NCLT to Tatas: Just apply to become private, don’t pursue it till Jan 16

MUMBAI: The National Company Law Tribunal (NCLT) on Thursday suggested that Tata Sons can file, but not press, a plea for conversion from being a public company to private, while a hearing was on, till January 16. The hearing is in an oppression and mismanagement case filed by minority shareholders linked to the conglomerate’s ousted chairperson Cyrus Mistry.
The order, passed while adjourning the hearing in the oppression complaint to January, comes as a respite of sorts to the Mistry camp that claims the proposed conversion itself is an oppressive act.
Thursday’s session saw a daylong submission by senior counsel C A Sundaram, who represents the two Mistry family-linked shareholders, and an energetic discussion about the next dates.
The counsel made an oral plea that the Tata group ought not to make any moves in its conversion plan. A Tata counsel, Prateek Seksaria, immediately objected and said there cannot be any status quo order and that nothing prevents the $103-billion conglomerate from making any such plea and going ahead with its board activities.
Sundaram said the Mistry camp had filed a written application against the conversion, which is pending. Seksaria said it will have to be heard first and added that the Tata group was ready to argue against it.
The tribunal bench, headed by judicial member B S V Prakash Kumar, adjourned the oppression complaint for further hearing, which will be held between January 8 and 16, 2018. A schedule was set for both sides. The bench also said that since Sundaram “raised the issue of conversion, it is suggested to Tata Sons to make their submission on conversion petition after January 16”, but allowed it to file it by then. Sundaram and his legal team walked out all smiles.
In his argument minutes before, Sundaram had argued, “The conversion is yet another instance of the board exercising its powers mala fide at the behest of majority shareholders.” He said that he wasn’t asking the NCLT to adjudicate on the “wisdom” of the conversion, but said, “If conversion is allowed, the Trust-nominated directors alone will be able to constitute the quorum and minority shareholders, such as the petitioners — who hold 18% shareholding — will be rendered powerless and at the mercy of Tata Trusts with the nominated directors taking all the key decisions pertaining to affairs of Tata Sons.”
He said later, “Our application is pending. In the meantime, if the Tata Sons were to move NCLT and be granted permission to convert, it would nullify the objections raised by the minority shareholders.”
The Tata Group doesn’t see the order as a stay of any sort or a set back, as there is no bar on them moving the NCLT with a conversion petition. Under the new companies Act of 2013, a private company treated as a deemed public company can restore its status as a private company. However, the conversion needs an approval from the NCLT.
Sundaram pointed out that Tata Sons had said in a letter, “There is no prejudice to company members if it turns private.”
The legal team for the Tata Group present in court included former solicitor general Mohan Parasaran, senior counsel from Kolkata S N Mukherjee, Tata Group general counsel Shuva Mandal, and Ruby Ahuja of Karanjawala & Co from Delhi.
The second day of Sundaram’s submission, meanwhile, saw him elaborate on how the “Trustees were controlling Tata Sons”. And he reiterated that Mistry, who till June 2015 was only praised, suddenly went from “hero to villain” in the months that followed because he wanted to improve corporate governance and probe certain transactions. “When Misty wanted to probe the Siva group and AirAsia transaction, he was removed as chairperson which is an act of oppression,” said Sundaram. “Cleaning up being effected by Mistry was the real reason for his removal,” he argued.
He added that as chairperson, Mistry was “seeking to recover legitimate dues owed by C Sivasankaran (Siva) group to Tata Group towards his equity share of Tata Teleservices which had been brought back by NTT Tata DoCoMo and then were forced back on Tata Group at a value above their prevailing rate”. His case was that on September 15, 2016, at a board meeting, Mistry secured approval to take action and while it was on the agenda on October 24, he was removed as the first decision at the board meeting, even though his removal was not on agenda.
Sundaram said the Siva group was supposed to get back over Rs 600 crore, which it didn’t and after NTT DoCoMo acquired 26 % shares in TTSL, Siva made a profit of Rs 209 crore by selling 20 million shares at Rs 117 per share in 2008. He had bought the shares at Rs 17 per share in 2005.
“There was no requirement to remove Mistry as director, but he was because he took the legal recourse against Tata Sons … he wouldn’t have been removed as director if he had kept quiet and not protested against oppression,” said Sundaram, adding that, “Oppression of minority shareholder (Shapoorji Pallonji Group) of Tata Sons even continuous today.”
He said Mistry had support of independent directors including Nusli Wadia, but the “meeting to remove Mistry as director from Tata Group companies was convened on requisition of majority shareholder”. “Tata Sons board became a ‘parrot’ of the majority shareholders … Even public-listed companies were asked to remove Mistry as director.” Sundaram also expressed apprehension that through article 75, Tata Trusts can ask Mistry to transfer his entire shareholding and said, thus, “It is imperative to strike down article 75 of Articles of Association.”
Sundaram’s arguments before NCLT were that Ratan Tata’s actions created non-performing assets of Rs 4,000 core, which Mistry had to absorb later. Additionally, a market analysis report by an internationally renowned agency shows how the company performed so well despite problems faced. He also pointed out that two reasons being trotted by Tata Sons were specious — Mistry’s performance was bad and hence he had to be removed, and that reimbursements of directors was high when group companies were suffering losses.