TATA CONSULTANCY SERVICES LIMITED versus CYRUS INVESTMENTS PVT. LTD. AND ORS. on 26 March 2021

[2021] 12 S.C.R. 903

TATA CONSULTANCY SERVICES LIMITED

v.

CYRUS INVESTMENTS PVT. LTD. AND ORS.

(Civil Appeal Nos. 440-441 of 2020)

MARCH 26, 2021

[S.A. BOBDE, CJI, A.S. BOPANNA ANDV. RAMASUBRAMANIAN, JJ.]

Companies Act, 2013 – ss. 241 and 242 – Held: The sine quanon for invoking s.241 is that the affairs of the Company shouldhave been conducted or are being conducted in a manneroppressive or prejudicial to some of the members – In a petition u/s.241, the Tribunal cannot ask the question whether the removal ofa Director was legally valid and/or justified or not – The questionto be asked is whether such a removal tantamount to a conductoppressive or prejudicial to some members – Even in cases wherethe Tribunal finds that the removal of a Director was not inaccordance with law or was not justified on facts, the Tribunalcannot grant a relief u/s.242 unless the removal was oppressive orprejudicial – There may be cases where the removal of a Directormight have been carried out perfectly in accordance with law andyet may be part of a larger design to oppress or prejudice the interestsof some members – It is only in such cases that the Tribunal cangrant a relief u/s.242 – The validity and justification for the removalof a person can never be the primary focus of a Tribunal u/s.242unless the same is in furtherance of a conduct oppressive orprejudicial to some of the members – On facts, the removal of aperson from the post of Executive Chairman cannot be termed asoppressive or prejudicial –The original cause of action for thecomplainant companies to approach NCLT was the removal of CPMfrom the post of Executive Chairman – Though the complainantcompanies padded up their actual grievance with various historicalfacts to make a deceptive appearance, the causa proxima for thecomplaint was the removal of CPM from the office of ExecutiveChairman – His removal from Directorship happened subsequentto the filing of the original complaint and that too for valid and

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Ajustifiable reasons and hence NCLAT could not have laboured somuch on the removal of CPM, for granting relief u/ss.241 and 242.

Company Law – Held: Company Tribunal is not a labourCourt or an administrative Tribunal to focus entirely on the mannerof removal of a person from Directorship.B

Company Law – Winding up order on just and equitablegrounds – Held: There must lie a justifiable lack of confidence inthe conduct and management of the company’s affairs, at thefoundation of applications for winding up – The case on hand doesnot fall anywhere near the just and equitable standard, for the simpleCreason that it was the very same complaining minority whoserepresentative was not merely given a berth on the Board but wasalso projected as the successor to the Office of Chairman – Forinvocation of just and equitable clause, there must be a justifiablelack of confidence on the conduct of the directors – A mere lack ofconfidence between the majority shareholders and minorityDshareholders would not be sufficient – On facts, Tata Sons is aprincipal investment holding Company, of which the majorityshareholding is with philanthropic Trusts – The majorityshareholders are not individuals or corporate entities having deeppockets into which the dividends find their way if the CompanyEdoes well and declares dividends – The dividends that the Trustsget are to find their way eventually to the fulfilment of charitablepurposes – Therefore, NCLAT should have raised the mostfundamental question whether it would be equitable to wind up theCompany and thereby starve to death those charitable Trusts,especially on the basis of un-charitable allegations of oppressiveFand prejudicial conduct – Finding of NCLAT that the facts otherwisejustify the winding up of the Company under the just and equitableclause, was completely flawed.

Companies Act, 2013 – ss. 241 and 242 – ss.241 and 242 donot specifically confer the power of reinstatement, nor there is anyGscope for holding that such a power to reinstate can be implied orinferred from any of the powers specifically conferred – Thearchitecture of ss.241 and 242 does not permit the Tribunal to readinto the Sections, a power to make an order (for reinstatement) whichis barred by law vide s.14 of the Specific Relief Act, 1963 with orwithout the amendment in 2018.H

Company Law – Law relating to oppression andmismanagement – Held: Despite the law relating to oppression andmismanagement undergoing several changes, the object that aTribunal should keep in mind while passing an order in anapplication complaining of oppression and mismanagement, hasremained the same for decades – This object is that the Tribunal, byits order, should bring to an end the matters complained of – Thepurpose of an order both under the English Law and under theIndian Law, irrespective of whether the regime is one of “oppressiveconduct” or “unfairly prejudicial conduct” or a mere “prejudicialconduct”, is to bring to an end the matters complained of byproviding a solution – The object cannot be to provide a remedyworse than the disease – The object should be to put an end to thematters complained of and not to put an end to the company itself,forsaking the interests of other stakeholders.

Company Law – Articles of Association of a company – Held:That Articles of Association of a company constitute a contract amongshareholders, is the bedrock of Company Law – A person whowillingly became a shareholder and thereby subscribed to the Articlesof Association and who was a willing and consenting party to theamendments carried out to those Articles, cannot later on turnaround and challenge those Articles – The same would tantamountto requesting the Court to rewrite a contract to which he became aparty with eyes wide open.

Companies Act, 2013 – s.241 – s.241 is not intended todiscipline a Management in respect of a possible future conduct.

Companies Act, 2013 – s.242 – Articles of Association of acompany – Held: The Tribunal has the power u/s.242 to set asideany amendment to the Articles that takes away recognised proprietaryrights of shareholders – But this is on the premise that the bringingup of amendment itself was a conduct that was oppressive orprejudicial – On facts, the order of NCLAT tinkering with the poweravailable under Article 75 of the Articles of Association was whollyunsustainable.

In the instant matter, Tata Sons (Private) Limitedchallenged a final order dated 18-12-2019 passed by the NationalCompany Law Appellate Tribunal (NCLAT) (i) holding as illegal, AB

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Athe proceedings of the sixth meeting of the Board of Directors ofTATA Sons Limited held on 24.10.2016 in so far as it related tothe removal of Shri Cyrus Pallonji Mistry (“CPM”); (ii) restoringthe position of CPM as the Executive Chairman of Tata SonsLimited and consequently as a Director of the Tata Companiesfor the rest of the tenure; (iii) declaring as illegal the appointmentBof someone else in the place of CPM as Executive Chairman;(iv) restraining Shri Ratan N. Tata (“RNT”) and the nominees ofTata Trust from taking any decision in advance; (v) restrainingthe Company, its Board of Directors and Shareholders fromexercising the power under Article 75 of the Articles ofCAssociation against the minority members except in exceptionalcircumstances and in the interest of the Company; and (vi)declaring as illegal, the decision of the Registrar of Companiesfor changing the status of Tata Sons Limited from being a publiccompany into a private company.

DThe questions of law that arose for consideration were:(i) Whether the formation of opinion by the AppellateTribunal that the company’s affairs have been or are beingconducted in a manner prejudicial and oppressive to somemembers and that the facts otherwise justify the winding up ofEthe company on just and equitable ground, is in tune with thewell settled principles and parameters, especially in the light ofthe fact that the findings of NCLT on facts were not individuallyand specifically overturned by the Appellate Tribunal?

(ii) Whether the reliefs granted and the directions issuedFby the Appellate Tribunal, including the reinstatement of CPMinto the Board of Tata Sons and other Tata companies, are inconsonance with the pleadings made, the reliefs sought and thepowers available under Sub-section (2) of Section 242 of theCompanies Act, 2013?

G(iii) Whether the Appellate Tribunal could have, in law,muted the power of the Company under Article 75 of the Articlesof Association, to demand any member to transfer hisordinary shares, by simply injuncting the company from exercisingsuch a right without setting aside the Article?

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(iv) Whether the characterisation by the Tribunal, of theaffirmative voting rights available under Article 121 to theDirectors nominated by the Trusts in terms of Article 104B, asoppressive and prejudicial, is justified especially after thechallenge to these Articles have been given up expresslyand whether the Tribunal could have granted a direction toRNT and the Nominee Directors virtually nullifying the effect ofthese Articles ?

(v) whether the re-conversion of Tata Sons from a publiccompany into a private company, required the necessary approvalunder section 14 of the Companies Act, 2013 or at least an actionunder section 43A(4) of the Companies Act, 1956 during theperiod from 2000 (when Act 53 of 2000 came into force) to 2013(when the 2013 Act was enacted) as held by NCLAT ?

Answering all the questions of law in favour of the TataGroup, the Court

HELD:

Question No.1

1.1. The real reason why the complainant companies thoughtfit, quite tactfully, not to press for the reinstatement of CPM isthat the mere termination of Directorship cannot be projected assomething that would trigger the just and equitable clause forwinding up or to grant relief under Sections 241 and 242.[Para 16.21][1002-A-B]

1.2. It must be remembered : (i) that a provision forinclusion of a representative of small shareholders in the Boardof Directors, is of a recent origin under Section 151 of theCompanies Act, 2013 and it is applicable only to a listed company;(ii) that Tata sons is not a listed Company; (iii) that the Articles ofAssociation of Tata sons, to which the complainant companies,CPM and his father had subscribed, do not provide for anyrepresentation; (iv) that despite there being no statutory orcontractual obligation, Tata Sons inducted CPM’s father as adirector on the board in the year 1980 and continued him for aperiod of almost 25 years; (v) that CPM himself was inducted,again without reference to any statutory or contractual obligation, AB

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Aas a Director on the Board in August, 2006; and (vi) that within 6years of such induction, CPM was identified as a successor toRNT and was appointed as Executive Deputy Chairmanand elevated to the position of Executive Chairman.[Para 16.22][1002-B-E]

B1.3. It is an irony that the very same person who representsshareholders owning just 18.37% of the total paid up share capitaland yet identified as the successor to the empire, has chosen toaccuse the very same Board, of conduct, oppressive and unfairlyprejudicial to the interests of the minorities. [Para 16.23][1002-E-F]C1.4. The fact that the removal of CPM was only from theExecutive Chairmanship and not the Directorship of the companyas on the date of filing of the petition and the fact that in law, eventhe removal from Directorship can never be held to be anoppressive or prejudicial conduct, was sufficient to throw thepetition under section 241 out, especially since NCLAT choseDnot to interfere with the findings of fact on certain businessdecisions. [Para 16.24][1002-G-H; 1003-A]

1.5. The subsequent conduct on the part of CPM in leakinghis mail dated 25-10-2016 to the Press and sending replies tothe Income Tax Authorities enclosing 4 box files, even whileEcontinuing as a Director, justified his removal even from theDirectorship of Tata Sons and other group companies. A personwho tries to set his own house on fire for not getting what heperceives as legitimately due to him, does not deserve tocontinue as part of any decision making body (not just the Boardof a company). [Para 16.25][1003-B-C]F

1.6. In a petition under Section 241 of the Companies Act,2013, the Tribunal cannot ask the question whether the removalof a Director was legally valid and/or justified or not. The questionto be asked is whether such a removal tantamount to a conductoppressive or prejudicial to some members. Even in cases whereGthe Tribunal finds that the removal of a Director was not inaccordance with law or was not justified on facts, the Tribunalcannot grant a relief under Section 242 unless the removal wasoppressive or prejudicial. [Para 16.28][1003-H; 1004-A-B]

1.7. There may be cases where the removal of a Directormight have been carried out perfectly in accordance with law andH

yet may be part of a larger design to oppress or prejudice theinterests of some members. It is only in such cases that theTribunal can grant a relief under Section 242. The CompanyTribunal is not a labour Court or an administrative Tribunal tofocus entirely on the manner of removal of a person fromDirectorship. [Para 16.29][1004-B-C]

1.8. The validity of and justification for the removal of aperson can never be the primary focus of a Tribunal under Section242 unless the same is in furtherance of a conduct oppressive orprejudicial to some of the members. In fact the post of ExecutiveChairman is not statutorily recognised or regulated, though thepost of a Director is. CPM was removed only from the post of (ordesignation as) Executive Chairman and not from the post ofDirector till the Company Petition was filed. But CPM himselfinvited trouble, by declaring an all out war, which led to hisremoval from Directorship. [Para 16.31][1004-E-F]

1.9. It is true that as per the evidence available on recordhe was requested before the Board meeting, to step down fromthe post of Executive Chairman. That does not tantamount tothe act being pre-meditated. The induction of new members on8.8.2016 into the Board and the Board securing a legal opinionprior to the Board meeting, cannot make the act a pre-meditatedone. There is a thin line of demarcation between a well-conceivedplan and a pre-meditated one and the line can many times beblurred. [Para 16.32][1004-G-H]

1.10. In any event the removal of a person from the post ofExecutive Chairman cannot be termed as oppressive orprejudicial. The original cause of action for the complainantcompanies to approach NCLT was the removal of CPM from thepost of Executive Chairman. Though the complainant companiespadded up their actual grievance with various historical facts tomake a deceptive appearance, the causa proxima for the complaintwas the removal of CPM from the office of Executive Chairman.His removal from Directorship happened subsequent to the filingof the original complaint and that too for valid and justifiablereasons and hence NCLAT could not have laboured so much onthe removal of CPM, for granting relief under Sections 241 and242. [Para 16.42][1008-B-C]

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A1.11. NCLAT has recorded a finding, though not based uponany factual foundation, that the facts otherwise justify the makingof a winding up order on just and equitable ground. But as heldby the Privy Council in Loch v. John Blackwood ,”there must lie ajustifiable lack of confidence in the conduct and management ofthe company’s affairs, at the foundation of applications for windingBup.” More importantly, “the lack of confidence must spring notfrom dissatisfaction at being out-voted on the business affairs or onwhat is called the domestic policy of the company”. But, “whereverthe lack of confidence is rested on a lack of probity in the conductof the company’s affairs, then the former is justified by the latter.”C[Para 16.43][1008-D-F]

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1.12. The case on hand will not fall anywhere near the justand equitable standard, for the simple reason that it was the verysame complaining minority whose representative was not merelygiven a berth on the Board but was also projected as the successorDto the Office of Chairman. [Para 16.45][1009-C-D]

1.13. For invoking the just and equitable standard, theunderlying principle is that the Court should be satisfied eitherthat the partners cannot carry on together or that one of themcannot certainly carry on with the other. [Para 16.50][1011-C]

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1.14. In the case in hand there was never and there couldnever have been a relationship in the nature of quasi partnershipbetween the Tata Group and S.P. Group. S.P. Group boarded thetrain half-way through the journey of Tata Sons. Functional deadlock is not even pleaded nor proved. [Para 16.51][1011-C-D]

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1.15. For the invocation of just and equitable clause, theremust be a justifiable lack of confidence on the conduct of thedirectors. A mere lack of confidence between the majorityshareholders and minority shareholders would not be sufficient.[Para 16.52][1011-E]

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G1.16. Tata Sons is a principal investment holding Company,of which the majority shareholding is with philanthropic Trusts.The majority shareholders are not individuals or corporate entitieshaving deep pockets into which the dividends find their way ifthe Company does well and declares dividends. The dividendsthat the Trusts get are to find their way eventually to the fulfilmentH

of charitable purposes. Therefore, NCLAT should have raisedthe most fundamental question whether it would be equitable towind up the Company and thereby starve to death those charitableTrusts, especially on the basis of un-charitable allegations ofoppressive and prejudicial conduct. Therefore, the finding ofNCLAT that the facts otherwise justify the winding up of theCompany under the just and equitable clause, is completelyflawed. [Para 16.54][1012-A-C]

Question No.2

2.1. Sections 241 and 242 of the Companies Act, 2013 donot specifically confer the power of reinstatement, nor there isany scope for holding that such a power to reinstate can be impliedor inferred from any of the powers specifically conferred.[Para 17.17][1024-C]

2.2. The following words at the end of sub-section (1) of242 “the Tribunal may, with a view to bringing to an end thematters complained of, make such order as it thinks fit” cannotbe interpreted as conferring on the Tribunal any implied powerof directing reinstatement of a director or other officer of thecompany who has been removed from such office. These wordscan only be interpreted to mean as conferring the power to makesuch order as the Tribunal thinks fit, where the power to makesuch an order is not specifically conferred but is found necessaryto remove any doubts and give effect to an order for which thepower is specifically conferred. For instance, sub-section (2) ofSection 242 confers the power to make an order directing severalactions. The words by which sub-section (1) of Section 242 ends,supra can be held to mean the power to make such orders tobring an end, matters for which directions are given under sub-section (2) of Section 242. [Para 17.18][1024-C-F]

2.3. The architecture of Sections 241 and 242 does notpermit the Tribunal to read into the Sections, a power to make anorder (for reinstatement) which is barred by law vide Section 14of the Specific Relief Act, 1963 with or without the amendment in2018. [Para 17.19][1024-F-G]

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A2.4. Despite the law relating to oppression andmismanagement undergoing several changes, the object that aTribunal should keep in mind while passing an order in anapplication complaining of oppression and mismanagement, hasremained the same for decades. This object is that the Tribunal,by its order, should bring to an end the matters complained of.B[Para 17.33][1029-B-C]

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2.5. The purpose of an order both under the English Lawand under the Indian Law, irrespective of whether the regime isone of “oppressive conduct” or “unfairly prejudicial conduct” or amere “prejudicial conduct”, is to bring to an end the mattersCcomplained of by providing a solution. The object cannot be toprovide a remedy worse than the disease. The object should beto put an end to the matters complained of and not to put an endto the company itself, forsaking the interests of otherstakeholders. [Para 17.34][1029-D]

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2.6. The NCLAT could not have granted the reliefs of (i)reinstatement of CPM (ii) restriction on the right to invoke Article75 (iii) restraining RNT and the Nominee Directors from takingdecisions in advance and (iv) setting aside the conversion of TataSons into a private company. [Para 17.35][1029-F-G]

EQuestion No.3

3.1. The sine qua non for invoking Section 241 is that theaffairs of the Company should have been conducted or are beingconducted in a manner oppressive or prejudicial to some of themembers. No single instance even of invocation of Article 75,Fleave alone misuse, is averred in the main company petition or inthe application for amendment. Therefore, NCLAT could not haveand should not have made Article 75 completely ineffective bypassing an order of restraint. [Para 18.3][1030-E-F]

3.2. As a matter of fact, NCLAT has agreed, on firstGprinciples, that it has no jurisdiction to declare any of the Articlesof Association illegal. After having set a benchmark correctly,NCLAT neutralised Article 75 merely on the basis of likelihoodof misuse. Section 241(1)(a) provides for a remedy, only in respectof past and present conduct or past and present continuous H

conduct. NCLAT has stretched Section 241(1)(a) to cover thelikelihood of a future bad conduct, which is impermissible in law.[Para 18.4][1030-G]

3.3. That Articles of Association of a company constitute acontract among shareholders, is the bedrock of Company Law.In fact, Article 75 was not an invention of the recent origin inTata Sons. It has been there for nearly a century in one form orthe other. The Company was incorporated in the year 1917 andS.P. Group acquired shares nearly after 50 years in the year 1965.Even at that time Article 75 was in existence in a different form.After 1965, Article 75 underwent several rounds of amendments,to which the S.P. Group, CPM’s father and CPM were parties.CPM himself was a party to an amendment made to Article 75 on13.09.2000. The Article in its present form was made only on13.09.2000 and the amendment was unanimously carried throughin the presence of and with the consent of CPM. [Para 18.5][1030-H; 1031-A-C]

