reader is caught in either a shipwreck of fragmented information or an inundation of knowledge (most likely leading to somnolence).

So, in the midst of all this confusing rubble (and rabble), we present to you a primer on the case and its elements, or what I like to call the ‘meta’ (our second unintended gamer reference – prizes to be awarded for figuring out the first). For the technical elements I cannot avoid, I apologise and assure you that it has been kept to a minimum; for the deep dives into Indian company law I cannot indulge and afford on this platform, I apologise again. For those of you who want more than headlines but less than cited philosophy, you’re in the right place. [Pro tip: Read this post with the cadence of a story – it’s been written in a way that facilitates flow. Also, our tale begins in 1917…]

A Brief Background

What we know of today as the ‘Tata Group’ of companies has its origins in a private trading firm set up in 1868 by its first scion and later incorporated into a private company named ‘Tata Sons Private Limited’ in 1917 (we’re just going to refer to it as the “Company” from hereon). Two Trusts were subsequently set up in 1919 and 1952 respectively (that till date continue to hold two-thirds of the Company’s shares). Move forward to 1965 and the ‘Shapoorji Pallonji Group’ acquired 48 preference shares and 40 equity shares from a member of the Company, marking the Mistrys’ foray into the Company; Cyrus Mistry’s father was inducted as a non-executive director of the Company in 1980 and continued to hold that position till 2004 even through the articles of association of the Company did not confer any rights of directorship upon the Shapoorji Pallonji Group. Two years later in 2006, Cyrus Mistry was appointed as a non-executive director himself; six years later, in 2012, Cyrus Mistry was inducted as ‘Executive Chairman’, a position previously held by none other than Ratan Tata (the fifth-generation scion of the Tata Group), for a planned period of five years by a selection committee comprising nominees from the aforementioned two Trusts. Cyrus Mistry was to set to be Executive Chairman from 2012 to 2017, but that’s not what finally happened. And therein lies the rub.

By way of a resolution in 2016, the Board of the Company replaced Cyrus Mistry with Ratan Tata as the ‘interim Non-Executive Chairman’ – at this stage, Cyrus Mistry was relegated to his earlier position as ‘non-executive director’. A cascading effect followed in the other Tata companies in which the Company had significant stake and / or influence – from Tata Industries Limited to Tata Consultancy Services to Tata Teleservices Limited, Cyrus Mistry was removed from directorship and prior to actions being taken to remove him from the other Tata companies, he happened to resign himself. These events formed the germ of litigation initiated by the Shapoorji Pallonji companies in which Cyrus Mistry held a controlling interest, argued with the chants of unfair prejudice and oppression and ending with the decision of the Supreme Court we have before us today (there remains one pending aspect yet to be decided – more on that towards the end of this piece).

The Questions of Law Before the Supreme Court (And Their Answers)

Before we introduce the questions for consideration before the apex court, please do note that India’s judicial system with its set hierarchy bifurcates between courts of law and courts of fact – the latter usually represented at the lower trial rungs which necessitate fact finding on the basis of evidence in addition to opining on matters of jurisprudence. Furthermore, courts of law or fact are restricted to answering and opining on subject matters specifically called out in the prayers segments of petitions unless they take suo motu cognizance for the benefit of public interest. This data is important given that our present case began at the National Company Law Tribunal (NCLT) stage, appealed to the National Company Law Appellate Tribunal (NCLAT) and then finally appealed to the Supreme Court of India, which was bound to answer only questions of law presented before it based on the contentions and prayers of the two contending parties. Please note that for the purposes of our analysis, we have not specifically considered the procedural irregularities at the aforementioned tribunal stages called out by the Supreme Court.

Below is a simple Q&A format outlining the substantial questions and the Supreme Court’s responses rendered:


Question 1: Could the removal of Cyrus Mistry from the post of ‘Executive Chairman’ be the basis of an allegation that the Company’s affairs have been or are being conducted in a manner oppressive or prejudicial to the interests of some members?

