Pre-consultation with Tata Trusts was “going around” contrary to what is expected from a board-managed company under the Companies Act, minority shareholder Shapoorji Pallonji (SP) Group submitted in the Supreme Court on Thursday.
The SP Group referred to how Section 10 of the Companies Act of 2013 mandates that the memorandum and articles of a company should be subject to the statute.
The SP Group has claimed how Article 121 of the Articles of Association of Tata Sons, the flagship company, was used by Tata Trusts headed by Ratan Tata, which owns 66% stake in Tata Sons, to undermine the board. The Cyrus Mistry camp has argued in court that the Tata Trust was pre-consulted before every decision. This was against the tenets of a company which should be managed by an independent board of directors.
A three-judge Bench led by Chief Justice of India Sharad A. Bobde has reserved its judgment on the cross-appeals filed by Tata Sons and Cyrus Mistry against the December 2019 verdict of the National Company Law Appellate Tribunal. The Tribunal had directed the re-instatement of Mr. Mistry as the executive chairman of Tata Sons.
Senior advocate Shyam Divan, for the SP Group, said the management of the company had violated three provisions of the Companies Act, including Section 166, which mandates that directors have to exercise independent judgment; Section 118(10), which mandates that secretarial rules need to be followed; and finally, Section 149, which provides that the board, and not the majority shareholder, should manage the company.
“Proportional representation and representation of minority shareholders on board are well established statutory principles. Directors should act in good faith of the company and its shareholders,” Mr. Divan argued.
Senior advocate Janak Dwarakadas, for the SP Group, said the lack of financial probity was not the only just and equitable cause for winding up a company. Infraction of the legal or proprietary right of a member can also be a reason for a winding-up order, he submitted.
In his rebuttal for the Tatas, senior advocate Harish Salve said that even the governance structure proposed by Mr. Mistry himself had envisaged a role for Tata Trusts in Tata Sons.