3.4. A person who willingly became a shareholder andthereby subscribed to the Articles of Association and who was awilling and consenting party to the amendments carried out tothose Articles, cannot later on turn around and challenge thoseArticles. The same would tantamount to requesting the Court torewrite a contract to which he became a party with eyes wideopen. [Para 18.6][1031-C-D]

3.5. It is not as though CPM or his father who was also aDirector for nearly 25 years, were not aware of or blind to theexistence of Article 75. The pleading on the part of thecomplainant companies was sufficient to throw the challenge toArticle 75 out, as it did not correlate to an actual conduct but thepossibility of a future conduct. Section 241 is not intended todiscipline a Management in respect of a possible future conduct.[Para 18.7][1031-D-G]

3.6. It is no doubt true that the Tribunal has the power underSection 242 to set aside any amendment to the Articles that takesaway recognised proprietary rights of shareholders. But thisis on the premise that the bringing up of amendment itself wasa conduct that was oppressive or prejudicial. [Para 18.8][1031-G-H]

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914SUPREME COURT REPORTS

A3.7. The order of NCLAT tinkering with the power availableunder Article 75 of the Articles of Association is whollyunsustainable. [Para 18.11][1032-D]

Question No.4

4. The fourth question of law - whether the characterisationBby the Tribunal, of the affirmative voting rights available underArticle 121 to the Directors nominated by the Trusts in terms ofArticle 104B, as oppressive and prejudicial, is justified especiallyafter the challenge to these Articles have been given up expresslyand whether the Tribunal could have granted a direction to RNTCand the Nominee directors virtually nullifying the effect of theseArticles - is also to be answered in favour of the Tata group andthe claim in the cross appeal relating to affirmative voting rightsand proportionate representation are liable to be rejected.[Para 19.1 and 19.50][1032-F; 1052-B]

DQuestion No.5

5. The 5[th] question of law formulated - whether the re-conversion of Tata Sons from a public company into a privatecompany, required the necessary approval under section 14 ofthe Companies Act, 2013 or at least an action under section 43-EA(4) of the Companies Act, 1956 during the period from 2000(when Act 53 of 2000 came into force) to 2013 (when the 2013Act was enacted) as held by NCLAT – is answered in favour ofTata Sons and as a consequence, all the observations made againstthe appellants and the Registrar of companies in Paragraphs 181,186 and 187 (iv) of the impugned judgment are set aside.F[Para 20.1 and Para 20.44][1052-C-D; 1069-C-D]

Central Bank of India Ltd. v. Hartford Fire InsuranceCo. Ltd. AIR 1965 SC 1288; M.I. Builders Pvt. Limitedv. Radhey Shyam Sahu & Others (1999) 6 SCC 464:[1999] 3 SCR 1066 and Vodafone InternationalGHoldings BV v. Union of India (2012) 6 SCC 613:[2012] 1 SCR 573 – distinguished.

Hanuman Prasad Bagri & Ors. v. Bagress CerealsPvt. Ltd. (2001) 4 SCC 420: [2001] 2 SCR 811;Rajahmundry Electric Supply Corpn. Ltd. v.

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Nageshwara Rao [1955] 2 SCR 1066; S.P. Jain v.Kalinga Tubes Ltd. AIR 1965 SC 1535 : [1965] 2 SCR 720; Ram Parshotam Mittal v. Hillcrest Realty (2009) 8SCC 709 : [2009] 10 SCR 1121 and Darius RuttonKavasmaneck v. Gharda Chemicals Ltd (2015) 14 SCC277:[2014] 11 SCR 1119 – relied on.

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Needle Industries (India) Ltd. and Ors. v. NeedleIndustries Newey (India) Ltd. and ors. (1981) 3 SCC333 : [1981] 3 SCR 698; Raj Kumar Dey v. TarapadaDey (1987) 4 SCC 398 : [1988] 1 SCR 118; Mohd.Gazi v. State of Madhya Pradesh (2000) 4 SCC 342:[2000] 2 SCR 871 and Dr. S.B. Dutt v.University of Delhi[1959] SCR 1236 – referred to.

Scottish Cooperative Wholesale Society v. Meyer 1959A.C.324; Loch v. John Blackwood [1924] AC 783;Baird v. Lees, (1924) SC 83 Scottish Supreme Court;Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 WLR1289; Lau v. Chu [2020] 1 WLR 4656; In Re SailingShip Kentmere Co. [1897] WN 58; Nelson v. JamesNelson 1914-2 K.B. 770; Central Bank of Ecuador andothers v. Conticorp SA and others (Bahamas) (2015)UKPC 11 Judicial Committee of the Privy council(UK) and Re: Neath Rugby Limited (2010) B.C.C. 597– referred to.

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Case Law Reference

[2001] 2 SCR 811AIR 1965 SC 1288[1999] 3 SCR 1066 [1955] 2 SCR 1066[1965] 2 SCR 720[1981] 3 SCR 698[1988] 1 SCR 118 [2000] 2 SCR 871 [1959] SCR 1236

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 440-B441 of 2020.

From the Judgment and Order dated 18.12.2019 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal Nos.254 and 268 of 2018.

WithCCivil Appeal Nos. 13-14, 442-443, 19-20, 444-445, 448-449,263-264, 1802 of 2020.

Tushar Mehta, SG, Balbir Singh, K.M. Nataraj, ASGs, Harish N.Salve, Dr. A.M. Singhvi, S.N. Mookherjee, Mohan Parasaran, MohanParasaran, Zal Andhyarujina, C.A. Sundaram, Shyam Divan, JanakDDwarkadas, Sr. Advs., Ms. Fereshte D. Sethna, Ms. Anuradha Dutt,Ms. Suman Yadav, Haaris Fazili, Adhiraj Malhotra, Hasmukh Ravaria,Aditya Sarin, Shreyash Taparia, Kunal Dutt, Ms. Rashi Verma, Ms. AboliMandlik, Ms. B. Vijayalakshmi Menon, Ms. Ruby Singh Ahuja, DhruvDewan, Ms. Tahira Karanjawala, Anupam Prakash, Avishkar Singhvi,ERohan Batra, Ms. Reena Choudhary, Arjun Sharma, Shravan Sahny,Ashutosh P.Shukla, Utkarsh Maria, L. Nidhiram Sharma, Ms. HarshitaChoubey, Dhruv Sethi for M/s. Karanjawala & Co., Nitesh Jain, AnujBerry, Sidharth Sharma, Chaitanya Safaya, Kostubh Devnani, AdrishMajumdar, S. S. Shroff, Rohan Batra, Ms. Aditi Dani, Ashwin KumarD.S., M/s. Karanjawala & Co., Akshay Amritanshu, NavanjayFMahapatra, Piyush Beriwal, Kanu Agrawal, Ms. Vanshaja Shukla, Mohd.Akhil, Arvind Kumar Sharma, J.N. Mistry, Ms. Namrata Parikh, SaswatPattnaik, Hasan Murtaza, Somasekhar Sundaresan, Manik Dogra, Ms.Rohini Musa, Rohan Jaitely, Apurva Diwanji, Ms. Sonali Jaitely Bakshi,Ruzbeh Mistry, Anoj Menon, Abhishek Venkataraman, Ravi Tyagi,GShubhanshu Gupta, Ms. Rini Badoni, Pragalbh Bhardwaj, Gunjan Shah,Akshay Doctor, Himank Singh, P. V. Yogeswaran, Akshay Makhija, Ms.Jyoti Mendiratta, Ashish Prasad, Mahfooz Ahsan Nazki, PolankiGowtham, Amitabh Sinha, Shrey Sharma, Advs. for the appearing parties.

The following Judgment of the Court was delivered :

JUDGMENT

1. Lis in the Appeals

1.1 Tata Sons (Private) Limited has come up with two appeals inCivil Appeal Nos.13-14 of 2020, challenging a final order dated 18-12-2019 passed by the National Company Law Appellate Tribunal(“NCLAT” for short) (i) holding as illegal, the proceedings of the sixthmeeting of the Board of Directors of TATA Sons Limited held on24.10.2016 in so far as it relates to the removal of Shri Cyrus PallonjiMistry (“CPM” for short); (ii) restoring the position of CPM as theExecutive Chairman of Tata Sons Limited and consequently as a Directorof the Tata Companies for the rest of the tenure; (iii) declaring as illegalthe appointment of someone else in the place of CPM as ExecutiveChairman; (iv) restraining Shri Ratan N. Tata (“RNT” for short) andthe nominees of Tata Trust from taking any decision in advance; (v)restraining the Company, its Board of Directors and Shareholders fromexercising the power under Article 75 of the Articles of Associationagainst the minority members except in exceptional circumstances andin the interest of the Company; and (vi) declaring as illegal, the decisionof the Registrar of Companies for changing the status of Tata SonsLimited from being a public company into a private company.

1.2 RNT has come up with two independent appeals in Civil AppealNos.19-20 of 2020 against the same Order of the NCLAT, on similargrounds.

1.3 The trustees of two Trusts namely Sir Ratan Tata Trust andSir Dorabji Tata Trust have come up with two independent appeals inCivil Appeal Nos.444-445 of 2020, challenging the impugned order ofthe Appellate Tribunal. A few companies of the Tata Group, which werereferred to in the course of arguments, as the operating companies ordownstream companies, such as the Tata Consultancy Services Limited,the Tata Teleservices Limited and Tata Industries Limited have comeup with separate appeals in Civil Appeal Nos.440-441 of 2020, 442-443of 2020 and 448-449 of 2020. The grievance of RNT as well as theTrustees of the two Trusts, is as regards the injunctive order of theAppellate Tribunal restraining them from taking any decision. Thegrievance of the three operating companies which have filed 6 CivilAppeals is that CPM has been directed to be reinstated as Director ofthese companies by the impugned Order, for the rest of the tenure.

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A1.4 The original complainants before the National Company LawTribunal (“NCLT”for short), who initiated the proceedings under Sections241 and 242 of the Companies Act, 2013 namely (i) Cyrus InvestmentsPrivate Limited (ii) Sterling Investment Corporation Private Limited,have come up with a cross appeal in Civil Appeal No.1802 of 2020.Their grievance is that in addition to the reliefs already granted, theBNCLAT ought to have also granted a direction to provide themproportionate representation on the Board of Directors of Tata SonsLimited and in all Committees formed by the Board of Directors. Theyhave one more grievance namely that the Appellate Tribunal ought tohave deleted the requirement of an affirmative Vote in the hands ofCselect Directors under Article 121 or at least ought to have restricted theaffirmative vote to matters covered by Article 121A.

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1.5 In addition to C.A.Nos. 13 and 14 of 2020, Tata Sons havealso come up with 2 more appeals in C.A.Nos. 263 and 264 of 2020.These appeals arise out of an order passed by NCLAT on 06-01-2020 inDtwo interlocutory applications filed by the Registrar of Companies,Mumbai, seeking amendment of the final order passed by NCLAT in themain appeals. The reason why the Registrar of Companies wasconstrained to file 2 interlocutory applications in the disposed of appeals,was that in the final order passed on 18-12-2019 by NCLAT in the 2company appeals, there were some remarks against the Registrar ofECompanies for having issued an amended certificate of incorporation toTata Sons by striking off the word “Public” and inserting the word“Private”. NCLAT dismissed these 2 applications by an order dated 06-01-2020, not merely holding that there were no adverse remarks againstthe Registrar of Companies but also giving additional reasons to justify Fits findings in the disposed of appeals, in the purported exercise of thepower available under section 420 of the Companies Act, 2013. Therefore,Tata Sons have come up with these 2 appeals in C.A.Nos. 263 and 264of 2020.

1.6 Thus we have on hand, 15 Civil Appeals, 14 of which are onGone side, assailing the Order of NCLAT in entirety. The remaining appealis filed by the opposite group, seeking more reliefs than what had beengranted by the Tribunal.

1.7 For the purpose of easy appreciation, we shall refer to theappellants in the set of 14 Civil Appeals as “the Tata Group” or “the H

Appellants”. We shall refer to the other group as “SP Group” (ShapoorjiPallonji Group) or “the respondents”. Similarly we shall refer to TataSons Limited (or Tata Sons Private Limited) merely as ‘Tata Sons’, asthere is a controversy regarding the usage of the word “Private” beforethe word “Limited”.

2. Background of the Litigation

2.1 On 08.11.1917, Tata Sons was incorporated as a Private LimitedCompany under the Companies Act, 1913.

2.2 Two companies by name Cyrus Investments Private Limitedand Sterling Investment Corporation Private Limited, forming part ofthe SP Group respectively acquired 48 preference shares and 40 equityshares of the paid-up share capital of Tata Sons, from an existing memberby name Mrs. Rodabeh Sawhney. Over the years, the share-holding ofSP Group in Tata Sons has grown to 18.37% of the total paid-up sharecapital.

2.3 The shareholding pattern of Tata Sons Limited is as follows:

The balance is held by RNT and a few others.

2.4 From 25.06.1980 to 15.12.2004 Shri Pallonji S. Mistry, thefather of CPM was a Non-Executive Director on the Board of TataSons. On 10.08.2006 CPM was appointed as a Non-Executive Directoron the Board.

2.5 By a Resolution of the Board of Directors of Tata Sons dated16.03.2012, CPM was appointed as Executive Deputy Chairman for aperiod of five years from 01.04.2012 to 31.03.2017, subject however tothe approval of the shareholders at a General Meeting. The GeneralMeeting gave its approval on 01.08.2012.

2.6 By a Resolution dated 18.12.2012, the Board of Directors ofTata Sons redesignated CPM as its Executive Chairman with effectfrom 29.12.2012, even while designating RNT as Chairman Emeritus.

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A2.7 By a Resolution passed on 24.10.2016, the Board of Directorsof Tata Sons replaced CPM with RNT as the interim Non-ExecutiveChairman. It is relevant to note that CPM was replaced only from thepost of Executive Chairman and it was left to his choice to continue ornot, as Non-Executive Director of Tata Sons.B2.8 As a follow up, certain things happened and by separate A

B2.8 As a follow up, certain things happened and by separateResolutions passed at the meetings of the shareholders of Tata IndustriesLimited, Tata Consultancy Services Limited and Tata TeleservicesLimited, CPM was removed from Directorship of those companies. CPMthen resigned from the Directorship of a few other operating companiessuch as the Indian Hotels Company Limited, Tata Steel Limited, TataCMotors Limited, Tata Chemicals Limited and Tata Power CompanyLimited, after coming to know of the impending resolutions to removehim from Directorship.

2.9 Thereafter, 2 companies by name, Cyrus Investments PrivateLimited and Sterling Investment Corporation Private Limited, belongingDto the SP Group, in which CPM holds a controlling interest, filed acompany petition in C.P No.82 of 2016 before the National CompanyLaw Tribunal under Sections 241 and 242 read with 244 of the CompaniesAct, 2013, on the grounds of unfair prejudice, oppression andmismanagement.E

2.10 But these two companies, hereinafter referred to as ‘thecomplainant-companies’, together had only around 2% of the total issuedshare capital of Tata Sons. This is far below the de-minimus qualificationprescribed under Section 244(1)(a) to invoke sections 241 and 242.Therefore, the complainant companies filed a miscellaneous applicationFunder the proviso to Sub-section (1) of Section 244 seeking waiver ofthe requirement of Section 244(1)(a), which requires atleast one hundredmembers of the company having a share capital or one-tenth of the totalnumber of fixed members or any member or members holding not lessthan one-tenth of the issued share capital of the company alone to beentitled to be the applicant/applicants.G

2.11 Along with the application for waiver of the requirement ofSection 244(1)(a), the complainant companies also moved an applicationfor stay of an Extra-ordinary General Meeting (“EGM” for short) of Tata Sons, in which a proposal for removing CPM as a Director of TataSons had been moved. The NCLT refused stay, as a consequence ofwhich the EGM proceeded as scheduled and CPM was removed fromthe Directorship of Tata Sons, by a Resolution dated 16.02.2017.

2.12 Subsequently, by an Order dated 06.03.2017, NCLT held themain company petition to be not maintainable at the instance of personsholding just around 2% of the issued share capital. This was followed byanother order dated 17.4.2017, by which NCLT dismissed the applicationfor waiver.

2.13 The complainant companies filed appeals before NCLATagainst both the Orders dated 06.03.2017 and 17.04.2017. These appealswere allowed on 21.09.2017, granting waiver of the requirement ofSection 244(1)(a) and remanding the matter back to NCLT for disposalon merits. Tata Group did not challenge this order.

2.14 Thereafter, NCLT heard the company petition on merits anddismissed the same by an Order dated 09.07.2018.

2.15 Challenging the order of the NCLT, the two complainantcompanies filed one appeal. CPM filed another appeal. Both these appealswere allowed by the Appellate Tribunal by a final Order dated 18.12.2019granting the following reliefs:

(i) The proceedings of the sixth meeting of the Boardof Directors of ‘Tata Sons Limited’ held on Monday,24[th] October, 2016 so far as it relates to removaland other actions taken against Mr. Cyrus PallonjiMistry (11[th] Respondent) is declared illegal and isset aside. In the result, Mr. Cyrus Pallonji Mistry(11[th] Respondent) is restored to his original positionas Executive Chairman of ‘Tata Sons Limited’ andconsequently as Director of the ‘Tata Companies’for rest of the tenure.

As a sequel thereto, the person who has beenappointed as ‘Executive Chairman’ in place of Mr.Cyrus Pallonji Mistry (11[th] Respondent), hisconsequential appointment is declared illegal.

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922SUPREME COURT REPORTS

A(ii)Mr. Ratan N. Tata (2[nd] Respondent) and the nomineeof the ‘Tata Trusts’ shall desist from taking anydecision in advance which requires majority decisionof the Board of Directors or in the Annual GeneralMeeting.

B(iii)In view of ‘prejudicial’ and ‘oppressive’ decisiontaken during last few years, the Company, its Boardof Directors and shareholders which has notexercised its power under Article 75 since inception,will not exercise its power under Article 75 againstAppellants and other minority member. Such powerCcan be exercised only in exceptional circumstancesand in the interest of the company, but beforeexercising such power, reasons should be recordedin writing and intimated to the concernedshareholders whose right will be affected.

D(iv)The decision of the Registrar of Companieschanging the Company (‘Tata Sons Limited’) from‘Public Company’ to ‘Private Company’ is declaredillegal and set aside. The Company (‘Tata SonsLimited’) shall be recorded as ‘Public Company’.EThe ‘Registrar of Companies’ will make correctionin its record showing the Company (‘Tata SonsLimited’) as ‘Public Company’.”