SC’s Response: Stating that the removal of a person from the non-statutory post of ‘Executive Chairman’ can in no event be termed as ‘oppressive or prejudicial’, the court went on to hold that this relegation was the original cause of action for the litigation, subsequently ‘padded’ up with various historical facts to make a ‘deceptive appearance’ of oppressive conduct. Mistry’s removal from directorship occurred after the filing of the original complaint and that too, for valid and justifiable reasons (Mistry purportedly proceeded to leak company emails alleging misconduct and various other actions that amounted to ‘setting one’s own house on fire’).


Question 2: Whether the NCLAT’s decision in favour of the winding up of the Company on the basis of the ‘just and equitable’ standard was correct?

SC’s Response: To invoke the ‘just and equitable’ standard, the underlying principle is that the court needs to be satisfied that either the partners cannot carry on together or that some or one partner certainly cannot carry on with another (corporate law’s version of divorce laws’ irretrievable breakdown), a ‘functional deadlock’ so to speak.

For one, the court held that there was and never could have been a partnership relationship between the Tata Group and the Shapoorji Pallonji Group – if you recall the background history above, the latter ‘boarded the train halfway through the journey of the Company’. Functional deadlock could neither be pleaded nor proved.

Secondly, the Company is a principle investment holding company, of which the majority shareholding is with the two philanthropic Trusts – it would of course not be equitable to wind up the Company since doing so would starve to death the said charitable Trusts on the basis of ‘uncharitable’ allegations of oppressive and prejudicial conduct.


Question 3: Whether the NCLAT’s decision to reinstate Cyrus Mistry on the board of the Company and other Tata Group companies was in consonance with the pleadings made and the statutory powers available?

SC’s Response: The apex court held that reinstatement was never sought in the first place, only proportionate representation of the Shapoorji Pallonji Group on the board of the Company; furthermore, reinstatement ‘for the rest of the tenure’ made no sense, since the timeline had already passed years ago. Reinstatement was therefore out of the question, and even more so in case of the other Tata Group companies, many of which were not even made a party to the proceedings and had passed very valid resolutions for Mistry’s removal.


Question 4: Whether the NCLAT’s decision to restrain the invocation of Article 75 of the Articles of Association of the Company was in consonance with the pleadings made and the statutory powers available? Was the NCLAT injunction restraining the Company from exercising its right under Article 75 valid without specifically setting aside the Article?

SC’s Response: To begin, Article 75 of the Articles of Association of the Company concerns itself with the ‘Company’s Power of Transfer’ and effectively states that the Company may at any time by way of a special resolution resolve that any holder of ordinary shares do transfer said shares – the court first concerned itself with the question of whether the NCLAT could have restricted the operation of Article 75 in the first place – answering this question in the negative, the court held that procedural irregularities in the prayers of the petitions apart (India’s Civil Procedure Code and its Evidence Act do not apply to tribunals / quasi-judicial authorities), the entire purpose of an order with respect to purported oppressive or prejudicial conduct is to bring to an end the matters complained of by providing a solution and not further exacerbating the problem – what is contemplated is putting an end to the problem and not the company itself (in the words of the judgment, the tail cannot wag the dog). The NCLAT’s rendering of Article 75 ‘comatose’ was therefore, incorrect.

With regards to the second aspect of the NCLAT injunction itself, the court first pointed out that there was no historical oppression or misconduct and that no single instance of misconduct or misuse of Article 75 was averred to in the petition(s), meaning that the NCLAT was incorrect in restraining its operation and neutralising Article 75 merely on the likelihood of misuse. Section 241(1)(a) of the Companies Act of 2013 (more on the legislations while taking up the last question later) merely provides for a remedy in respect of past and present conduct or past and present continuous conduct – ‘future bad conduct’ being the basis for rendering the Article neutralised was therefore an incorrect rationale of the NCLAT. The court also pointed out the fact that articles of association represent the ‘bedrock’ of company law and the current Article 75 has been in place in the Company in some form or another for nearly a century.


