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This article was first published 3 years ago  » Business » SC slams NCLAT for 'tinkering' with power in Tata-Mistry case

SC slams NCLAT for 'tinkering' with power in Tata-Mistry case

Source: PTI
March 27, 2021 13:16 IST
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The Supreme Court on Friday said the National Company Law Appellate Tribunal (NCLAT) order “tinkering” with the power available under Article 75 of the Articles of Association of Tata Sons was “wholly unsustainable”.

IMAGE: Ratan Tata with Cyrus Mistry. Photograph: PTI Photo.

The article deals with company's power of transfer of ordinary shares.

The NCLAT, in its December 18, 2019 order, had restrained the company, its board of directors and shareholders from exercising the power under the article against minority members except in exceptional circumstances and in the interest of company.


A bench headed by Chief Justice SA Bobde dealt with this issue in its 282-page verdict which set aside the NCLAT's order that had restored Cyrus Mistry as the executive chairman of the USD 100 billion salt-to-software conglomerate.

“As a matter of fact, NCLAT has agreed, on first principles, that it has no jurisdiction to declare any of the Articles of Association illegal. After having set a benchmark correctly, NCLAT neutralised Article 75 merely on the basis of likelihood of misuse,” said the bench, also comprising Justices A S Bopanna and V Ramasubramanian.

The bench was dealing with a question as to whether NCLAT could have, in law, muted the power of company under Article 75 of the Articles of Association, to demand any member to transfer his shares, by injuncting the firm from exercising the rights under the Article, even while refusing to set aside the article.

It noted that Articles of Association of a company constitute a contract among shareholders and is the “bedrock of Company Law”.

“Therefore, the order of NCLAT tinkering with the power available under Article 75 of the Articles of Association is wholly unsustainable,” the bench said.

It noted that Article 75 was “not an invention of the recent origin in Tata Sons” and it has been there for nearly a century in one form or the other.

It said that Cyrus Mistry himself was a party to an amendment made to Article 75 on September 13, 2000.

“The article in its present form was made only on September 13, 2000 and the amendment was unanimously carried through in the presence of and with the consent of CPM (Cyrus Pallonji Mistry),” it said.

“A person who willingly became a shareholder and thereby subscribed to the Articles of Association and who was a willing and consenting party to the amendments carried out to those articles, cannot later on turn around and challenge those Articles. The same would tantamount to requesting the court to rewrite a contract to which he became a party with eyes wide open,” the bench said.

The apex court also dismissed a plea of Shapoorji Pallonji Group seeking separation of ownership interests in Tata Sons Pvt Ltd (TSPL).

“Thus in fine, all the questions of law are liable to be answered in favour of the appellants Tata group and the appeals filed by the Tata group are liable to be allowed and the appeal filed by SP Group is liable to be dismissed,” it said.

“In the result, all the appeals except Civil Appeal No...(appeal of Cyrus Investments Pvt Ltd versus Tata Sons Ltd and others) are allowed and the order of NCLAT dated December 18, 2019 is set aside,” the apex court said.

Mistry had succeeded Ratan Tata as the chairman of TSPL in 2012, but was ousted four years later.

The SP group had earlier told the top court that Mistry's removal as the chairman of TSPL at a board meeting held in October 2016 was akin to a "blood sport" and "ambush", in complete violation of the principles of corporate governance and in pervasive violation of the Articles of Association in the process.

The Tata group had vehemently opposed the allegations and denied any wrongdoing, saying the board was well within its right to remove Mistry as the chairman.

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