2.16 After NCLAT disposed of the appeals by its order dated 18-12-2019, the Registrar of Companies moved 2 interlocutory applicationsFseeking the deletion of certain remarks made by NCLAT against them.These applications were dismissed by NCLAT by order dated 06-01-2020. Therefore, as against the final Order of NCLAT dated 18-12-2019, (i) Tata Sons Private Limited (ii) RNT (iii) the Trustees of thetwo Tata Trusts and (iv) three operating companies of Tata Group havecome up with 2 Civil Appeals each (totalling to 12 appeals) and theGcomplainant companies have come up with one Civil Appeal. In addition,Tata Sons have also come up with 2 more appeals against the orderdated 06-01-2020 passed by NCLAT on the applications of the Registrarof Companies.

3. Case set up by the complainants in their petition undersections 241 and 242, Companies Act, 2013 and Reliefs sought 3.1 In the company petition as it was originally filed by S.P. Groupin December, 2016 before the NCLT, the complainant-companies claimedthat the affairs of Tata Sons, are carried out as though it was a proprietaryconcern of RNT and that the oppressive conduct of the respondentswas such that it would be just and equitable to wind up Tata Sons, butsuch winding up would unfairly prejudice the interest of the petitionersand that therefore the Tribunal should pass such orders so as to bring toan end, the acts of oppression and mismanagement.

3.2 The acts of oppression and mismanagement complained againstTata Sons revolved around (i) alleged abuse of the Articles of Association,particularly Articles 121, 121A, 86, 104B and 118, to enable the trustsand its nominee Directors to exercise control over the Board of Directors;(ii) alleged illegal removal of CPM as Executive Chairman without anynotice and an all out attempt to remove him from the Directorship of allthe operating companies of the Tata group; (iii) alleged dubioustransactions in relation to Tata Teleservices Limited, alongwith one Mr.C. Sivasankaran; (iv) RNT allegedly treating Tata Sons as aproprietorship concern with all others acting as puppets, resulting in theBoard of Directors failing the test of fairness and probity (v) acquisitionof Corus Group PLC of UK at an inflated price and then jeopardisingthe talks for its merger with Thyssen Krupp (vi) Nano car projectbecoming a disaster with losses accumulating year after year and theconflict of interest that RNT had in the supply of Nano gliders to acompany where he had stakes; (vii) providing corporate guarantee toIL & FS Trust Company for the loan sanctioned by Standard CharteredBank to Sterling (viii) making Kalimati Investments Ltd, a subsidiary ofTata Steel to provide an inter corporate bridge loan to Sterling; (ix) thedealings with NTT DoCoMo and Sterling resulting in an arbitration awardfor a staggering amount; (x) leaking information to Siva of Sterling thatresulted in Siva issuing legal notices to Tata Teleservices and Tata Sons(xi) RNT making a personal gain for himself through the sale of a flatowned by a Tata group company to Mehli Mistry; (xii) companiescontrolled by Mehli Mistry receiving favours due to the personalrelationship that RNT had with him; and (xiii) fraudulent transactions inthe deal with Air Asia which led to financing of terrorism.

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A3.3 On the foundation of the above, the complainant-companiescontended before NCLT:- (i) that the directors of Tata Sons are notcarrying out their fiduciary responsibilities for and on behalf of theshareholders, but have become mere puppets controlled by RNT andthe Trustees of the two Trusts; (ii) that the powers contained in theArticles of Association are being exercised in a malafide mannerBprejudicial to the interest of the petitioners and to public interest; (iii)that various operating decisions are taken either for emotional reasonsor for pampering the ego of RNT; (iv) that attempts are made to shieldpersons responsible for fraudulent transactions at Air Asia; (v) thatattempts are made to ensure that no legal action is initiated against SivaCwho owes Rs. 694 crores; (vi) that Ratan Tata enabled his associates tounjustly enrich themselves at the cost of Tata Sons; and (vii) that thepresent directors of Tata Sons are not promoting the interests ofshareholders of Tata Sons and the interests of the shareholders of variousoperating companies of the Tata group.

D3.4 In the light of the above pleadings and contentions, thepetitioners before the NCLT sought a set of about 21 reliefs, whoseabridged version is as follows:

“(A)Supersede the existing Board of Directors ofRespondent No. 1 and appoint an administrator; E

(B)In the alternative to prayer (A) above, appoint aretired Supreme Court Judge as the non-executiveChairman of the Board of Directors of RespondentNo. 1 and appoint such number of new independentdirectors; F(C)restrain the so-called “Interim Chairman” i.eRespondent No. 2 from attending any meeting of theBoard of Directors; (D)restrain Respondent No. 14 from interfering in theaffairs of Respondent No. 1; G

(E)direct Respondent No. 1 not to issue any securitieswhich results in dilution of the present paid-up equitycapital; H

(F)direct the Respondents not to remove RespondentANo. 11 as a director from the Board of RespondentNo. 1; (G)restrain the Respondents from making any changesto the Articles of Association of Respondent No. 1; B

(H)order an investigation into the role of the Trusteesof the Tata Trusts in the operations of RespondentNo. 1 and/or Tata Group companies and prohibitthe Trustees from interfering in the affairs ofRespondent No. 1 and/or Tata Group companies; C

(I)appoint an independent auditor to conduct aforensic audit into transactions and dealings ofRespondent No. 1 with particular regard to alltransactions with C.Sivasankaran and his businessentities and all transactions involving Mr. MehliMistry and his associated entities and such findingsof the audit and investigation should be referred tothe Serious Fraud Investigation Office; D

(J)Appoint an inspector (under applicable law) toinvestigate into the breach of the SEBI (Prohibitionof Insider Trading) Regulations, 2015 and/or referthe findings of such investigation to the SeriousFraud Investigation Office of the Ministry ofCorporate Affairs, Government of India.

E

(K)direct Respondent No.2 to pay Respondent No. 1the amount of unjust enrichment that has accruedto Respondent No. 2 on account of surrender of thesub-tenancy of the Bakhtawar flat; F

(L)appoint a forensic auditor to re-investigate thetransactions executed by AirAsia with entities inIndia and Singapore and such findings of the auditshould be referred by the Hon’ble Tribunal to theSerious Fraud Investigation Office of the Ministryof Corporate Affairs, Government of India; G

926SUPREME COURT REPORTS

[2021] 12 S.C.R.

A(M)strike of Articles numbered 86, 104(B), 118, 121 and121A in their entirety and in so far as Article 124 ofthe Articles of Association of Respondent No. 1 isconcerned, the following portion of the said Article,which is offending and/or repugnant, should bedeleted: “… Any committee empowered to decide onBmatters which otherwise the Board is authorised todecide shall have as its member at least one directorappointment pursuant to Article 104B. TheProvisions relating to quorum and the manner inwhich matters will be decided contained in ArticlesC115 and 121 respectively shall apply mutatismutandis to the proceedings of the committee. “fromthe Articles of Association of Respondent No. 1; andsubstitute these articles with such articles as thenature and circumstances of this case may require; D(N)direct the Respondents (excluding Respondent Nos.4, 10 &11) to bring back into Respondent No. 1, thefunds used by Respondent No. 1 for acquiring sharesof Tata Motors; (O)restrain Respondent No. 1 from initiating any newEline of business or acquiring any new business; (P)restrain the trustees of the Trusts from interfering inthe affairs of Respondent No. 1 and in the variouscompanies; (Q)restrain the existing Selection Committee from actingFany further.

(R)direct that no candidate selected by the SelectionCommittee constituted pursuant to Article 118 of theArticles of Association of Respondent No. 1 to beappointed without leave of this Hon’ble Tribunal; G

(S)direct Respondent No. 1 not to demand and/orprocure any unpublished price sensitive informationfrom any listed operating companies within the TataGroup; H

(T)grant interim and ad-interim reliefs in terms ofAPrayers (A) to (S) above; and (U)pass such further orders that this Hon’ble Tribunalmay, deem necessary for bringing an end to the actsof oppression and mismanagement in the runningof Respondent No. 1.”

B

4. Amendment of pleadings, addition and deletion of reliefs

4.1 The contents of Chapter-3 above, are the pleadings made andthe reliefs sought in the company petition, as it was originally filed on20.12.2016. But the pleadings and the prayers underwent certain changesin the course of the proceedings, partly due to subsequent developmentsand partly due to change of strategy/better counsel.

C

4.2 What is important to note here is that some of the changes tothe pleadings and the reliefs sought, were by way of proper applicationsfor amendment and some others were just by way of additional affidavits.We shall advert to them in this part.

D

4.3 The company petition filed on 20.12.2016 was taken up on22.12.2016 and the NCLT passed an order to the following effect:- “It has also been further agreed by all the parties morespecially by the petitioner counsel, or R-11 counsel and thecounsel on behalf of the answering respondents that they willnot file any interim application or initiate any action orproceedings over this subject matter pending disposal of thiscompany petition.”

E

4.4 Soon, the matter got precipitated. Claiming that CPM sentfour box-files containing several documents relating to Tata EducationTrust, to the Deputy Commissioner of Income Tax with a view to createtrouble, a special notice was issued for convening the EGM of TataSons on 06.02.2017 for considering the proposal for the removal of CPMas a Director of Tata Sons.

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4.5 Therefore, the complainant-companies moved a contemptapplication. The said application was disposed of by NCLT by an orderdated 18.01.2017, permitting the complainant-companies and CPM to H

Afile an additional affidavit limiting to the proposal for the removal ofCyrus Pallonji Mistry from the Board.

4.6 Accordingly, an additional affidavit was filed on 21.01.2017.However, the NCLT, by an order dated 31.01.2017 rejected the prayerof S.P. Group for stay of EGM scheduled to be held on 06.02.2017.

B

4.7 S.P. Group filed an appeal against the order refusing the stayof EGM. The appeal was disposed of on 03.02.2017, merely permittingthe S.P. Group to file a petition for amendment, in the event of CPMbeing removed in the EGM. In the EGM held on 06.02.2017, CPM wasremoved.C

4.8 Therefore, the complainant-companies filed an amendmentapplication dated 10.02.2017 seeking addition of two more prayersnamely:- (i) to direct the respondents to reinstate the representative ofthe complainant-companies on the Board of Tata Sons; and (ii) to directDthe amendment of Articles of Association of Tata Sons to provide forproportional representation of shareholders on the Board of Directors ofTata Sons.

4.9 But the petition for contempt, the petition for interim stay ofEGM and the application for amendment to include additional prayers,Eall turned out to be exercises in futility, with the NCLT passing twoorders, one on 06.03.2017 and another on 17.04.2017. By the first orderdated 06.03.2017, NCLT held the company petition to be not maintainable,on the ground that the two complainant companies did not hold at least10% of the issued share capital of Tata Sons. By the second order datedF17.04.2017, NCLT rejected the application for grant of waiver filed underthe proviso to Sub-section (1) of Section 244.

4.10 But the aforesaid orders of NCLT dated 06.03.2017 and17.04.2017 were reversed by NCLAT by an order dated 21.09.2017and the matter was remanded back to NCLT.

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4.11 Thereafter, the complainant-companies filed one additionalaffidavit, one application for amendment, one application for stay andone memo giving up some of the reliefs already sought.

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The facts relating to these, can be compressed into a tabular columnas follows:- A

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ABCDEF

5. Response of Tata Sons to the allegations made in the Company PetitionG

5.1 Tata Sons filed a reply to the company petition contendinginter-alia : (i) that CPM, who was removed from the post of ExecutiveChairman, after having lost the confidence of 7 out of 9 Directors, hassought to use the complainant companies to besmirch the reputation ofTata Group; (ii) that even the decisions to which CPM was a party haveH

been questioned in the petition; (iii) that Tata Group founded in 1868 is aglobal enterprise, headquartered in India, comprising over a hundredoperating companies, having presence in more than 100 countries acrosssix continents, collectively employing over 6,60,000 people; (iv) that therevenue of Tata Group in 2015-16, was $103.51 billion; (v) that thereare 29 publicly listed companies in the Tata Group with a combinedmarket capitalisation of about $116.41 billion; (vi) that 65.3% of theissued ordinary share capital of Tata Sons is held by philanthropic trustswhich support education, health, livelihood generation and art and culture;(vii) that it was at the instance of CPM that RNT was designated asChairman Emeritus and he was requested to attend Board Meetings asa special and permanent invitee and continue to guide the Board; (viii)that Articles 104B and 121 were introduced through a new version ofArticles of Association at the Annual General Meeting of Tata Sons heldon 13.09.2000 and Article 121 was subsequently amended by Resolutiondated 09.04.2014; (ix) that Shri Pallonji Shapoorji Mistry, who representedthe complainant companies, was present at the General meeting held on13.09.2000; (x) that CPM himself was a party to the Resolution passedby the shareholders on 09.04.2014, introducing Articles 121A and 121B;(xi) that CPM’s leadership gave rise to certain issues such as insufficientdetail and discipline on capital allocation decisions, slow execution onidentified problems, lack of specificity and follow through in strategicplan and business plan, failure to take meaningful steps to enter newgrowth businesses, weak top management team and reluctance toembrace the Articles of Association that spelt out the governancestructure of the company and the rights of Tata Trusts; (xii) that therewas a growing trust deficit between the Board of Directors of TataSons and CPM due to several reasons, such as the conflict of interest inthe matter of award of contracts to S.P. Group of companies and hissystematic and planned reduction of the representation of Tata SonsDirectors on the Boards of other major Tata Companies; (xiii) that evenwhen the Directors of Tata Sons resolved on 24.10.2016 to replace CPMas Executive Chairman, the Board agreed to his continuance as aDirector of Tata Sons; (xiv) that however CPM addressed a vitriolicmail on 25.10.2016 to the Directors making false allegations; (xv) thatthough the mail was marked confidential, it was simultaneously leakedto the press; (xvi) that CPM also breached his fiduciary and contractualduties by disclosing confidential information and documents pertainingto Tata Sons to third parties; (xvii) that CPM made representations to A

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Athe shareholders of all operating companies, with unsubstantiated andfalse allegations, thereby attempting to make the operating companiesvulnerable to make confidential data available for public inspection; (xviii)that the shareholders of Tata Industries Limited, Tata ConsultancyServices and Tata Teleservices Limited passed Resolutions respectivelyon 12.12.2016, 13.12.2016 and 14.12.2016 to remove CPM fromBDirectorship; (xix) that, therefore, CPM resigned from the Directorshipof the other companies also on 19.12.2016, when he faced the prospectof being removed in the impending meetings; (xx) that the actions andconduct of CPM after 24.10.2016 compelled Tata Sons to issue a specialnotice and requisition for his removal from the Directorship of Tata Sons;C(xxi) that the company petition was not about espousing the cause ofcorporate governance or seeking remedies for oppression andmismanagement of Tata Sons; (xxii) that prior to his removal as ExecutiveChairman, CPM never raised any concerns regarding any oppression ormismanagement; (xxiii) that many of the acts of oppression complained of by the complainant companies, have happened long before the dateDof filing of the company petition, showing thereby that the companypetition was hopelessly barred by delay and laches.

5.2 On the allegations of oppression and mismanagement, theresponse of Tata Sons was as follows: (i) that the complainant companieshave cherry picked certain business decisions to launch a vitriolic attackEon the Tata Trusts; (ii) that while the complainant companies have talkedabout bad business deals, such as Corus acquisition and Nano Project,they have deliberately omitted to talk about Tetley acquisition by TataGlobal Beverages Limited, the immensely successful Jaguar Land Roveracquisition by Tata Motors and the phenomenal success of TataFConsultancy Services; (iii) that Corus acquisition, the Nano Project,contracts awarded to the business concerns of Mr. Mehli Mistry and theinvestment by Mr.C. Sivasankaran have surfaced only after thereplacement of Mr. Cyrus Mistry as the Executive Chairman; (iv) thatCPM has been the Director of Tata Sons since the year 2006 and was also the Executive Chairman from December, 2012 to October, 2016Gand was fully aware of how the decisions relating to these projects weretaken when they were taken; (v) that courts cannot be called upon to sitin judgment over the commercial decisions of the Board of Directors ofcompanies; and (vi) that even commercial mis-judgments of the Boardof Directors cannot be branded as instances of oppression and mis-Hmanagement.

5.3 On specific acts of oppression and mismanagement, raised inthe company petition, such as (i) over priced and bleeding acquisition ofCorus PLC of UK; (ii) doomed Nano car project; (iii) loan advanced byKalimati Investments to Siva; (iv) sale of the residential flat to MehliMistry; (v) unjust enrichment of Mehli Mistry and the companiescontrolled by him, due to the personal equation of RNT with him; (vi)aviation industry misadventures; and (vii) a huge loss due to purchaseof shares of Tata Motors, the reply filed by Tata Sons contained anelaborate and graphic rebuttal. We shall take note of them later, whiledealing with the question whether or not the allegations constitute theingredients of sections 241 and 242 of the Act.

6. The approach of NCLT

6.1 The NCLT, in its order dated 9.7.2018, went into each of theallegations of oppression, mismanagement and prejudice and recordedcategorical findings. In brief, these findings, allegation-wise, were asfollows:

On the allegations revolving around Siva and Sterling group ofcompanies

(i) Tata Teleservices shares were acquired in the year 2006with the approval of the Board and hence almost after10 years, it cannot be raised as an issue. It is also a factthat the very complainant companies had acquired sameTTSL shares two months before, for Rs.15 per share.

(ii) The loan taken from Kalimati Investments was alreadypaid back by Siva Group of Companies and the companywas relieved of its undertaking by Siva himself whoprovided personal guarantee for the loan taken fromStandard Chartered Bank.

(iii) As to the allegation that Siva made a big profit by sellingshares to NTT DoCoMo @ Rs.117 per share, it is evidentfrom the record that these shares were sold in the year2008 to NTT DoCoMo, while NTT DoCoMo wasacquiring shares in bulk from TTSL as well as from someof the shareholders of TTSL including the brother andfather of CPM and also from Siva. They also equallygained benefit just as Siva group gained from sellingshares of TTSL to NTT DoCoMo. But this was not A

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934SUPREME COURT REPORTS

[2021] 12 S.C.R.

Adisclosed by the complainant companies either in theirpetition or in their rejoinder. The rate at which thepetitioners acquired shares of TTSL is less than the rateat which Siva Group acquired and the gain that thepetitioners made by selling shares to NTT DoCoMo wasmore than the gain Siva group got from selling shares toBNTT DoCoMo.

(iv) No material has been placed either by the petitioner orby CPM to show that any information was leaked toSiva Group either by RNT or by anyone else.

C(v)DoCoMo issue cropped up in 2016, when the awardwas passed for payment of Rs.8450 crores. The letteraround which a controversy is raised, was written byRNT in the year 2013. Hence that letter cannot be linkedto DoCoMo issue to show as if RNT was encouragingMr. Siva not to pay money to the company.

DOn the allegations relating to Air Asia

(i) Air Asia India Pvt. Ltd. is a joint venture between AirAsia Berhad (Malaysian Company) and Tata Sons,incorporated on 28.03.2013. The allegations relating toEthis, are mostly based on the emails sent by one Mr.Bharat Vasani, who is not a party to this proceeding andhence these allegations could not be put to test.

(ii) In the meeting held on 06.12.2012, CPM did not raiseany objection to the approval of the joint venture or forFinfusing funds in Air Asia India, until he was removedas Chairman of the company.

