This week we witnessed the end of the much-publicized Tata – Cyrus Mistry directorial battle which began in October 2016 and concluded with the dismissal of the review petition filed by the Shapoorji Pallonji group (“SP Group”) by the Supreme Court vide its order dated May 19, 2022.

The dispute was triggered with the replacement of Mr. Cyrus Mistry as the Executive Chairman of Tata Sons, followed by his removal as a director by the shareholders of Tata Industries Ltd., Tata Consultancy Services Ltd. and Tata Teleservices Ltd. Subsequently, Mr. Mistry resigned as the director of Indian Hotels Company Ltd., Tata Steel Ltd., Tata Motors Ltd., Tata Chemicals Ltd. and Tata Power Company Ltd. after becoming aware of the impending resolutions seeking to remove him as a director of the said companies.

In response to what was termed as an ‘illegal removal of Mr. Mistry’, two companies from the SP Group in which Mr. Mistry has controlling interest, filed a petition under Section 241-242 of the Companies Act, 2013 (“Act”) against Tata Sons, alleging unfair prejudice, oppression and mismanagement. During the pendency of these proceedings before the National Company Law Tribunal, Mumbai, Mr. Mistry was also removed as a director of Tata Sons by its shareholders.

What followed was a long drawn-out legal fight which ultimately reached the Supreme Court in 2020.  In March 2021, the bench comprising of the then Chief Justice of India S.A. Bobde, Justice A.S. Bopanna and Justice V. Ramasubramanian finally ruled in favor of Tata, inter alia holding that “even the removal from Directorship can never be held to be an oppressive or prejudicial conduct” [¶114].[1] The Supreme Court accordingly allowed the appeal filed by Tata Sons and upheld the removal of Mr. Mistry.

Aggrieved by the unfavorable turn of events, the SP Group made one last attempt to salvage its position, by filing a review petition before the Supreme Court against the above judgment. An application was also filed seeking expunction of certain remarks against Mr. Mistry in the said judgment.

The bench comprising of the Chief Justice of India NV Ramana, Justice AS Bopanna and Justice V Ramasubramanian however refused to entertain the said petition and on May 19, 2022 dismissed the same.

The Supreme Court’s March 2021 judgment had laid down various principles in connection with shareholder disputes under Section 241-242 of the Act. With the dismissal of SP Group’s review petition inter alia the following findings of the Supreme Court in its judgment of March 2021 for now continue to shape the contours of shareholder actions under Section 241-242 of the Act in India:

a.   even in cases where the Tribunal finds that the removal of a director was not in accordance with law or not justified on facts, no relief can be granted under Section 242 unless such removal prejudices/ is designed to oppress the interests of shareholders. [¶118] Accordingly, purely directorial disputes cannot be the subject matter of an action under Section 241-242.

b.   before granting reliefs/ issuing directions, Tribunal should always keep in mind the purpose for which remedies are made available under Section 241-242, namely to put an end to the matters complained of. The object should not be to put an end to the company itself, forsaking the interests of other stakeholders. [¶180-182]

c.   Section 241 provides for a remedy only against ‘past and present conduct’ or ‘past and present continuous conduct’. It does not cover the likelihood of a ‘future bad conduct’. [¶186]

d.   person who willingly became a shareholder, subscribing to the articles of association, and has been a willing and consenting party to the amendments carried out therein, cannot later challenge the said articles. This would tantamount to requesting the Court to re-write a contract to which the individual became a party with open eyes. [¶188] Provided however, a Tribunal does have the power under Section 242 to set aside any amendment to articles which would take away a recognized proprietary shareholder right. This however is premised on the fact that the conduct of bringing up such an amendment is oppressive/ prejudicial. [¶190]

e.   ‘minority’ shareholders are distinct from the category of ‘small’ shareholders envisaged under Section 151 of the Act who are defined as shareholders holding shares of nominal value of not more than INR 20,000/- or such other sum as may be prescribed, in a listed company. The Court clarified that Section 152 of the Act, which contains the provision for appointment of directors does not confer any right of proportionate representation on the Board of any company [¶232, 236]

f.   reinstatement will not arise after the tenure of office has run its course. The architecture of Sections 241-242 does not permit the Tribunal to “read into the sections, a power to make an order (for reinstatement) which is barred by law”. Sections 241-242 neither specifically confers the power of reinstatement nor is there any scope for holding that such a power can be implied/ inferred from any of the powers specifically conferred. [¶157, 163-167]

It is pertinent that in the past year some of these findings have been relied upon by the various benches of the National Company Law Tribunal and the National Company Law Appellate Tribunal. The dismissal of the review petition by the Supreme Court ensures that the steps taken by them in the last year inter alia guided by these findings still hold ground.

Footnote:

[1] (2021) 9 SCC 449