Question 5: Whether the affirmative voting rights available to the nominees of the two Trusts, with such powers enshrined in Article 121 and in terms of Article 104B of the Articles of Association of the Company, could be characterised as oppressive and prejudicial and more so whether the direction of the NCLAT nullifying the Articles was valid?

SC’s Response: This question is less complicated than it sounds – consider affirmative voting rights to be akin to veto rights (except, its not a potential overriding ‘no’ in as much as it is the compulsory requirement to say ‘yes’ in order to proceed – same effect) and the Articles of the Company provided such rights to the nominees of the two Trusts (subject to certain shareholding conditions that are fulfilled). The argument in its simplest state was that such powers need be restricted to the matters contemplated in Article 121 and also that the Shapoorji Pallonji Group also get such representation by way of nominee(s).

The court found the entire argument to be quite ‘funny’ (its words, not mine) primarily because the Mistry faction initially sought to strike of Article 121 in its entirety, subsequently proceeding to redact the necessity for affirmative voting rights and then finally partially reverting to a state of being okay with a limited application of affirmative voting rights but only if they got such rights as well. This ‘frequent change of position’ raised a legitimate doubt in the court’s mind as to whether the entire litigation was actually a fight on principles – if affirmative voting rights are bad, do they become good if also conferred on the Shapoorji Pallonji Group?

We believe the Supreme Court’s response to this question includes copious amounts of Obiter Dicta – from noting how Ratan Tata was willing to relinquish his otherwise familial power even when he did not have to (therefore meaning that he did not want to exercise tight fisted control), to the fact that the Trusts were and are involved in charitable activities, to whether directors are supposed to be entirely ‘independent’ when they aren’t explicitly statutory independent directors, the court noted these elements and concluded that the affirmative voting rights did not create a conflict of interest for the nominees (between their fiduciary duty to their respective Trusts and their fiduciary duty towards the Company) and more so could not be attacked on the basis of illegality especially since the special rights were incorporated in the Articles of Association of the Company. The following excerpt from the decision sums up the rationale aptly:

The question as to (i) what is in the interest of the company, (ii) what is in the best interest of the members of the company as a whole and (iii) what is in the interest of a nominator, all lie in locations whose borders and dividing lines are always blurred. If philosophical rhetoric is kept aside for a moment, it will be clear that success and profit making are at the core of business enterprises. Therefore, the best interest of the majority shareholders need not necessarily be in conflict with the interest of the minority or best interest of the members of the company as a whole, unless there is siphoning of or diversion. Such a question does not arise when the majority shareholders happen to be charitable Trusts engaged in philanthropic activities.

Closing with responses to two ancillary questions regarding corporate procedure, the court also concluded that pre-consultations or pre-clearances with and by the Trustees before the Board of the Company took any calls was and is normal in general practice. Furthermore, the factum of Ratan Tata vetting the minutes of Board meetings post facto did not evince his participation as a ‘shadow director’ – he was nominated as ‘Chairman Emeritus’ by the Board throughout, reflecting the Board’s desire to have his support and guidance. We leave you with one more excerpt on this point which we believe is obiter, but time will tell how the courts interpret this:

If someone, aggrieved after his removal from office can engage in shadow­boxing through the companies controlled by him, he cannot accuse the very same person who chose him as successor to be a shadow director. Someone who gained entry through the very same door, cannot condemn it when asked to exit.


Question 6: Could the Shapoorji Pallonji Group make a case for proportionate representation in the Company?

SC’s Response: We would like to first take you back to the background and the fact that the Company was first incorporated in 1917 – there are therefore three versions of the Indian Companies Act that have applied to it, namely that of 1913, 1956 and now 2013.