(iii) In their desperate attempt to make a case out of nothing,the complainant companies claim on the one hand thatCPM had no say in the Air Asia transaction, but on theother hand, they claim that CPM protected the interestGof the company by limiting its exposure to 30% equity ofUSD 30 million and by ensuring that no fall back liabilitycame on the company.

(iv) A person privy to a transaction is estopped fromquestioning it, but the complainant companies and CPMH

have made all kinds of allegations with impunity floutingall legal principles. They have proceeded as though theydid not take active part in the Air Asia incorporation andas though CPM did not preside over the meeting on15.09.2016 for further funding it. In addition, they havemade a scurrilous statement, without a shred of paper,that RNT funded one Terrorist through hawala withdiversion of Air Asia India funds.

On the Transactions with Mehli Mistry, including the sale of theflat (Bhakthawar) and a land (Alibaug)

(i) There is nothing to indicate that RNT got enriched atthe cost of the company. Forbes Golak was not made aParty and the transaction happened somewhere in theyear 2002, but the allegation is raised in the year 2016.

(ii) As to these allegations relating to Mehli deriving hugebenefits, the only document that the Petitioners and CPMfiled and relied on, is an email Mr. Mehli addressed toMr. Padmanabhan of TPC among others.

(iii) In respect of the 1993 contract for dredging at Trombay,it was awarded by Tata Power to MpCL for 9 yearsafter choosing them from amongst three vendors.Thereafter it was renewed 5 times for various tenuresfrom October 2002 to September, 2014 after obtainingrequisite approvals. When these approvals were given,CPM was a Director of Tata Power. He held directorshipfrom 1996 to 2006 and again from 2011 to 2016, butnever raised any objection.

Nano car project and the losses suffered by Tata Motors

(i) RNT has not been the director of Tata Motors at anypoint of time during which the actions complained ofhappened.

(ii) Tata Motors and Jayem incorporated a joint venturecompany by name J.T. Special Vehicle Pvt. Ltd. with50:50 shareholdings, in July 2016. This joint venture wasincorporated under the stewardship of CPM himself. Itis therefore entirely incorrect to say that Jayem hasbenefited unduly from any patronage extended by RNT.

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AAcquisition of Corus

(i) The acquisition of Corus was a collective decision ofTata Steel and it was approved by CPM as a director ofthe board of Tata Steel. This entire acquisition wasundertaken following the due governance process underBthe supervision of the board of directors of Tata Steelwithout any dissent from any of the shareholders of TataSteel.

(ii) Tata Steel did not buy it for an inflated price, but it sohappened that Tata Steel took a unanimous decision toCquote a price of GBP 608 pence per share while theircompetitor CSN’s final bid was GBP 603 pence pershare. CPM or the complainant companies have notplaced any letter or email, seeking divesting orrestructuring of Corus.

DPrivate company vs Public company

(i) On the impact of Section 43A (2A) of the CompaniesAct, 1956 and the issue of the amended certificate ofincorporation to Tata Sons, it has to be seen that TataSons had not altered any of the Articles of AssociationEso as to bring any new entrenchment to the Articles andthat the management had not done anything so as tocause prejudice to the rights of the minority shareholders.

On the contention that a few Articles were oppressive or thatthey were abusedF(i)The contention that Articles 104B, 121, 121A and 75 ofthe Articles of Association were per se oppressive andthat they have been used as tools of oppression andmismanagement, is unacceptable since CPM’s fatherwas party to the amendments made to the Articles ofAssociation on 13.09.2000. The amendment of ArticleG118 was passed on 06.12.2012 when CPM was theExecutive Deputy Chairman. CPM was also party tothe Resolutions passed on 09.04.2014, in which theArticles were amended so as to confer affirmative rightsin favour of the Directors of the Trusts. In so far as H

Article 75 is concerned, it was in existence throughoutand hence the question whether persons who acquiredshares of such a company consciously despite thepresence of Article 75, can turn around later and projectthem as oppressive, looms large.

(ii) The fact that the nominee Directors stepped out of themeeting of the Board held on 29.06.2016 to takeinstructions from RNT on the issue of acquisition ofWelspun by Tata power, cannot be projected as anincident where Article 121 was abused, since the issueof acquisition of Welspun should have come up beforethe Board of Tata Sons even prior to Tata Power takinga decision, in view of Article 121A-(h). Since Tata Powerhad already signed the papers for the acquisition ofWelspun on 12.06.2016 itself, CPM really made theDirectors of Tata Sons as fait accompli. Therefore, itwas the action of CPM that was prejudicial to theinterests of Tata Sons and not the other way around.

(iii) None of the Articles have ever been opposed either bythe complainant companies or by CPM at any point oftime in the past. And Article 75 has been in place evenbefore the complainant companies acquired shares.

Allegation of Breach of fiduciary duties by the Directors

(i) In support of their allegation that there was breach offiduciary duties by the Trust nominee Directors and toprove that the Directors of the Company were guilty ofdereliction of duties in the teeth of Sections 149 and 166of the Companies Act, 2013 read with schedule IV (Codefor Independent Directors), the complainant companieshad not placed any material other than the Minutes ofthe meeting held on 24.10.2016 (in which CPM wasremoved from Chairmanship). Also the removal of CPMas Executive Chairman was not in deprivation of any ofthe rights of the complainant companies as shareholdersand his removal had nothing to do with his associationwith the complainant companies. The removal of CPMas Executive Chairman cannot be projected asoppression of minority shareholders merely because he A

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Aalso happens to have controlling interest in companiesthat hold around 18.40% shareholding in the company.

(ii) The provision in the Articles of Association entitling thetwo Trusts to have 1/3[rd] of the Directors on the Boardof Tata Sons with an affirmative vote, was actually aBcurtailment of their right to appoint majority of theDirectors to the Board and hence it cannot be construedas oppressive of the minority.

On the removal of CPM

(i) The removal of CPM as Executive Chairman of TataCSons on 24.10.2016 and his removal as Director on06.02.2017, were on account of trust deficit and therewas no question of a Selection Committee going into theissue of his removal.

(ii) There was no material to hold that CPM was removedDon account of purported legacy issues. CPM created asituation where he is not accountable either to themajority shareholders or to the Trust nominee Directorsand hence his removal.

(iii) The letter dated 25.10.2016 issued by CPM could notEhave been leaked to the media by anyone other thanCPM and hence his removal from Directorship on06.02.2017 became inevitable.

6.2 What we have provided in the preceding paragraph, is anabridged version of the findings recorded by NCLT on every one of theFallegations contained in the main company petition. Apart from thosefindings recorded in the body of the judgment, NCLT itself gave asummary of findings in paragraph 581 of its decision. It is extractedverbatim as follows:

“a)Removal of Mr. Cyrus Mistry as Executive ChairmanGon 24.10.2016 is because the Board of Directorsand Majority of Shareholders, i.e., Tata Trusts lostconfidence in Mr. Cyrus as Chairman, not becauseby contemplating that Mr. Cyrus would causediscomfort to Mr. Tata, Mr. Soonawala and otheranswering Respondents over purported legacy H

Issues

issues. Board of Directors are competent to removeExecutive Chairman; no selection committeerecommendation is required before removing him asExecutive Chairman.

b)Removal of Mr. Cyrus Mistry from the position ofDirector is because he admittedly sent the companyinformation to Income Tax Authorities; leaked thecompany information to Media and openly come outagainst the Board and the Trusts, which hardlyaugurs well for smooth functioning of the company,and we have not found any merit to believe that hisremoval as director falls within the ambit of section241 of Companies Act 2013.

c)We have not found any merit to hold thatproportional representation on Board proportionateto the shareholding of the petitioners is possible solong as Articles do not have such mandate asenvisaged under section 163 of Companies Act,2013.

d)We have not found any merit in purported legacyissues, such as Siva issue, TTSL issue, Nano carissue, Corus issue, Mr. Mehli issue and Air Asia issueto state that those issues fall within the ambit ofsection 247 and 242 of Companies Act 2013.

e)We also have not found any merit to say that thecompany filing application under section 14 ofCompanies Act 2013 asking this Tribunal to make itfrom Public to Private falls for consideration underthe jurisdiction of section 247 & 242 of CompaniesAct 2013.

f)We have also found no merit in saying that Mr. Tata& Mr. Soonawala giving advices and suggestionsamounted to interference in administering the affairsof the company, so that to consider their conduct asprejudicial to the interest of the company undersection 241 of Companies Act 2013.

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Ag)We have found no merit in the argument that Mr.Tata and Mr. Soonawala acted as shadow directorssuperimposing their wish upon the company so thataction to be taken under section 241 & 242 ofCompanies Act 2013.

Bh)We have not found any merit in the argument thatArticles 75, 104B, 118, 121 of the Articles ofAssociation per se oppressive against the petitioners.i)We have not found any merit in the argument thatMajority Rule has taken back seat by introductionCof corporate governance in Companies Act, 2013,it is like corporate democracy is genesis, andcorporate governance is species. They are never inconflict with each other; the management is rathermore accountable to the shareholders under thepresent regime. Corporate governance is collectiveDresponsibility, not based on assumed free-hand rulewhich is alien to the concept of collectiveresponsibility endowed upon the Board.

j)We have observed that prejudice remedy has beenincluded in 2013 Act in addition to oppressive remedyEalready there and also included application of “justand equitable” ground as precondition to pass anyrelief in mismanagement issues, which was not thecase under old Act.”

7. The Approach of NCLAT

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7.1 While NCLT dealt with every one of the allegations containedin the main company petition and recorded its findings, NCLAT, curiously,focused attention only on (i) the removal of CPM (ii) the affirmativevoting rights of the Directors nominated by the 2 Trusts in the decisionmaking process and (iii) the amended certificate of incorporation issuedGby the RoC, deleting the word “Public” and making it a private companyonce again.

7.2 The findings recorded by NCLAT are presented, to a greatextent, in the language of NCLAT itself, as follows:

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(i) The word ‘unfairly prejudicial’ has not been used inSection 241. The Indian Law (Sections 241 & 242 ofthe Companies Act, 2013) does not recognize the term‘legitimate expectation’ to hold any act prejudicial oroppressive. (paragraphs 101 and 102 of the impugnedorder)

(ii) In the general meeting of the shareholders of ‘Tata SonsLimited’ or the Board of Directors, the majority decisionis fully dependent upon the affirmative votes of nominatedDirectors of ‘Tata Trusts’. The affirmative vote of theDirectors nominated by ‘Tata Trusts’ has an overridingeffect and renders the majority decision subservient toit. (paragraph 115 of the impugned order)

(iii) The Tribunal/Appellate Tribunal has no jurisdiction tohold any of the Articles as illegal or arbitrary, the termsand conditions being agreed upon by the shareholders.However, if any action is taken even in accordance withlaw which is ‘prejudicial’ or ‘oppressive’ to any memberor members or ‘prejudicial’ to the Company or‘prejudicial’ to the public interest, the Tribunal can noticewhether the facts would justify the winding up of theCompany and in such case, if the Tribunal holds that itwould unfairly prejudice member or members or publicinterest or interest of the Company, it may passappropriate orders in terms of Section 242. (paragraph119 of the impugned order)

(iv) The email correspondence dated 18.07.2013, 28.02.2014,11.03.2015, 28.05.2015, 03.11.2015 etc. would show thatCPM was unaware and not in a position to understandhow decisions are taken by the Tata Trusts before thedecision of the Board of Directors of Tata Sons and thatCPM felt the need for development of a governanceframework. (paragraph 126 of the impugned order)

(v) Emails dated 13th March, 2016; 30th April, 2016 and10th May, 2016 between CPM and Mr. Nitin Nohriashow that CPM formulated a governance frameworkafter obtaining the feedback from Mr. Nitin Nohria to A

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Aclarify the role of the Trustees of ‘Tata Trusts’ in thedecision making process of ‘Tata Sons Limited’. It wasfollowed by e-mail dated 15th May, 2016 sent by CPMto RNT forwarding a draft of the governanceframework. (paragraph 127 of the impugned order)

B(vi)The communications between the Respondents from2013 to 2016 show that there was complete confusionin the Board about the governance framework of theCompany (‘Tata Sons Ltd.’) as before deciding anymatter or for taking any resolution by the Board, decisionused to be taken by RNT for ‘Tata Trusts’, in which Mr.CNitin Nohria and Mr. N.A. Soonawala, were takingactive part. (paragraph 129 of the impugned order)

(vii) Prior to the Board’s meeting held on 24th October, 2016before removing CPM, on the same date decision hadalready been taken by RNT in presence of Mr. NitinDNohria to remove CPM, who asked him to step downfrom the post of the ‘Executive Chairman’ of theCompany (‘Tata Sons Limited’). (paragraph 130 of theimpugned order)

(viii) RNT was determined to remove CPM even prior to theEmeeting of the board and the majority shareholders ofTata Trust knew that there was a requirement ofadvance notice before the removal of CPM. Therefore,they had taken opinion from eminent lawyers and aformer Judge of the Supreme Court. (paragraph 133 ofFthe impugned order)

(ix) There is nothing on the record to suggest that the Boardof Directors or any of the trusts, namely— Sir DorabjiTata Trust or the Sir Ratan Tata Trust at any timeexpressed displeasure about the performance of CPM.G(paragraph 134 of the impugned order)

(x) From the opening sentence of ‘Press Statement’ dated10th November, 2016, issued by Tata Sons it is clearthat sudden and hasty removal of CPM as ExecutiveChairman of ‘Tata Sons Limited’ raised concerns in theindustrial group. (paragraph 137 of the impugned order)H

(xi) The allegations as made in the ‘Press Statement’ datedA10th November, 2016 appears to be an afterthought asthe aforesaid matter was not discussed in any of themeetings of the Board of Directors. The allegations inthe ‘Press Statement’ as not supported by record cannotbe accepted. (paragraph 139 of the impugned order)B(xii)Correspondence between CPM, RNT, Mr. Nitin Nohriaand Mr. N.A. Soonawala show that all the time CPMhad been pointing out that some of the ‘Tata Companies’were suffering losses and if appropriate steps were nottaken, it may aggravate in future. In spite of suchCcommunications no decision for the revival orrestructuring of Tata Companies was taken. (paragraph140 of the impugned order)

(xiii) If there was a failure and loss caused to one or otherTata Company which also affected the ‘Tata SonsDLimited’, the ‘Tata Trusts’ or the Board of Directorscould not be absolved of its responsibility, particularlywhen the nominee Directors of the Tata Trusts who haveaffirmative vote to reverse the majority decision.(paragraph 141 of the impugned order)

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(xiv) If all major decisions are taken in advance by the ‘TataTrusts’ and for taking every decision, matters are to beplaced before the ‘Tata Trusts’, the independence ofthe Board of Directors of the Company becomesirrelevant. (paragraph 143 of the impugned order)(xv)The suggestions made by CPM for good governanceby the Board and to take care of Tata Companies,including ‘Tata Motors’, ‘Docomo’ etc., were not takenin its letter and spirit by RNT or ‘Tata Trusts’ whichresulted in no confidence on CPM. (paragraph 144 ofthe impugned order)(xvi)The record suggests that the removal of CPM hadnothing to do with any lack of performance. On the otherhand, the material on record shows that the Companyunder the leadership of CPM performed well which waspraised by the ‘Nomination and Remuneration F

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Committee’ a Statutory Committee under Section 178,on 28th June, 2016 i.e. just few months before he wasremoved. (paragraph 146 of the impugned order)

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(xvii) Nominee Director Mr. Vijay Singh on behalf of ‘TataTrusts’ was well aware that performance of CPM wassatisfactory and there was need for a framework foroperationalizing the Articles. (paragraph 149 of theimpugned order)

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(xviii) The annual performance review of the ‘Nomination andRemuneration Committee’ was unanimously approvedby the Board of Directors of ‘Tata Sons’ in its meetingheld on the next day i.e. on 29th June, 2016. (paragraph150 of the impugned order)

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(xix) Three Directors who also voted for removal of CPM,including Mr. Amit Chandra, who spearheaded theDremoval proceedings and Mr. Ajay Piramal and Mr. VenuSrinivasan, had been inducted into the Board of ‘TataSons Ltd.’ only on 8th August, 2016 i.e. after the appraisalreport of ‘Nomination and Remuneration Committee’.They attended just one Board meeting prior to themeeting held on 24th October, 2016. (paragraph 151 ofEthe impugned order)

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(xx) Two of the Directors, Mr. Ranendra Sen and Mr. VijaySingh, a Trust Nominee Director, who voted for theremoval of CPM, were members of the ‘Nominationand Remuneration Committee’ which just four months’Fprior to his removal on 28th June, 2016 praised theperformance of CPM as Executive Chairman. Thesetwo Directors also voted against CPM just four monthsthereafter which has not been explained by Mr.Ranendra Sen and Mr. Vijay Singh. Further, what isGaccepted is that prior to the meeting held on 24thOctober, 2016 between 2.00 p.m. to 3.00 p.m., in theforenoon, the ‘Tata Trusts’ in a separate meeting decidedto remove CPM. Even before decision of ‘Tata Trusts’,RNT in presence of Mr. Nitin Nohria called CPM andasked him to resign. (paragraph 152 of the impugnedHorder)

TATA CONSULTANCY SERVICES LIMITED v. CYRUS945INVESTMENTS PVT. LTD. AND ORS.(xxi)In view of what transpired, it is not open to theARespondents to state or allege that loss in different ‘TataCompanies’ was due to mismanagement of CPM. Ifthat be so, why the nominated Directors who haveaffirmative voting right over the majority decision of theBoard or in the Annual General Meeting of theBshareholders allowed the ‘Tata Companies’ to functionin a manner which caused loss, as accepted in the pressrelease dated 10th November, 2016. The consecutivechain of events coming to fore from the correspondenceamply demonstrates that impairment of confidence withreference to conduct of affairs of company was notCattributable to probity qua CPM but to unfair abuse ofpowers on the part of other Respondents. (paragraph155 of the impugned order)

(xxii) Even in the absence of a right of minority members(‘Shapoorji Pallonji Group’), because of the healthyDatmosphere and clear understanding between two groupsi.e. ‘Tata Group’ and ‘Shapoorji Pallonji Group’ for thelast 40 years, except for few years in between thereof,one of the persons of ‘Shapoorji Pallonji Group’ wasmade as the Executive Chairman or Director, whichEincludes CPM and his father Mr. Pallonji ShapoorjiMistry. (paragraph 160 of the impugned order)

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(xxiii) ‘Shapoorji Pallonji Group’, minority shareholders, all thetime had confidence on the decision making power ofthe Board of Directors of the ‘Tata Sons Ltd.’ as amityand goodwill prevailed inter se the two groups.(paragraph 161 of the impugned order)

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(xxiv) Because of recent actions of ‘Tata Trusts’, its nomineeDirectors, and RNT and Mr. Nitin Nohria, taken sincethe year 2013, as noticed and discussed and sudden andhasty removal of CPM on 24th October, 2016, withoutGany basis, and without following the normal procedureunder Article 118, the minority group (‘Shapoorji PallonjiGroup’) (the Appellants), and others have raised noconfidence and sense of uncertainty. (paragraph 162 ofimpugned order)

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(xxv) The prejudicial action, did not come to an end, after24th October, 2016, when CPM was removed asExecutive Chairman and Director of the Company (‘TataSons Limited’). It continued even thereafter with theremoval of CPM from the Directorship of other groupcompanies and the conversion of Tata Sons Limitedfrom being a public limited company into a privatecompany, after the decision of NCLT. (paragraph 165of the impugned order)

(xxvi) Tata Sons Limited became a public company by virtueof Section 43(1A) of the Companies Act, 1956 on thebasis of average annual turnover, w.e.f. 01.02.1975. (para165) In terms of Sub-section (2) of Section 43A TataSons informed the Registrar and the Registrar deletedthe word “private” in the name of the Company uponthe Register. By virtue of Sub-section (4), such a companyis to continue to be a public company until it becomes aprivate company with the approval of the CentralGovernment and in accordance with the Act. (para 167)The Companies Act, 2013 repealed part of the 1956 Act.The new Act defines a “Private Company” and a “PublicCompany” under Clauses (68) and (71) of Section 2.(para 169 to 172). Under the 2013 Act, there is noprovision similar to Section 43A(1A), for automaticconversion of a company. Since there is no automaticconversion, Tata Sons, having become a public companylong ago was required to alter its articles of Association by following the procedure prescribed by Section14(1)(b) read with Section 14(2) and 14(3), for convertingthe company as a private company.( paras 173 to 175).The General Circular No.15 of 2013 dated 13.09.2013and Notification dated 12.09.2013 issued by the centralGovernment cannot override Section 14 of the Act (para177) and hence the action taken by Tata Sons hurriedlyto get the word “public” struck off in the certificate ofincorporation, after the order of NCLT is absolutelyillegal.

