NCLAT Overturns Firing of Executive Chairman of Tata Sons and Reinstates Him As Chairman

We often hear people talk about private companies going public, but it’s not as often that it goes the other way around – from a public company to a private one. There’s a lot of paperwork involved either way, but unless you have a plan for repaying your investors, going from public to private also means you are denying your shareholders (especially minority shareholders) the stake in the company for which they have already paid.

The National Company Law Appellate Tribunal (NCLAT) said as much in a recent ruling in which it decided against allowing Tata Sons, the holding company of Tata Group, to convert itself from a public company to a private one. Although the Registrar of Companies had approved the transition, the NCLAT said that approval went against Section 14 of the Companies Act of 2013. The NCLAT also pointed out that the move, made by the directors and majority shareholders of the software conglomerate, would be oppressive towards the company’s minority shareholders.

The NCLAT also reinstated Cyrus Mistry as the company’s executive chairman. He had previously been fired back in October of 2016 due to a supposed lack of performance, but the NCLAT ruled that his firing had been illegal.

Mistry’s family owns an 18.4% stake in Tata Sons, making them a minority shareholder of the conglomerate, and Mistry’s legal troubles with Tata Sons began in 2016 with accusations of mismanagement and oppressing minority shareholders – charges that eventually led to Mistry getting ousted as executive chairman.

In its ruling, the NCLAT pointed out that the nominee directors of Tata Trusts have affirmative voting rights over the majority decision – meaning their votes have the power to overrule any decisions made by a majority vote. Given those circumstances, the NCLAT said it wondered how it could blame Mistry for poor performance when he was subject to the votes of the nominee directors.

The relief provided by the NCLAT went above and beyond what Mistry had requested when he appealed his own firing, leaving Tata Sons wondering if the NCLAT has the power to overturn decisions made at valid shareholder meetings.

N Chandrasekaran, who replaced Mistry as executive chairman, wrote to employees after the ruling was announced, assuring them the company would pursue all available legal remedies to overturn the decision, and he urged employees to maintain business as usual.

Although Mistry is generally reclusive and likes to keep a low profile, he did not shy away from pursuing legal remedies to challenge his firing and Ratan Tata’s alleged inappropriate meddling with the company’s affairs.

Counsel for Tata Sons denied the allegations made by Mistry against the company, saying everything it did, it did legally and well within its rights.

Neither Mistry nor his attorney appeared to be surprised by the NCLAT ruling, nor did they claim it as a personal victory. Instead, they both insisted it was a victory for corporate governance and transparency in corporate management.

Mistry has also defended the NCLAT’s right to reinstate him as executive chairman of Tata Sons. Amid arguments from Tata Sons that the NCLAT overstepped its bounds by reinstating Mistry as chairman, Mistry has maintained that doing so is well within the powers granted to the NCLAT.

Shareholder Oppression and Shareholder Freeze-Outs  strikes home with us a Lubin Austermuehle because we’ve built our practice over the years on integrity, commitment, and a devotion to an unswerving work ethic focused on commitment, client service and results.  We’re proud to offer the convenience of three offices and availability throughout the Chicagoland area from Geneva to Lake Forest.  Take advantage of our FREE consultation where we can discuss your specific needs and wishes and our ability to meet them. You can contact us online here or call us on our locally number at 630-333-0333.

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