Whether under the 1956 or 2013 Companies Act, proportionate representation is made available only to ‘small shareholders’ (which the Shapoorji Pallonji Group is not, since its holdings are valued exponentially above the statutory ceiling(s)); furthermore, such a right isn’t available in the Articles of Association of the Company, which cannot be rewritten in its basic sense of being a contract, even on the direction of the NCLAT. The Mistry faction went so far as to state that a quasi-partnership existed between the Shapoorji Pallonji Group and the Tata Sons Group, therefore necessitating the need for proportionate representation, but this argument too, was found lacking conviction. To the contrary, the court again took the view that Ratan Tata provided more than what was due by virtue of the 18% shareholding that the Shapoorji Pallonji has in the Company by facilitating the movement of Cyrus Mistry to the top position merely six years after his induction to the Board. The foundations of such an analysis is almost Biblical in nature (As all things have been made by my hand, so shall they be unmade?).


Question 7: Whether the reconversion of the Company from a public company to a private company required statutory approvals under the Companies Act of 2013 or 1956?

SC’s Response: As mentioned earlier, there are three versions of the Indian Companies Act that have applied to the Company, namely that of 1913, 1956 and now 2013. Without going too deep into the slight differences between the 1956 and 2013 Acts, the fact of the matter is that the Company could not be characterised as a private company under the 1956 Act since it invited deposits from persons other than members / Directors or their relatives, a requirement that was done away with in the 2013 Act. The provisions of the 2013 Act also came into force in stages, and at one point of time there was an overlap between the 1956 Act and the 2013 Act creating a confusion from 2013 to 2019.

Nevertheless, the apex court opined that the Company was eligible to be a private company under the 2013 Act irrespective of the overlap between the definition of what a private company is under Section 2(68) of the 2013 Act (Tata Sons qualified here) and the ingredients that constitute a private company under Section 3 of the 1956 Act (Tata Sons did not qualify here due to the abovementioned deposit taking from the public) – holding that the mere change in the certificate of incorporation acquired from the Registrar of Companies was valid in law, the court also held that the real reason that the Mistry faction was aggrieved by the reconversion was because many of its arguments stood on better footing if the Company was deemed to be a public company; in the words of the court, this would ‘tantamount to putting the cart before the horse’.

The Unaddressed Last Aspect

As one can see from a reading of the above, all questions were answered in favour of the Tata Group; however, there remained one last application (filed during the pendency of the proceedings) that the court did not consider nor answer since the present proceedings flowed from an appeal provision in the 2013 Act (Section 423) against the NCLAT decision – this pertains to the alternative relief prayed for by the Shapoorji Pallonji Group to cause a separation of ownership interests of the said Group in the Company by way of reduction of capital and fair compensation for its shares in the Company followed by a transfer of proportionate shares and other values (settled in cash) in the underlying Group companies.

In addition to pointing out the procedural irregularity in asking for such a relief in what is an appellate consideration, the court also noted the paradox in asking for the neutralization of Article 75 on one hand and asking for a solution on the basis of the same Article on the other hand. Nevertheless, this matter is yet to be resolved and shall be in a future judgment.

Concluding Analysis and Takeaways

Circling back to our initial view of the fact matrix of this case being most singular, this element becomes incredibly important, in our opinion, while looking into the precedent value of this judgment (which we believe needs to be very, very limited). It’s not every day that a century old company heading a conglomerate has affirmative voting rights provided to nominees from charitable trusts. More so, the validation of an act of rescinding power provided to an individual representing a minority shareholder group because the same power was bestowed in the first place when it was not required seems questionable. The behaviour and acts of Cyrus Mistry detrimental to the Company also seemed to play a role in coming to the conclusions in the judgment. Lastly, a number of statements seem to be made in the decision which could have far reaching implications for corporate law jurisprudence if not labelled as obiter dicta, such as the musings on the standards of independence for directors.

How our judicial system moves on from here and what it takes away from this case is to be of utmost importance going forward; there is, however, no doubt that shareholders, both of the majority and in the minority, have valuable insights to gain from the judgment and their lawyers on core fundamentals of minority shareholder jurisprudence and how actions, both corporate and personal, affect the outcome of company law proceedings at the apex court level.

From our side, we hope this was a good read – we did our best to condense the decision and its aspects to the maximum while retaining all the core aspects, questions, analysis and outcomes. Thank you for reading!