(xxvii) The aforesaid action on the part of the company and itsBoard of Directors to take action to hurriedly changethe Company (‘Tata sons Limited’) from ‘PublicCompany’ to a ‘Private Company’ without following theprocedure under law (Section 14), with the help of theRegistrar of Companies just before the filing the appeal,suggests that the nominated members of ‘Tata Trusts’who have affirmative voting right over the majoritydecision of the Board of Directors and other Directors/members, acted in a manner ‘prejudicial’ to the members,including minority members (‘Shapoorji Pallonji Group’)and others as also ‘prejudicial’ to the Company (‘TataSons Limited’) (paragraph 181 of the impugned order)

(xxviii) The affirmative voting power of the nominated Directorsof the ‘Tata Trust’ over majority decision of the Board;actions taken by Mr. Rata N. Tata (2[nd] Respondent),Mr. Nitin Nohria (7[th] Respondent) and Mr. N.A.Soonawala (14[th] Respondent) and others as discussedabove; the fact that the Company (‘Tata Sons Limited’)has suffered loss because of ‘prejudicial’ decisions takenby Board of Directors; the fact that a number of ‘TataCompanies have incurred loss in spite of decision makingpowers vested with the Board of Directors withaffirmative power of nominated Directors of the ‘TataTrust’; the manner in which Mr. Cyrus Pallonji Mistry(11[th] Respondent) was suddenly and hastily removedwithout any reason and in absence of any discussion inthe meeting of the Board of Directors held on 24[th]October, 2016 and his subsequent removal as Directorof different ‘Tata Companies’ coupled with global effectof such removal, as accepted by the Company in its‘Press Statement’ form a consecutive chain of eventswith cumulative effect justifying the Tribunal to hold thatthe Appellants have made out a clear case of ‘prejudicial’and ‘oppressive’ action by the contesting respondents,including Mr. Ratan N. Tata (2[nd] Respondent), Mr. NitinNohria (7[th] Respondent) and Mr. N.A. Soonawala (14[th]Respondent) and other nominee Directors. (paragraph183 of the impugned order)

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A(xxix)The company’s affairs have been or are being conductedin a manner ‘prejudicial’ and ‘oppressive’ to membersincluding Appellants, Mr. Cyrus Pallonji Mistry (11[th]Respondent) as also ‘prejudicial’ to the interests of theCompany and its group Companies i.e., ‘TataCompanies’ and winding up of the Company wouldBunfairly prejudice the members, but otherwise the facts,as narrated above, would justify a winding up order onthe ground that it was just and equitable that the Companyshould be wound up and thereby, it is a fit case to passorder under Section 242 of the Companies Act, 2013.

C(xxx)The Resolution dated 24[th] October, 2016 passed by theBoard of Directors of Company removing Mr. CyrusPallonji Mistry (11[th] Respondent) as the ExecutiveChairman of the Company (‘Tata Sons’) is illegal; allconsequential decisions taken by ‘Tata Companies’ forDremoval of Mr. Cyrus Pallonji Mistry (11[th] Respondent)as Director of such Companies are also illegal.(paragraph 184 of the impugned order)

(xxxi) For better protection of interest of all stake holders asalso safeguarding the interest of minority group, in futureEat the time of appointment of the Executive Chairman,Independent Director and Directors, the ‘Tata Group’which is the majority group should consult the minoritygroup i.e., ‘Shapoorji Pallonji Group’ and any person onwhom both the parties have trust, be appointed asExecutive Chairman or Director as the case may beFwhich will be in the interest of the Company and createhealthy atmosphere removing the mistrust between thetwo groups, already developed and has caused globaleffect as admitted in the ‘Press Statement’ of theCompany. (paragraph 185 of the impugned order)

G8. Important difference between the approach of NCLT andthe approach of NCLAT

8.1 As pointed out at the beginning of chapter 7, NCLT dealt withevery one of the allegations of oppression and mismanagement andrecorded reasoned findings. But NCLAT, despite being a final court ofHfacts, did not deal with the allegations one by one nor did the NCLAT

render any opinion on the correctness or otherwise of the findingsrecorded by NCLT. Instead, the NCLAT summarised in one paragraph,namely paragraph 183, its conclusion on some of the allegations, withoutany kind of reasoning. This Paragraph 183 reads as follows:

“The facts, as noticed above, including the affirmative votingpower of the nominated Directors of the ‘Tata Trusts’ overmajority decision of the Board; actions taken by Mr. RatanN. Tata (2nd Respondent), Mr. Nitin Nohria (7th Respondent)and Mr. N.A.Soonawala (14th Respondent) and others asdiscussed above; the fact that the Company (‘Tata SonsLimited’) has suffered loss because of ‘prejudicial’ decisionstaken by Board of Directors; the fact that a number of ‘TataCompanies’ have incurred loss; in spite of decision makingpower vested with the Board of Directors with affirmativepower of nominated Directors of the ‘Tata Trusts’; the actionin making change from ‘Public Company’ to ‘PrivateCompany’; the manner in which Mr. Cyrus Pallonji Mistry(11th Respondent) was suddenly and hastily removed withoutany reason and in absence of any discussion in the meetingshown in the Board of Directors held on 24th October, 2016and his subsequent removal as Director(s) of different ‘TataCompanies’, coupled with global effect of such removal, asaccepted by the Company in its ‘Press Statement’ form aconsecutive chain of events with cumulative effect justifyingus to hold that the Appellants have made out a clear case of‘prejudicial’ and ‘oppressive’ action by contestingRespondents, including Mr. Ratan N. Tata (2nd Respondent),Mr. Nitin Nohria (7th Respondent) and Mr. N.A.Soonawala(14th Respondent) and other, the nominee Directors.

8.2 The allegations relating to (i) over priced and bleeding Corusacquisition (ii) doomed Nano car project (iii) undue favours to Siva andSterling (iv) loan by Kalimati to Siva (v) sale of flat to Mehli Mistry (vi)the unjust enrichment of the companies controlled by Mehli Mistry (vii)the Aviation industry misadventures (viii) losses due to purchase of theshares of Tata Motors etc., were not individually dealt with by NCLAT,though NCLT had addressed each one of these issues and recordedfindings in favour of Tata Sons. Therefore, there is no escape from theconclusion that NCLAT did not expressly overturn the findings offacts recorded by NCLT, on these allegations. We are constrained to A

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Atake note of this, even at the outset, in view of a contention raised byShri Shyam Divan, learned Senior Counsel for the SP group, that in anappeal under Section 423 of the Companies Act, 2013, this court will notnormally interfere with a finding of fact reached by NCLAT, unless it isfound to be wholly perverse.

B9. Contentions on behalf of Tata Sons, group companiesand Trustees 9.1 Assailing the judgment of NCLAT, Shri Harish Salve and Dr.Abhishek Manu Singhvi, learned Senior counsel for Tata Sons contendedas follows:C(i)The entire focus of NCLAT was only on the justification for theremoval of CPM from the post of Executive Chairman of TataSons, despite the fact that the positive case of the complainantcompanies as well as CPM was that they were not seekingthe reinstatement of CPM; D(ii) In focusing entirely upon the removal of CPM from ExecutiveChairmanship of Tata Sons, NCLAT lost track of the law thatsuch a removal cannot be termed as oppression ormismanagement;

(iii) NCLAT went completely overboard by directing theEreinstatement of CPM as the Executive Chairman of Tata Sonsand also annulling the appointment of the new Chairman N.Chandrasekaran;

(iv) NCLAT went completely out of the way in directing thereinstatement of CPM as a Director of even the operatingFcompanies, the management of affairs of which, were not eventhe subject matter. The subject matter concerned only themanagement of the affairs of Tata Sons and not its GroupCompanies;

(v) NCLAT failed to see that the “just and equitable clause” isGtriggered only in two situations namely: (a) wherever therewas a functional deadlock; and (b) wherever there was acorporate quasi partnership in which there was a breakdownof trust and confidence. In the case on hand there was nopre-existing partnership between Tata Group and the S.P.Group. S.P. Group became shareholders only after 48 years ofHthe incorporation of Tata Sons and they did not even hold any directorial position until June-1980. Therefore S.P. Group neverhad any right of management nor a right that could emanatefrom a pre-existing relationship of trust and confidence, beforethe incorporation of the company;

(vi) Tata sons was not a “Two Group” company with one of thembeing a majority and the other, a minority. S.P. Group becameshareholders long after the incorporation of the company andthey did not acquire any privilege, prerogative or right. S.P.Group became shareholders, accepting the rights andobligations inter se among shareholders, as spelt out by theArticles of Association. S.P. Group also accepted without anydemur, all the amendments made to the Articles of Association,when Pallonji Mistry was on the Board and also when CPMwas on the Board;

(vii) The removal of CPM was on account of the loss of confidencein CPM and the complete breakdown of trust between theother members of the Board and CPM. To say that his removalrequired the stamp of approval of the Selection Committee, iscompletely amiss;

(viii) NCLAT failed to appreciate in the right perspective, the effectsof the Amendment Act 53 of 2000 on a ‘deemed to be a publiccompany’ under Section 43A and the provisions of the 2013Act, while dealing with the question whether Tata Sons wouldbe a private Company or a public Company. NCLAT, withoutany justification, made uncharitable remarks against theRegistrar of Companies for issuing an amended certificate ofincorporation after the judgment of NCLT, though RoC wasnot a party. When RoC sought the expunction of those remarksby filing an application, NCLAT entertained the same, only forthe purpose of improving upon the reasons already provided,showing thereby the mindset with which NCLAT approachedthe case;

(ix) NCLAT committed a serious error in whittling down Article 75of the Articles of Association, though the said Article was notfound to be illegal;

(x) Curiously NCLAT did not find any actual misuse of the Articlesof Association, which envisaged a crucial role for the nominee A

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ADirectors of the two Trusts. CPM himself had proposed aGovernance framework which recognised pre-consultation withthe Trusts. Therefore, the findings of NCLAT as though thepre-consultation as well as the affirmative voting right conferredupon the Directors nominated by the Trust, undermined therole of the Board of Directors of Tata Sons, are completelyBperverse;

(xi) The direction issued by NCLAT to the majority (Tata Group) toconsult the S.P. Group, for all future appointments of ExecutiveChairman or Director, is wholly unsustainable in law. Thisdirection tantamount to striking down Articles 104B and 118,Ceven though the challenge to these Articles had already been given up.

10. Contentions on behalf of S.P. Group:

10.1 Shri C. Aryama Sundaram, learned Senior counsel, appearingDon behalf of the S.P. Group raised the following contentions, both indefense of that portion of the judgment of NCLAT which had gone intheir favour and also for attacking NCLAT for not going further:

(i) Tata Sons could very well be treated as a two group companywhere the relationship between the groups was in the nature ofEa quasi partnership, which created equitable obligations. Therelationship between the family of CPM and the Tata family,spans over seven decades and was one of trust and mutualconfidence. S.P. Group had acted as the guardian of Tata Group’sinterest when the Trust had no affirmative voting rights; F(ii)The existence of a quasi partnership can be presumed wheneverit is found (a) that an Association was formed or continued onthe basis of a relationship involving mutual trust and confidence;(b) that there was an understanding that some of the memberswould participate in the management of the company; or (c)that there was a restriction upon the transfer of the member’sGinterest in the company. One or more of these elements werefound to exist in the relationship between Tata Group and S.P.Group and hence it was in the nature of quasi partnership;

(iii) The Trustees misused the Articles of Association to underminethe Board of Directors of Tata Sons and also caused erosion ofHtheir ability to exercise independent judgment and to act in the

(iv)

(v) interest of the Company. RNT as well as Soonawala demandedpre-consultation and prior clearance of the agenda items to beplaced before the Board. There were instances (a) when theTrust-Nominee Directors objected to matters being placed beforethe Board without the approval of the Trust, (b) when RNTedited the minutes of the Board meetings that he did not attend,(c) when RNT questioned certain operational and businessdecisions of Tata Motors, (d) when the Trustees overruled theviews of the Tata Group legal counsel in the DoCoMo disputesand (e) when the Trustees interfered in business decisions suchas Welspun acquisition and rights issue of Tata Motors;

Tata sons was a public company in form and conduct, as theyaccepted public deposits even after 13.12.2000 till September-2002 and hence the conversion of the company into a privatecompany by a hand written order of the ROC, effected at nightjust before NCLAT was to hear the appeals, was completelyshocking. The conversion of the company into a private companywas aimed at avoiding a higher standard of scrutiny statutorilyrequired for public companies. The conversion also adverselyaffected the ability of Tata Sons to raise funds, thereby increasingborrowing costs. Due to this conversion, Tata Sons becameobliged to refund money to insurance companies which heldsubstantial investments in the instruments issued by the company.Therefore the conversion of the company into a private companylacked probity and prejudiced the proprietary rights of minorityshareholders; The removal of CPM was contrary to the provisions of Article118, which required the setting up of a Selection Committeeboth for appointment as well as removal. In fact Article 121Bcontemplates a 15 days’ notice, but the same was also notcomplied. Therefore, the removal of CPM, carried out withoutthere being any agenda for the same and without there beingany deliberation or discussion, was wholly illegal. The mannerin which three Directors were inducted into the Board withoutbeing vetted by the Nomination and Remuneration Committeeand the manner in which the resolution for removal was passedwould show that it was pre-planned. It was quite strange thatCPM’s performance came to be appreciated by the Nominationand Remuneration Committee in June-2016 and this Committee AB

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Ahad two members, who later became parties to the resolutionremoving him from Executive Chairmanship;

(vi) The removal of CPM from the Directorship of Tata Sons aswell as the Directorship of the other Group Companies showedcomplete lack of probity, since veiled threats were sent to theBBoard of Directors of the other group companies for thewithdrawal of the Tata brand, if they failed to fall in line.10.2 Carrying the baton from Shri Aryama Sundaram, it wascontended by Shri Shyam Divan, learned Senior counsel, as follows:

(i) With the coming into force of the Companies Act, 2013,Claw has moved from ‘corporate majority’ or ‘Corporatedemocracy’ to ‘corporate governance’, which includesthe principles of fairness. This is seen from sections 135,148, 151, 166 and 177.

(ii) Law now enjoins companies to be operated and managedDwithin a statutory framework i.e. by a Board of Directorsand no one else, as per s.149 of the 2013 Act.

(iii) Directors of companies have a fiduciary role vis-à-visthe company with the highest level of duty, which cannotbe outsourced or delegated and their allegiance shouldEonly be to the company alone.

(iv) Once a director is appointed, his duty is only to thecompany and none else, irrespective of how he isappointed.

(v) There was a series of acts of oppression, including theFbreach of Articles, misuse of Articles and also a violationof the essential understanding between the two groups.This was found by the NCLAT.

(vi) There was a clear lack of probity and honesty in thedealings of the majority. The concept of probity is muchGbroader and wider than integrity.

(vii) There was a long good faith relationship between theTata group and SP group, developed over severaldecades and this has to be viewed in the context of a H

specific statutory framework that existed from 1964 upto2000.

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(viii) In matters of this nature, the Court is obliged, in itsequitable jurisdiction, to take note of the status of thecompany in question, which is at the top (apex) of thepyramid, with several stakeholders including the minorityshareholders of the company itself, the employees andshareholders of the operating companies controlled bythe company etc.

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(ix) NCLAT has recorded detailed findings on facts and thereis no perversity in those findings. Therefore there isactually no scope for interference by this court.

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(x) The reliefs sought in the company petition, are consistentwith the provisions of the Companies Act, 2013 includingSection 163 (proportionate representation) and sub-Sections (1), (5), (7) and (8) of Section 242 of the Act.

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10.3 Mr. Janak Dwarakadas, learned counsel appearing on behalfof CPM, the original composer of this musical ensemble, raised thefollowing contentions:

(i) Lack of financial probity is not the only ground on whichthe ‘just and equitable’ clause for winding up can beEinvoked. Infraction of a legal and/or proprietary right isalso a ground for invoking it.

(ii) Proprietary right includes the right to be governed inaccordance with the Articles of Association and theprovisions of the Act. Independence and autonomy ofBoard is guaranteed by law. Interference by majorityshareholders that encroaches upon the Board’sautonomy and independence, is an infraction upon theproprietary rights of minority shareholders.

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(iii) Art. 104B, 121 and 121A have been misinterpreted,misconstrued and misapplied to mean that majorityshareholders have a right to seek pre-consultation orpre-clearance before matters can be placed before theBoard of Tata Sons or Tata Operating Companies. Theright to nominate 1/3rd directors by Tata Trusts (A.104B), G

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Athe requirement of affirmative vote of a majority ofnominee directors (A.121) and Article 121A, do not alterthe fact that nominee directors have a fiduciary duty inexercising these powers to act in the interests of thecompany alone. Article 122(b) provided that Tata Sonsshall be board-managed. But the true legal scope andBmeaning of these Articles were never understood.

(iv) The role and duties of nominee Directors should havebeen well defined and kept within the confines of law.

(v) The Nomination and remuneration Committee, in itsCmeeting held on June 28, 2016, expressed the need forclarity on the functioning of the Board of Tata Sons inrelation to Tata Trusts as well as its role vis-a-vis thegroup companies.

(vi) NCLAT has recorded a finding that 3 attempts wereDmade by CPM to place before the Board of Tata Sons,a governance structure and that this became the principalcause for his removal. This finding of fact cannot be setat naught by this court.

11 Contentions on behalf of the Tata Trusts EAssailing the judgment of NCLAT, Shri Mohan Parasaran, learnedSenior counsel appearing for the Trusts, contended as follows:

(i) Impugned judgment did not deal with the detailed findingsof fact rendered by NCLT, nor the arguments advancedon behalf of the Trustees of the Tata Trust.

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(ii) Impugned judgment employed erroneous tests todetermine oppression under section 241 of the 2013 Act

(iii) Mere unwise or loss making business decisions etc.cannot be construed as acts of mismanagement so as tojustify winding up on just and equitable grounds. ForGholding the majority guilty (a) there must be a sequentialchain of events leading up to the date of filing the petition;(b) the conduct must be burdensome, harsh and wrongfulqua the minority; and (c) there must be an element of H

lack of probity depriving the proprietary rights of the SPgroup as shareholders.

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(iv) This is not a case of quasi-partnership

(v) Impugned judgment is replete with erroneous findingsof fact that influenced the conclusions drawn and reliefsBgranted

(vi) Impugned judgment misattributes the replacement ofCPM to RNT and grants reliefs that were not prayedfor.

(vii) Though the Trust-Nominee Director introduced theresolution for CPM’s removal, it was ultimately themajority of the Board that voted in favor of the resolution.

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(viii) Impugned judgment goes against the fundamentals ofcorporate democracy by taking away basic rights ofshareholders D

(ix) By directing that all future appointments to directorialpositions in Tata Sons can be made only through mutual“consultation” with the SP Group and that only a person“on whom both the groups have trust” can be appointed,NCLAT has undermined the role of majority. This couldEcreate a stalemate and an impasse by giving minorityshareholders a veto power.

(x) This direction also renders mute, the right of the TataTrusts to nominate directors under Art.104B even thoughits validity was not under challenge before NCLAT.

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(xi) Impugned judgment’s interpretation of affirmative votingrights u/ Art 121 is conceptually and legally wrong.

(xii) NCLAT took the affirmative right to mean unilateralpower to implement decisions (referencing para 155 ofthe judgment).

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12. Contentions of Tata Consultancy Services (TCS)

Attacking one portion of the judgment of NCLAT which issued adirection to TCS to reinstate CPM as a Director, Ms. Fereshte D. Sethna,learned counsel appearing for TCS argued as follows:- H

958SUPREME COURT REPORTS

A(i)NCLAT lacked jurisdiction to direct CPM’sreinstatement, as TCS was not party to the originalproceedings or appellate proceedings. Neither the SPGroup, nor CPM had prayed for reinstatement of CPMto the board of directors of TCS

B(ii)Due process was followed in the removal of CPM fromthe board of TCS. CPM was granted opportunity tomake a representation against the proposed resolutionfor his removal in compliance with section 169 of theCompanies Act. Unanimous approval was granted bythe board of directors of TCS at their meeting datedC17.11.2016 for convening an EGM for removal of CPMfrom the board of directors. Circulation of representationagainst his proposed removal on 05.12.2016 was madeby CPM to members. Requisite majority of shareholders(93.11%) passed resolution at EGM dated 13.12.2016,Dfor the removal of CPM. 57.46% of public institutionalshareholders were in favor of the resolution for hisremoval. Further, 71.88% of public shareholders werein favor of resolution for his removal.

(iii) Action against TCS not maintainable by the SP GroupEas they did not meet the requisite threshold under section244 of the Companies Act, 2013. The SP Group heldonly 0.24% in direct equity interests in TCS which stoodat 0.55% on 13.12.2016, and has since been diluted to0.05% on 18.12.2019 – the date of the impugned order.

F(iv)There was no allegation of oppression andmismanagement made out against TCS.

(v) TCS was denied the opportunity of hearing which wascontrary to the principles of natural justice.

(vi) NCLAT lacked jurisdiction to grant reinstatement asGCPM’s tenure of office came to an end on 16.06.2017.

13. Contentions of others

13.1 Shri Tushar Mehta, learned Solicitor General, appearing onbehalf of the Registrar of Companies, made submissions to the limitedextent of justifying the action of the RoC in issuing an amended certificateH

of incorporation. According to him, the Articles of Association of TataSons contained provisions which come within the parameters of thedefinition of a ‘private company’ under section 2(68) of the Act. Theamendment merely recognized a pre-existing reality and the RoCfollowed the extant provisions of the Act. But unfortunately, the NCLATpassed remarks, though it claimed it did not, without even hearing theRoC beforehand.

13.2 Shri Zal Andhyarjuna, learned counsel appearing for ShriNoshir A. Soonawala, submitted that Soonawala has never been accusedof wrongdoing in his 44 years of association with the Tata Group andeven during CPM’s tenure as Director. He has not attended a singlemeeting of the Board of Directors of Tata Sons since his retirement. Hewas requested to act as advisor to Tata Sons which received unanimousapproval of the Board in 2010. CPM would therefore, approach himfrom time to time for advice on financial matters of Tata Sons. Soonawalahas, on his own initiative, sent only two notes to CPM and RNT whichwere purely advisory in nature and cannot be construed as being“directions” or “instructions” from him. The Note dated 04.12.2015 wasan analysis of Tata Sons’ past financial results pointing out areas ofconcern and the Memo dated 09.07.2015 concerned Tata Tele ServicesLimited, an unlisted company having financial problems. Therefore, heargued that NCLAT was wrong in attributing to him, interference withthe affairs of Tata Sons.

14. Questions of law arising for consideration 14.1 Though the learned counsel for the parties have raisedinnumerable contentions touching upon every aspect, micro or macro,and which we have faithfully recorded in paragraphs 9 to 13 above, thejurisdiction of this Court under Section 423 of the Companies Act, 2013,is primarily to answer questions of law arising out of the proceedingsbefore the Tribunal and Appellate Tribunal.

14.2 Therefore, from the rival contentions, the questions of lawthat arise are formulated as follows:-

(i) Whether the formation of opinion by the Appellate Tribunalthat the company’s affairs have been or are being conductedin a manner prejudicial and oppressive to some members andthat the facts otherwise justify the winding up of the companyon just and equitable ground, is in tune with the well settled AB

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principles and parameters, especially in the light of the factthat the findings of NCLT on facts were not individually andspecifically overturned by the Appellate Tribunal ?

(ii) Whether the reliefs granted and the directions issued bythe Appellate Tribunal, including the reinstatement of CPMinto the Board of Tata Sons and other Tata companies, are inconsonance with the pleadings made, the reliefs sought andthe powers available under Sub-section (2) of Section 242 ?

(iii) Whether the Appellate Tribunal could have, in law, mutedthe power of the Company under Article 75 of the Articles ofAssociation, to demand any member to transfer his ordinaryshares, by simply injuncting the company from exercising sucha right without setting aside the Article ?

(iv) Whether the characterisation by the Tribunal, of theaffirmative voting rights available under Article 121 to theDirectors nominated by the Trusts in terms of Article 104B, asoppressive and prejudicial, is justified especially after thechallenge to these Articles have been given up expressly andwhether the Tribunal could have granted a direction to RNTand the Nominee Directors virtually nullifying the effect ofthese Articles ?

(iv) whether the re-conversion of Tata Sons from a publiccompany into a private company, required the necessaryapproval under section 14 of the Companies Act, 2013 or atleast an action under section 43A(4) of the Companies Act,1956 during the period from 2000 (when Act 53 of 2000 cameinto force) to 2013 (when the 2013 Act was enacted) as heldby NCLAT ?

15. Legislative History of Oppression, Mismanagement andUnfair Prejudice

15.1 Before we take up the questions of law formulated abovefor consideration, we think it would be useful to look at the legislativehistory of oppression, mismanagement and prejudice/ unfair prejudice,both in England and India, as colonial vintage continues to haunt us(fortunately or unfortunately), both in legislative drafting and in judicialdecision making even till date.

In England

15.2 The history of legislative action to regulate incorporatedcompanies, in England, is just 176 years old. It begins with the JointStock Companies Act, 1844. Until then, the government createdcorporations under a Royal Charter or an Act of Parliament with thegrant of a monopoly over a specified territory. The best known exampleis the British East India Company, to which Queen Elizabeth I grantedthe exclusive right to trade with all countries to the east of the Cape ofGood Hope. During this period, Corporations essentially used to act onthe government’s behalf, bringing in revenue from their exploits abroad.

15.3 A chartered company (similar to East India Company), knownas the South Sea Company, was established in 1711 to trade in the SpanishSouth American colonies. The South Sea Company’s monopoly rightswere supposedly backed by the Treaty of Utrecht, signed in 1713 as asettlement following the War of Spanish Succession. Investors in theUK were promised high returns of unimaginable proportions, which ledto the shares of the company being traded by avaricious investors athigh premium. By 1717, the South Sea Company became so wealthydespite having done no real business that it assumed the public debt ofthe UK government. This was the first speculative bubble that the country(or perhaps the world) saw, but by the end of 1720, the bubble had“burst”, leading to bankruptcies and the passage of The Bubble Act,1720.

15.4 The UK Bubble Act, 1720 prohibited the establishment ofcompanies without a Royal Charter and it remained in force until itsrepeal in 1825. By 1825, Industrial Revolution had gathered pace,necessitating a legal change. The Bubble Companies Act 1825 lifted therestrictions, but it did not resolve the problem fully.

15.5 Therefore in 1843, the Parliamentary Committee on JointStock Companies, chaired by William Gladstone made a report, whichled to the enactment of the Joint Stock Companies Act 1844. This Actmade it possible for ordinary people to incorporate companies through asimple registration procedure. However, it did not permit limited liability.

15.6 Then came the Limited Liability Act, 1855, which allowedinvestors to limit their liability in the event of business failure, to theamount they invested in the company. These two features - a simpleregistration procedure and limited liability - were subsequently codified A

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Ain the first modern company law enactment, namely the Joint StockCompanies Act 1856. The Joint Stock companies Act, 1856 made itpossible for any 7 individuals, subscribing to shares individually, to forma limited liability company. This was subsequently consolidated with anumber of other statutes in the Companies Act 1862, which was describedby Francis Palmer as the Magna Carta of Co-operative enterprises.B

15.7 The Companies Act, 1862 consolidated the laws relating tothe incorporation, regulation and winding up of trading companies andother associations. Though this Act did not provide for any remedies tothe minority shareholders in respect of oppression and mismanagement,Section 79 empowered the Court to wind up a company whenever theCCourt was of the opinion that it is just and equitable to wind up thecompany. This Act also contained a provision conferring a limited rightupon a dissentient member, whenever a sale or transfer of the businessor property of the company took place in the course of winding upproceedings.D

15.8 However, when fraudulent practices in relation to theformation and management of companies came to the fore, aninvestigation was ordered by a Committee chaired by Lord Davey. TheCommittee submitted a report along with a draft Bill in June, 1895. ThisBill became the Companies Act, 1900. This Act also did not contain anyEprovision relating to oppression and mismanagement. So was the casewith the Companies (Consolidation) Act, 1908. The Act of 1908 wasexamined by a committee presided over by Lord Wrenbury in 1918 andagain by a committee headed by Greene, K.G. in 1926, which led to theCompanies Act, 1929.F15.9 During the second world war, a Company Law ReformsCommittee chaired by Lord Cohen was appointed (in 1943) by thePresident of the Board of Trade to consider and report what majoramendments are needed to the 1929 Act, particularly “to review therequirements prescribed in regard to the formation and affairs ofcompanies and the safeguards afforded for investors and for theGpublic interest”. This Committee’s report dealt specifically with 2problems, namely (i) the hardship caused to the legal heirs of a deceasedshareholder of a private company in the matter of disposal of the shares,due to the restriction on the transferability of shares and (ii) the abuse ofoffice by the Directors in siphoning off huge profits in the form ofHremuneration, to the detriment of the small shareholders. After analyzing these 2 issues in paragraphs 58 and 59 as illustrative cases, the CohenCommittee, recommended that “a step in the right direction would beto enlarge the power of the Court to make a winding-up order byproviding that the power shall be exercisable notwithstanding theexistence of an alternative remedy”.

Paragraphs 58 to 60 of the Report reads as follows:

58. Restrictions on transfer of shares. - It has been representedto us that the provisions which are inserted in the articles of aprivate company for the restriction of the transfer of the shareshave caused hardship especially where the legalrepresentatives of minority shareholders have to raise moneyto pay estate duties. The directors of the company, who areusually the principal shareholders, sometimes exercise theirpower to refuse to register transfers to outsiders, with theresult that executors, who must realise their testators’ sharesin order to pay estate duty, have to sell to the directors orpersons approved by them at prices much lower than thevalues at which the shares are assessed by the Board of InlandRevenue in valuing the estate of the deceased for purpose ofestate duty. This difficulty is not in law peculiar to privatecompanies since there is no legal impediment to a publiccompany having in its articles a provision subjecting transferof shares to the approval of the directors though StockExchanges do not accept it where leave to deal is required.This restriction is valued as a means of keeping a familybusiness under the control of the family and we see nosufficient reason for its removal, particularly if our suggestionin paragraph 6o is adopted.

59. Excessive remuneration of directors. - Another abusewhich has been found to occur is that the directors absorban undue proportion of the profits of the company inremuneration for their services so that little or nothing is leftfor distribution among the shareholders by way of dividend.This may happen where, for example, two persons trading inpartnership form their business into a limited company andone partner dies-, leaving his shares to his widow who takesno active part in the business. At present the only remedyopen to the minority shareholder is to commence an action to A

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restrain the company from paying the remuneration on theground that such payment is a fraud on the minority, sincethe Court would not make a winding-up, order in view of thealternative remedy.

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60. Oppression of minorities.-We have carefully examinedBsuggestions intended to strengthen the minority shareholdersof a private company in resisting oppression by the majority.The difficulties to which we have referred in the two precedingparagraphs are, in fact, only illustrations of a general problem.It is impossible to frame a recommendation to cover everycase. We consider that a step in the right direction would beCto enlarge the power of the Court to make a winding-up orderby providing that the power shall be exercisablenotwithstanding the existence of an alternative remedy. Inmany cases, however, the winding-up of the company will notbenefit the minority shareholders, since the break-up valueDof the assets may be small, or the only available purchaser may be that very majority whose- oppression has driven theminority to seek redress. We, therefore, suggest that the Courtshould have, in addition, the power to impose upon the partiesto a dispute whatever settlement the Court considers just andequitable. This discretion must be unfettered, for it is impossible Eto lay down a general guide to the solution of what areessentially individual cases. We do not think that the Courtcan be expected in every case to find and impose a solution;but our proposal will give the Court a jurisdiction which it atpresent lacks, and thereby at least empower it to impose aFsolution in those cases where one exists.

15.10 Ultimately, in para 153 of the report, a recommendationwas made to amend the provision relating to winding up, by adding thefollowing:

There be a new section under which, on a shareholder’sGpetition, the Court, if satisfied that a minority of theshareholders is being oppressed and that a winding-up orderwould not do justice to the minority, should be empowered,instead of making a winding-up order, to make such otherorder, including an order for the purchase by the majority of H

the shares of the minority at a price to be fixed by the Court,as to the Court may seem just 15.11 Lord Cohen committee report led to the enactment of theCompanies Act, 1948, in which a provision was incorporated in section210. The heading given to the Section was, “Alternative Remedy toWinding up in Cases of Oppression”. This provision reads as follows:- “210. Alternative remedy to winding up in cases of oppression

(1) Any member of a company who complains that the affairsof the company are being conducted in a manner oppressiveto some part of the members (including himself) or, in a casefalling within subsection (3) of section one hundred and sixty-nine of this Act, the Board of Trade, may make an applicationto the court by petition for an order under this section.

(2) If on any such petition the court is of opinion—

(a) that the company’s affairs are being conducted asaforesaid; and (b) that to wind up the company would unfairly prejudicethat part of the members, but otherwise the facts would justifythe making of a winding-up order on the ground that it wasjust and equitable that the company should be wound up; the court may, with a view to bringing to an end the matterscomplained of, make such order as it thinks fit, whether forregulating the conduct of the company’s affairs in future, orfor the purchase of the shares of any members of the companyby other members of the company or by the company and, inthe case of a purchase by the company, for the reductionaccordingly of the company’s capital, or otherwise.

(3) Where an order under this section makes any alterationin or addition to any company’s memorandum or articles, then,notwithstanding anything in any other provision of this Actbut subject to the provisions of the order, the companyconcerned shall not have power without the leave of the courtto make any further alteration in or addition to thememorandum or articles inconsistent with the provisions ofthe order; but, subject to the foregoing provisions of this AB

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subsection, the alterations or additions made by the ordershall be of the same effect as if duly made by resolution of thecompany and the provisions of this Act shall apply to thememorandum or articles as so altered or added to accordingly.

(4) An office copy of any order under this section altering orBadding to, or giving leave to alter or add to, a company’smemorandum or articles shall, within fourteen days after themaking thereof, be delivered by the company to the registrarof companies for registration; and if a company makes defaultin complying with this subsection, the company and everyofficer of the company who is in default shall be liable to aCdefault fine.

(5) In relation to a petition under this section, section threehundred and sixty-five of this Act shall apply as it applies inrelation to a winding-up petition, and proceedings under thissection shall, for the purposes of Part V of the EconomyD(Miscellaneous Provisions) Act, 1926, be deemed to beproceedings under this Act in relation to the winding up ofcompanies.

15.12 But the word “oppressive” appearing in section 210 of the1948 Act, was construed by the House of Lords in Scottish CooperativeEWholesale Society vs. Meyer[1]to mean “burdensome, harsh andwrongful”. The expression “wrongful” gave rise to some uncertaintyas to whether it required actual illegality or invasion of legal rights.Moreover, the provision invited 2 criticisms namely (i) that the requirementto establish grounds which justified winding up under the just and equitableFclause was itself harsh and (ii) that section 210 would not apply to anisolated act, but applied only to a course of conduct.

15.13 Therefore, the Jenkins Committee of 1962 recommendeduse of the term “unfairly prejudicial”. Parliament adopted it in Section75 of the Companies Act, 1980. Later, this section 75 of the 1980 ActGbecame, with an amendment, Section 459 of the Companies Act, 1985.Sections 459 to 461 of the Companies Act, 1985 were included in PartXVII, under the caption “Protection of Company’s Members againstUnfair Prejudice”. Sections 459 to 461 read as follows:-

459. Order on application of company member.

(1) A member of a company may apply to the court by petitionfor an order under this Part on the ground that the company’saffairs are being or have been conducted in a manner whichis unfairly prejudicial to the interests of some part of themembers (including at least himself) or that any actual orproposed act or omission of the company (including an actor omission on its behalf) is or would be so prejudicial.

(2) The provisions of this Part apply to a person who is not amember of a company but to whom shares in the companyhave been transferred or transmitted by operation of law, asthose provisions apply to a member of the company; andreferences to a member or members are to be construedaccordingly.

460 Order on application of Secretary of State

(1) If in the case of any company—

(a) the Secretary of State has received a report under section437, or exercised his powers under section 447 or 448 of thisAct or section 44(2) to (6) of the [1982 c. 50.] InsuranceCompanies Act 1982 (inspection of company’s books andpapers), and (b) it appears to him that the company’s affairs are being orhave been conducted in a manner which is unfairly prejudicialto the interests of some part of the members, or that any actualor proposed act or omission of the company (including anact or omission on its behalf) is or would be so prejudicial.he may himself (in addition to or instead of presenting apetition under section 440 for the winding up of the company)apply to the court by petition for an order under this Part.

(2) In this section (and, so far as applicable for its purposes,in the section next following) “company” means any bodycorporate which is liable to be wound up under this Act.

461 Provisions as to petitions and orders under this Part

(1) If the court is satisfied that a petition under this Part iswell founded, it may make such order as it thinks fit for givingrelief in respect of the matters complained of.

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(2) Without prejudice to the generality of subsection (1), thecourt’s order may—

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(a) regulate the conduct of the company’s affairs in the future,(b) require the company to refrain from doing or continuingan act complained of by the petitioner or to do an act whichBthe petitioner has complained it has omitted to do,

(c) authorise civil proceedings to be brought in the name andon behalf of the company by such person or persons and onsuch terms as the court may direct,

(d) provide for the purchase of the shares of any members ofthe company by other members or by the company itself and,in the case of a purchase by the company itself, the reductionof the company’s capital accordingly.

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(3) If an order under this Part requires the company not tomake any, or any specified, alteration in the memorandum orarticles, the company does not then have power without leaveof the court to make any such alteration in breach of thatrequirement.

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(4) Any alteration in the company’s memorandum or articlesmade by virtue of an order under this Part is of the sameEeffect as if duly made by resolution of the company, and theprovisions of this Act apply to the memorandum or articles asso altered accordingly.

(5) An office copy of an order under this Part altering, orgiving leave to alter, a company’s memorandum or articlesFshall, within 14 days from the making of the order or suchlonger period as the court may allow, be delivered by thecompany to the registrar of companies for registration ; andif a company makes default in complying with this subsection,the company and every officer of it who is in default is liableGto a fine and, for continued contravention, to a daily defaultfine.

(6) Section 663 (winding-up rules) applies in relation to apetition under this Part as in relation to a winding-up petition.

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The words in bold letters in the above extract in section 459, werelater substituted by the words “unfairly prejudicial to theinterests of its members generally or of some part of itsmembers” by a 1989 amendment which came into effect in 1991.

15.14 The Companies Act, 1985 was repealed by the CompaniesAct, 2006, which had the dubious distinction of being the longest Act inBritish parliamentary history, with 1300 sections and 16 schedules. (untilit was overtaken by the Corporation Tax Act, 2009). Part 30 of the Actcontains 3 provisions in sections 994 to 996 (apart from others), groupedunder the heading “Protection of Members against Unfair Prejudice”.Paragraph 1265 of the Explanatory Notes to the 2006 Act, confirms thatSections 994-998 restate sections 459, 460 and 461 of the 1985 Act.

15.15 Sections 994 to 996 of the Companies Act, 2006 read asfollows:- “994 Petition by company member

(1) A member of a company may apply to the court bypetition for an order under this Part on the ground—

(a) that the company’s affairs are being or have beenconducted in a manner that is unfairly prejudicial to theinterests of members generally or of some part of its members(including at least himself), or (b) that an actual or proposed act or omission of thecompany (including an act or omission on its behalf) is orwould be so prejudicial.

(2) The provisions of this Part apply to a person whois not a member of a company but to whom shares in thecompany have been transferred or transmitted by operationof law as they apply to a member of a company.

(3) In this section, and so far as applicable for thepurposes of this section in the other provisions of this Part,“company” means—

(a) a company within the meaning of this Act, or (b) a company that is not such a company but is astatutory water company within the meaning of the StatutoryWater Companies Act 1991 (c. 58).

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995 Petition by Secretary of State

(1) This section applies to a company in respect ofwhich—

(a) the Secretary of State has received a report undersection 437 of the Companies Act 1985 (c. 6) (inspector’sreport);

(b) the Secretary of State has exercised his powersunder section 447 or 448 of that Act (powers to requiredocuments and information or to enter and search premises);

(c) the Secretary of State or the Financial ServicesAuthority has exercised his or its powers under Part 11 of theFinancial Services and Markets Act 2000 (c. 8) (informationgathering and investigations); or (d) the Secretary of State has received a report froman investigator appointed by him or the Financial ServicesAuthority under that Part.

(2) If it appears to the Secretary of State that in thecase of such a company—

(a) the company’s affairs are being or have beenconducted in a manner that is unfairly prejudicial to theinterests of members generally or of some part of its members,or (b) an actual or proposed act or omission of thecompany (including an act or omission on its behalf) is orwould be so prejudicial, he may apply to the court by petitionfor an order under this Part.

(3) The Secretary of State may do this in addition to,or instead of, presenting a petition for the winding up of thecompany.

(4) In this section, and so far as applicable for thepurposes of this section in the other provisions of this Part,“company” means any body corporate that is liable to bewound up under the Insolvency Act 1986 (c. 45) or theInsolvency (Northern Ireland) Order 1989 (S.I. 1989/2405(N.I. 19)).

996 Powers of the court under this Part

(1) If the court is satisfied that a petition under thisPart is well founded, it may make such order as it thinks fitfor giving relief in respect of the matters complained of.

(2) Without prejudice to the generality of subsection(1), the court’s order may—

(a) regulate the conduct of the company’s affairs inthe future; (b) require the company— (i) to refrain from doing orcontinuing an act complained of, or (ii) to do an act that thepetitioner has complained it has omitted to do;

(c) authorise civil proceedings to be brought in thename and on behalf of the company by such person or personsand on such terms as the court may direct; (d) require the company not to make any, or anyspecified, alterations in its articles without the leave of thecourt; (e) provide for the purchase of the shares of anymembers of the company by other members or by the companyitself and, in the case of a purchase by the company itself, thereduction of the company’s capital accordingly.

Legislative history in India

15.16 In India, the earliest legislation made for the ‘Regulation ofRegistered Joint Stock Companies’ was Act No. XLIII of 1850. ThisAct provided for the registration of every un-incorporated company ofpartners, associated under a deed containing a provision that the sharesin the stock or business of the said company, are transferable withoutthe consent of all the partners. It will be fascinating for those interestedin history, to know that under this 1850 Act, the Supreme Courts ofJudicature at Calcutta, Madras and Bombay were conferred notonly with the power of registration of such companies but also with apower to enforce the performance by the directors of any of their dutiesunder the Act or the deed of partnership. These courts also had aconsequential power to punish a person for contempt, if there was anydisobedience of the order of the court. The concepts such as minority,majority, oppression, mismanagement etc., were alien to this Act of 1850.

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A15.17 Then came Act No.XIX of 1857 which provided for theincorporation and regulation of joint stock companies and otherassociations either with or without limited liability of the members thereof.The primary object of the Act was to enable the members of the jointstock companies and other associations to limit their liability for the debtsand engagements relating to those companies and associations. It wasBunder this Act that for the first time the prescription that 7 or morepersons associated for any lawful purpose may form themselves into anincorporated company with or without limited liability by subscribing theirnames to a Memorandum of Association, was introduced. By this verysame Act the prohibition for 20 or more persons to carry on anyCpartnership in trade or business having gain as its object, unless they areregistered as a company, was also introduced. But even in this Act theconcepts such as oppression and mismanagement etc., were not dealtwith (perhaps due to the fact that East India Company alone was grantedsuch a privilege).D15.18 Thereafter, a full-fledged enactment known as The IndianCompanies’ Act, 1866 was passed with a view to consolidate and amendthe laws relating to the incorporation, regulation and winding up of tradingcompanies and other associations. Even this Act, did not provide forany remedy in the case of oppression and mismanagement, thoughprovisions were made for winding up including voluntary winding up.E

15.19 The above Act No. X of 1866 was repealed by The IndianCompanies Act No. VI of 1882. This Act also did not contain provisionsfor an individual or group of shareholders/members to seek redressalagainst oppression, mismanagement or any unfair prejudicial treatment.

F15.20 Then came The Indian Companies Act, 1913 (Act No.VIIof 1913) which repealed the 1882 Act and the amendments made thereof.Interestingly, this 1913 Act also repealed one particular provision in theIndian Arbitration Act, 1899. Though in the original enactment of 1913,there was no provision relating to oppression and mismanagement, theAmendment Act 52 of 1951 inserted Section 153C to The IndianGCompanies Act, 1913. This Section 153C reads as follows :- “153C. Power of court to act when company acts in aprejudicial manner or oppresses any part of its members.-(1)Without prejudice to any other action that may be taken,whether in pursuance of this Act or any other law for the time H

being in force, any member of a company who complains thatthe affairs of the company are being conducted- (a)In a manner prejudicial to the interest of thecompany, or (b) In a manner oppressive to some part of the members(including himself) may make an application to thecourt for an order under the section.

(2) An application under sub-section (I) may also be made bythe Central Government if it is satisfied that the affairs of thecompany are being conducted as aforesaid.

(3) No application under sub-section (I) shall be made byany member, unless- (a) In the case of a company having a share capital, themember complaining-

(i) has obtained the consent in writing of not less than\one hundred in number of the members of thecompany or not less than one-tenth in number ofthe members, whichever is less or

(ii) holds not less than one-tenth of the issued sharecapital of the company upon which all calls andother sums due have been paid; and

(b) In the case of a company not having a share capitalthe member complaining has obtained the consent inwriting of not less than one-fifth in number of the members,and where there are several persons having the sameinterest in any such application and the condition specifiedin clause (a) or clause (b) of this sub-section is satisfiedwith reference to one or more of such persons, any one ormore of them may, with the permission of the court, makethe application on behalf of, or for the benefit of, allpersons so interested, and the provisions of rule 8 of OrderI of the First Schedule to the Code of Civil Procedure, 1908(Act V of 1908), shall apply to any such application as itapplies to any suit within the meaning of that rule.

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(4) If on any such application the court is of opinion- (a) that the company’s affairs are being conducted asaforesaid, and (b) that to wind up the company would unfairly andmaterially prejudice the interests of the company or anypart of its members, but otherwise the facts would justifythe making of a winding up order on the ground that it isjust and equitable that the company should be wound up, the court may, with a view to bringing to an end the matterscomplained of, make such order in relation thereto as it thinksfit.

(5) Without prejudice to the generality of the powers vestedin a court under sub-section (4), any order made under thatsub-section may provide for- (a) the regulation of the conduct of the company’s affairsin future; (b) the purchase of the shares or interests of any membersof the company by other members thereof or by thecompany;

(c) in the case of a purchase of shares or interest by thecompany being a company having a share capital, for thereduction accordingly of the company’s capital orotherwise; (d) the termination of any agreement, howsoever, arrivedat, between the company and its manager, managing agent,managing director or any of its other directors; (e) the termination or revision of any agreement enteredinto between the company and any person other than anyof the persons referred to in clause(d), provided that nosuch agreement shall be termination or revised except afterdue notice to the party concerned and in the case of revisionof any such agreement, after obtaining the consent of theparty concerned thereto; (f) the setting aside of any transfer, delivery of goods,payment, execution or other act relating to property madeor done by or against the company within three monthsbefore the date of the application under sub-section (I),which would, if made or done by or against an individual,be deemed in his insolvency to be a fraudulent preference.

(6) Where an order under this section makes any alterationin, or addition to, the memorandum or articles of any company,then notwithstanding anything contained in any otherprovision of this Act, but subject to the provisions of the order,the company concerned shall not have power without the leaveof the court to make any further alteration in, or addition to,the memorandum or articles inconsistent with the provisionsof the order, but subject to the foregoing provisions of thissub-section the alterations or additions made by the ordershall have the same effect as is duly made by a resolution ofthe company, and the provisions of this Act shall apply to thememorandum or articles as so altered or added to accordingly.

(7) A certified copy of every order under this section alteringor adding to, or giving leave to alter or add to, thememorandum or articles of any company shall, within fifteendays after the making thereof, be delivered by the companyto the registrar for registration, and if a company makesdefault in complying with the provisions of this sub-section,the company and every officer of the company who is indefault shall be punishable with fine which may extend tofive thousand rupees.

(8) It shall be lawful for the court upon the application ofany petitioner or of any respondent to a petition under thissection and upon such terms as to the court appears just andequitable, to make an such interim order as it thinks fit forregulating the conduct of the affairs of the company pendingthe making of a final order in relation to the application.

(9) Where any manager, managing agent, managing directoror any other director or any other person who has not beenimpleaded as a respondent to any application under thissection applies to be made a party thereto, the court shall, ifit is satisfied that his presence before the court is necessary AB

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in order to enable the court effectually and completely toadjudicate upon and settle all the questions involved in theapplication, direct that the name of any such person be addedto the application.

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(10) In any case in which the court makes an order terminatingBany agreement between the company and its manager,managing agent or managing director or any of its otherdirectors, as the case may be, the court may, if it appears to itthat the manager, managing agent, managing director or otherdirector, as the case may be, has misapplied or retained orbecome liable or accountable for any money or property ofCthe company or has been guilty of any misfeasance or breach of trust in relation to the company, compel him to repay orrestore the money or property or any part thereof respectivelywith interest at such rate as the court thinks just, or tocontribute such sums to the assets of the company by way ofcompensation in respect of the misapplication, retainer,misfeasance or breach of trust as the court thinks just, andthe provisions of sections 235 and 236 of this Act shall applyas they apply to a company in the course of being wound up.

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Explanation.- For the purposes of this section, any materialEchange after the 21[st] day of July, 1951, in the control of acompany, or in the case of a company having a managingagent in the composition of the managing agent which is afirm or in the control of the managing agent which is acompany, may be deemed by the court to be a fact which wouldjustify the making of a winding-up order on the ground thatFit would be just and equitable that the company should bewound up:

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Provided that the court is satisfied that by reason of thechange the interests of the company or any part of its membersare or are likely to be unfairly and materially prejudiced”

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15.21 After the country attained independence, a Company LawCommittee was appointed by the Government of India for the revisionof the Companies Act with particular reference to Indian trade andindustry. The Committee submitted its report in March-1952. Aftercirculating the Report to all State Governments, Chambers of Commerce,HTrade Associations and other bodies and after examining the inputs received, the Companies Act, 1956 (Act no.1 of 1956) was passed. ThisAct included a full Chapter in Chapter VI of Part VI, containing elaborateprovisions for the prevention of oppression and mismanagement. ThisChapter was divided into two parts, with Part A dealing with the powersof the Court/Tribunal and Part B dealing with the powers of the CentralGovernment. Sections 397, 398 and 402 of the Act are of significanceand, hence, they are extracted as follows:

“397. Application to Court for relief in cases of oppression.-(1) Any members of a company who complain that the affairsof the company are being conducted in a manner oppressiveto any member or members (including any one or more ofthemselves) may apply to the Court for an order under thissection, provided such members have a right so to apply invirtue of section 399.

(2) If, on any application under sub-section (1), the Courtis of opinion - (a) that the company’s affairs are being conducted in amanner oppressive to any member or members; and (b) that to wind up the company would unfairly prejudicesuch member or members, but that otherwise the factswould justify the making of a winding up order on theground that it was just and equitable that the companyshould be wound up; the Court may, with a view to bringing to an end the matterscomplained of, make such order as it thinks fit.

398. Application to Court for relief in cases ofmismanagement.-(1) Any members of a company whocomplain- (a) that the affairs of the company are being conducted ina manner prejudicial to the interests of the company; or (b) that a material change (not being a change broughtabout by, or in the interests of, any creditors includingdebenture holders, or any class of shareholders, of thecompany) has taken place in the management or controlof the company, whether by an alteration in its board ofDirectors, or of its managing agent or secretaries and A

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treasurers, or in the constitution or control of the firm orbody corporate acting as its managing agent or secretariesand treasurers, or in the ownership of the company’s shares,or if it has no share capital, in its membership, or in anyother manner whatsoever, and that by reason of suchchange, it is likely that the affairs of the company will beconducted in a manner prejudicial to the interests of thecompany; may apply to the Court for an order under this section,provided such members have a right so to apply in virtue ofsection 399.

(2) If, on any application under sub-section (1), the Court isof opinion that the affairs of the company are beingconducted as aforesaid or that by reason of any materialchange as aforesaid in the management or control of thecompany, it is likely that the affairs of the company will beconducted as aforesaid, the Court may, with a view to bringingto an end or preventing the matters complained of orapprehended, make such order as it thinks fit.

402 - Powers of Court on application under section 397 or398. - Without prejudice to the generality of the powers ofthe Court under section 397 or 398, any order under eithersection may provide for- (a) the regulation of the conduct of the company’s affairsin future; (b) the purchase of the shares or interests of any membersof the company by other members thereof or by thecompany;

(c) in the case of a purchase of its shares by the companyas aforesaid, the consequent reduction of its share capital; (d) the termination, setting aside or modification of anyagreement, howsoever arrived at, between the companyon the one hand, and any of the following persons, on theother, namely:-

(i) the managing director,

(ii) any other director,

(iii) the managing agent,

(iv) the secretaries and treasurers, and

(v) the manager.

upon such terms and conditions as may, in the opinion of theCourt, be just and equitable in all the circumstances of thecase.

(e) the termination, setting aside or modification of anyagreement between the company and any person not referredto in clause (d), provided that no such agreement shall beterminated, set aside or modified except after due notice tothe party concerned and provided further that no suchagreement shall be modified except after obtaining the consentof the party concerned; (f) the setting aside of any transfer, delivery of goods, payment,execution or other act relating to property made or done byor against the company within three months before the dateof the application under section 397 or 398, which would, ifmade or done by or against an individual, be deemed in hisinsolvency to be a fraudulent preference; (g) any other matter for which in the opinion of the Court it isjust and equitable that provision should be made.”

15.22 After the economy of the country opened up and the nationaland international economic environment changed, the Governmentdecided to replace the 1956 Act with a new one. Accordingly, theCompanies Bill, 2009 was introduced in the Lok Sabha. But this bill waswithdrawn and the Companies Bill, 2011 was introduced. This eventuallybecame the Companies Act 2013. Among the many changes broughtabout by this Companies Act 2013, those relating to protection of minorityshareholders is what is relevant for our purpose. In fact, paragraph 5(ix)of the Statement of Objects and Reasons for the Companies Act, 2013deals with the issue of protection of minority shareholders. It reads asfollows:

“5. (ix) Protection for Minority Shareholders:

(a) Exit option to shareholders in case of dissent to changein object for which public issue was made.

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(b) Specific disclosure regarding effect of merger oncreditors, key managerial personnel, promoters and non-promoter shareholders is being provided. The Tribunal isbeing empowered to provide for exit offer to dissentingshareholders in case of compromise or arrangement.

(c) The Board may have a director representing smallshareholders who may be elected in such manner as may be prescribed by rules.”

15.23 Chapter XVI of the 2013 Act containing Sections 241 to246 deals exclusively with “Prevention of Oppression andMismanagement.” Sections 241 and 242 are of relevance for our purposeand hence it is extracted as follows:

“241. Application to Tribunal for relief in cases of oppression, etc. — (1) Any member of a company who complains that—

(a) the affairs of the company have been or are beingconducted in a manner prejudicial to public interest orin a manner prejudicial or oppressive to him or anyother member or members or in a manner prejudicial tothe interests of the company; or (b)the material change, not being a change broughtabout by, or in the interests of, any creditors, includingdebenture holders or any class of shareholders of thecompany, has taken place in the management or controlof the company, whether by an alteration in the Boardof Directors, or manager, or in the ownership of thecompany‘s shares, or if it has no share capital, in itsmembership, or in any other manner whatsoever, andthat by reason of such change, it is likely that the affairsof the company will be conducted in a mannerprejudicial to its interests or its members or any classof members, may apply to the Tribunal, provided such member has aright to apply under section 244, for an order under thisChapter.

(2) The Central Government, if it is of the opinion thatthe affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to theTribunal for an order under this Chapter:

242. Powers of Tribunal.— (1) If, on any application madeunder section 241, the Tribunal is of the opinion—

(a) that the company‘s affairs have been or are beingconducted in a manner prejudicial or oppressive to anymember or members or prejudicial to public interest or ina manner prejudicial to the interests of the company; and (b) that to wind up the company would unfairly prejudicesuch member or members, but that otherwise the factswould justify the making of a winding-up order on theground that it was just and equitable that the companyshould be wound up, the Tribunal may, with a view to bringing to an end the matterscomplained of, make such order as it thinks fit.

(2) Without prejudice to the generality of the powers undersub-section (1), an order under that subsection may providefor—

(a) the regulation of conduct of affairs of the company infuture; (b) the purchase of shares or interests of any members ofthe company by other members thereof or by the company;

(c) in the case of a purchase of its shares by the companyas aforesaid, the consequent reduction of its share capital; (d) restrictions on the transfer or allotment of the sharesof the company; (e) the termination, setting aside or modification, of anyagreement, howsoever arrived at, between the companyand the managing director, any other director or manager,upon such terms and conditions as may, in the opinion ofthe Tribunal, be just and equitable in the circumstances ofthe case; (f) the termination, setting aside or modification of anyagreement between the company and any person other thanthose referred to in clause (e): Provided that no such A

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agreement shall be terminated, set aside or modified exceptafter due notice and after obtaining the consent of theparty concerned; (g) the setting aside of any transfer, delivery of goods,payment, execution or other act relating to property madeor done by or against the company within three monthsbefore the date of the application under this section, whichwould, if made or done by or against an individual, bedeemed in his insolvency to be a fraudulent preference; (h) removal of the managing director, manager or any ofthe directors of the company;

(i) recovery of undue gains made by any managing director,manager or director during the period of his appointmentas such and the manner of utilisation of the recoveryincluding transfer to Investor Education and ProtectionFund or repayment to identifiable victims; (j) the manner in which the managing director or managerof the company may be appointed subsequent to an orderremoving the existing managing director or manager ofthe company made under clause (h); (k) appointment of such number of persons as directors,who may be required by the Tribunal to report to theTribunal on such matters as the Tribunal may direct;

(l) imposition of costs as may be deemed fit by the Tribunal; (m) any other matter for which, in the opinion of theTribunal, it is just and equitable that provision should bemade.

(3) A certified copy of the order of the Tribunal under sub-section (1) shall be filed by the company with the Registrarwithin thirty days of the order of the Tribunal.

(4) The Tribunal may, on the application of any party tothe proceeding, make any interim order which it thinks fit forregulating the conduct of the company‘s affairs upon suchterms and conditions as appear to it to be just and equitable.

(5) Where an order of the Tribunal under sub-section (1)makes any alteration in the memorandum or articles of acompany, then, notwithstanding any other provision of thisAct, the company shall not have power, except to the extent, ifany, permitted in the order, to make, without the leave of theTribunal, any alteration whatsoever which is inconsistent withthe order, either in the memorandum or in the articles.

(6) Subject to the provisions of sub-section (1), thealterations made by the order in the memorandum or articlesof a company shall, in all respects, have the same effect as ifthey had been duly made by the company in accordance withthe provisions of this Act and the said provisions shall applyaccordingly to the memorandum or articles so altered.

(7) A certified copy of every order altering, or giving leaveto alter, a company‘s memorandum or articles, shall withinthirty days after the marking thereof, be filed by the companywith the Registrar who shall register the same.

(8) If a company contravenes the provisions of sub-section(5), the company shall be punishable with fine which shallnot be less than one lakh rupees but which may extend totwenty-five lakh rupees and every officer of the company whois in default shall be punishable with imprisonment for a termwhich may extend to six months or with fine which shall notbe less than twenty-five thousand rupees but which may extendto one lakh rupees, or with both.”

15.24 Thus the English legislative history of the provisionsrelating to oppression, mismanagement and prejudice, show 3milestones, namely (i) the introduction in the year 1862, of the ‘justand equitable clause’ for winding up and the conferment of a limitedright on the dissentient member, whenever a transfer or sale tookplace in the course of winding up proceedings, (ii) the provision ofan alternative remedy to winding up, in case of oppression ofminority, in the year 1948 and (iii) the shift from oppression to the‘unfair prejudice’ quotient in 1980/1985. The journey, in otherwords, was from “winding up on just and equitable cause” to“oppression” to “unfair prejudice”.

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A15.25 But in so far as India is concerned, what was incorporatedin section 210 of the English Companies Act, 1948, inspired the insertionof section 153-C of the Indian Companies Act, 1913, by way of anamendment in 1951. Then came sections 397 and 398 of the 1956 Act,with certain modifications. An overhaul of these provisions resulted inBSections 241 and 242 of the 2013 Indian Act, on the model of (and notexact reproduction of) sections 459 to 461 of the English CompaniesAct, 1985 and sections 994 to 996 of the English Act of 2006.

15.26 The change of language and the consequential change ofparameters for an inquiry relating to oppression and mismanagementCfrom 1951 to 1956 and from 1956 to 2013 and thereafter can be bestunderstood, if the anatomy of the statutory provisions are dissected andpresented in a table :- D

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15.27 From the table given above, it could be seen that the changesbrought about in India in course of time, were material. These changescan be summarised as follows:

(i) While the conduct of the company’s affairs in a manner thatwarrant interference, should be “present and continuing”, under the1913 Act and 1956 Act, as seen from the usage of the words “arebeing”, the conduct could even be “past or present and continuous”under the 2013 Act as seen from the usage of the words “have been orare being” (But the conduct cannot be of a distant past);

(ii) Prejudice to public interest and prejudice to the interests ofany member or members were not among the parameters prescribed inthe 1913 Act, but under the 1956 Act prejudice to public interest wasincluded both under the provision relating to oppression and also underthe provision relating to mismanagement. Prejudice to the interest of thecompany was included only in the provision relating to mismanagement.But under the 2013 Act conduct prejudicial to any member or prejudicialto public interest or prejudicial to the interest of the company are alladded along with oppression;

(iii) Under the 1913 Act, the Court should be satisfied that windingup under the just and equitable clause will not only unfairly prejudice but“also materially prejudice” the interests of the company or any partof its members. But in the 1956 Act and 2013 Act, the words “andmaterially” do not follow the word “unfairly”. Moreover, under the1956 Act and 2013 Act all that is required to be seen is whether thewinding up will unfairly prejudice “such member or members” indicatingthereby that the focus was on complaining/affected members.

15.28Having thus seen the shift in the Indian legislative policyunder Act 52 of 1951 (amending the 1913 Act) and then under the 1956Act as amended by Act 53 of 1963 and thereafter under the 2013 Act,let us also see how the shift in the legislative policy happened in theUnited Kingdom. A table similar to the one given in para 15.26, is presentedbelow insofar as the English Law is concerned:

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15.29 There are a few notable features of the shift that happenedEin England. They are (i) from a “conduct oppressive to some part ofthe members” the focus has shifted to “conduct unfairly prejudicialto the interests of the members generally or of some part of itsmembers”: (ii) conduct prejudicial to public interest or prejudicial to thecompany’s interest, does not form part of the scheme of English Law;(iii) any actual or proposed act or omission, can also be challenged underFEnglish Law on the ground that it would turn out to be prejudicial; (iv)the question of the Court forming an opinion that the facts would otherwiserequire an order for winding up on just and equitable ground but that thesame will unfairly prejudice the complaining members, does not ariseunder the English Law any more.G

15.30 But despite the huge shift in England, there appears to be acommon thread running in all the enactments, both in India and England.In all the 3 Indian enactments, namely the 1913 Act, 1956 Act and the2013 Act, the Court is ordained, generally to pass such orders “with aview to bringing to an end the matters complained of”. This sentenceHis found in Section 153C(4) of the 1913 Act. It is found in Section 397(2)

as well as 398(2) of the 1956 Act and it is also found in Section 242 (1)of the 2013 Act. This is also the common thread that runs through thestatutory prescriptions contained in the English Acts of 1948, 1985 and2006. Therefore, at the stage of granting relief in an application underthese provisions, the final question that the Court should ask itself is asto whether the order to be passed will bring to an end the matterscomplained of. Having thus seen the development of law, let us nowtake up the questions of law one after another.

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16. Question No. 1

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16. Question No. 1

16.1 The first question of law arising for consideration is whetherthe formation of opinion by the Appellate Tribunal that the company’saffairs have been or are being conducted in a manner prejudicial andoppressive to some members and that the facts otherwise justify thewinding up of the company on just and equitable ground, is in tune withthe well settled principles and parameters, especially in the light of thefact that the findings of NCLT on facts were not individually andspecifically overturned by the Appellate Tribunal ?

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16.2 An analysis of the provisions of Section 241(1)(a) read withclauses (a) and (b) of Sub-section (1) of Section 242 shows that a reliefunder these provisions can be granted only if the Tribunal is of theopinion –

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“(1) that the company’s affairs have been or are being conductedin a manner –

(a) Prejudicial to any member or members or (b)Prejudicial to public interest or F

(c) Prejudicial to the interests of the company or (d)Oppressive to any member or members

and

(2) that though the facts would justify the making of a winding upGorder on the basis of just and equitable clause, such a winding upwould unfairly prejudice such member or members.16.3 Keeping in mind the above statutory prescription, if we goback to the pleadings, it will be seen that the complainant companiesforming part of the S.P. Group pitched their claim in their original petitionH

16.3 Keeping in mind the above statutory prescription, if we goback to the pleadings, it will be seen that the complainant companiesforming part of the S.P. Group pitched their claim in their original petitionon the ground:

A(i) that the affairs of Tata Sons are being carried as though it wasthe proprietary concern of RNT; and

(ii) that though the oppressive conduct of the respondents wassuch that it would be just and equitable to wind up Tata Sonsunder Section 241, but such winding up would unfairly prejudiceBthe interests of the complainants.

16.4 The specific allegations on which the complainant companies(of the S.P. Group) sought relief are as follows:-

(i) The abuse of a few Articles of Association and the controlexercised by the Tata Trust and its nominee Directors over theCBoard of Directors of Tata Sons;

(ii) The removal of CPM as Executive Chairman;

(iii) Transactions with Mr. C. Sivasankaran of Sterling Infotechand the transactions in which Tata Teleservices got entangled; D(iv) Acquisition of Corus Group Inc of U.K.;

(v) Doomed Nano Car project;

(vi) The grant of inter-corporate bridge loan to sterlingcomputers; E(vii) The dealings with NTT DoCoMo which eventually led toan arbitration award for a huge sum of money;

(viii) The sale of a flat to Mehli Mistry and the grant of hugepersonal favours to the companies owned and controlled by MehliMistry.F16.5 Each and every one of the allegations forming the basis ofthe complaint, was dealt with by NCLT and categorical findings basedon evidence was recorded by NCLT. The findings recorded by NCLTallegation-wise, are indicated in paragraph 6.1 above.

16.6 None of the above findings, except the one relating to theGremoval of CPM was specifically and individually overturned by NCLAT.In addition NCLAT focused on the conversion of Tata Sons from apublic company to a private company.

16.7 For easy appreciation, we present in the following table, theallegations made in the complaint, the findings recorded by NCLT withHan indication whether NCLAT dealt with the same or not:

TATA CONSULTANCY SERVICES LIMITED v. CYRUS989INVESTMENTS PVT. LTD. AND ORS.AWhetherNCLATAllegationFindings of NCLTdealt withspecificallySiva Group Co. –1. On 03.10.2013, Siva wroteNo specific1. Non-payment ofa letter to CPM seeking anfinding.Bdue amount by Sivaexit from TTSL in lieu of theGroup (Sterling) asfinancial strain it was facing.per arbitral awardOn 08.10.2013, RNT wrote toin TTSL-NTTCPM requesting him to meetDoCoMo deal (paraSiva to discuss the218-234)predicament, in lieu ofC2. Acquisition oflatter’s previousshares in TTSL bycontributions in the historySiva and Temasekof TTSL. However, this was3. Info leakthree years before thepertaining toDocomo issue, which croppedinitiation of actionup in 2016. (Para 222, 233)Dagainst Siva2. The loan given by one of4. Acquisition ofthe Tata Group CompaniesDishnet DSL(Kalimati) to Siva Company(DDSL) from Sivawas paid back andGroupundertaking given by thecompany was released. SivaEhimself provided personalguarantee for the loan takenfrom Standard CharteredBank. Moreover, no TataGroup company paid anymoney for acquisition ofFTTSL shares by Siva Group.(Para 228)3. Ultimately, Siva had to payits group pro-rata share ofthe Docomo award. Siva, on19.09.2016, then soughtGdamages from Tata Sons forthe alleged mismanagementof TTSL, for the ensuinglosses incurred by it.However, this did not proveany special relationship withH

ARNT.(Para 221, 230,233,234)4. Acquisition price of TTSLby both Siva and Temasekhad unanimous approval ofthe shareholders. (Para 230)B5. Transaction was not donenot behind the back of CPMand connected parties. (Para230)6. The reason for thedifference in the acquisitionCprices between Temasek(Rs.26/ share) and SivaGroup (Rs.17/share) wasowing to more shareholdingrights with Temasek. (Para230)D7. CPM made more profitsfrom the acquisition ofshares of TTSL than SivaGroup. (the latter had sold itsshares to NTT-Docomo in2008). ComplainantEcompanies also acquiredshares of Tata TeleservicesLtd. at Rs. 15/ per share.(Para 230)8. NTT-DoCoMo alsoacquired shares from brotherFand father of CPM. CPM wasalso a beneficiary like Sivabut this was not disclosed bythe complainant companies.The rate at which thepetitioners acquired theGshares of TTSL is less thanthe rate at which Sivaacquired them and the gainmade by the petitioners byselling shares of NTTDoCoMo was more than theH

gain made by the Siva Group.A(Para 230)9. The acquisition happenedin 2006 and it is sought toraise after 10 years, duringwhich period CPM was partof that board and also theBExecutive Chairman for aperiod.10. No proof on record to showleakage of info11. It was Mr. Nitin Nohria(Trust Nominee director) andCnot CPM, who proposed toinitiate legal action againstSiva. (Para 231)12. With respect to TataCapital giving a loan to Mr.Siva, due diligence carriedDout on the same, and no rolein the grant of this loan canbe attributed to RNT. (Para234)13. The acquisition ofDishnet DSL (DDSL) fromESiva group took place in2004. CPM has not arguedthat he was unaware of thisacquisition. Nor has it beenargued that RNT made anyillicit gain out of it. In fact, itFwas commercial decision ofTTSL. This issue wasbrought to the notice of CPMway back in October, 2013,but he never complainedearlier. (Para 235)GNeither TTSL nor Kalimatinor Tata Capital werearrayed as party to theproceeding.H

[2021] 12 S.C.R.

[2021] 12 S.C.R.

AAir Asia India Ltd.Air Asia not made a party.AtNo specific& V i s t a r a : -the time when resolution forfinding.Diversion of fundsJoint Venture was placed onthrough a Global06.12.2012, CPM was activeterrorist.in discussions and was aconsenting party to theBsame. The said JointVenture was incorporated on28.03.2013 and CPM did notraise any issue till hisremoval in 2016. (Para 242-244)CCPM contends that the dealwas struck with Mr. HamidReza Malakotipour who wasclassified as a Globalterrorist by the UnitedNations. However, theDallegation of indirectlyfinancing terrorism throughthe involvement of such thirdparties, is serious anddemeaning. (Para 241)After claiming that he has noEsay in the AirAsiatransactions, CPM claims tohave protected the interestof the company by limitingits exposure and ensuring nofallback liability. These twoFclaims conflict with eachother. (Para 242)With respect to the JointVenture with SingaporeAirlines to set up Vistara, allAir Asia decision are faitGaccompli upon him, and thus,he is estopped from denyingknowledge regarding thesetransactions. (Para 244)It would be preposterous toallege that RNT funded aH

TATA CONSULTANCY SERVICES LIMITED v. CYRUS993INVESTMENTS PVT. LTD. AND ORS.Aterrorist through hawalawith diversion of AirAsiaIndia funds. (Para 245)Mehli Mistry:-The contract for dredging atNo specific1. Awarding ofTrombay was awarded infinding.dredging and1993 and renewed for variousBShipping contractstenures (5 times) from 2002(without tenders) to– 2014. CPM heldMehli’s Companiesdirectorship of Tata Powerby Tata Power.from 1996-2006 & 2011-2. Purchase of2016, but never raised anyagricultural land byobjection. (Para 258)CRNT at Alibaug in2004 barging cum dredging1993 where Aquacontract – with regard to theFarms (in whichaward of contract by TataMr. Mehli was aPower to MPCL, there ispartner) was anothing on material to proveconfirming party tothat this caused loss to TPC.Dthe sale deed.(Para 259)3. Sale of2006 Shipping ContractB a k h t a w a rawarded by Tata Power to aApartment atconsortium (comprising ofColaba to MPCPLMPSPL and Mercator Lines(which belongs toLtd.) – Letter written by Mr.EForbes Gokak Ltd.)Mehli to Tata Power dated04.05.2013 pertained toissue of coal storage, whichdoes not prove anyexpropriation or bullying byhim. Since, the company ofFMr. Mehli was the contractor,he only wrote to Tata Powerto ensure propercoordination and jointdecision making to sustaina smooth supply chain toGTrombay Power house. (Para263)This (Alibaug) was a regulartransfer that took place in1993. Previously, AquaH

AFarms had made paymentsto the original landowner forpurchase, but the sale deeddid not fructify. Aqua Farmswas made a confirming party,as RNT reimbursed AquaBFarms for the originalpayment that it had made tothe original land owners.Simply put, the moment RNTreimbursed Aqua Farms, thevendors of the land wouldCexecute the sale deed infavour of RNT. This was amere sale transactionbetween two parties, whichcannot be used to argue thatcontracts were bestowed toDMr. Mehli(Para 253)No unjust enrichment ofRNT at the cost of Company– Forbes Gokak Ltd. notarrayed as a party –EAllegation raised in 2016 ofthe events which can betraced back to 2002 – Thiswas not a company relatedaffair, as RNT retired fromthe company and has notFbeen in management since2012 – Not a case fallingunder 241. (Para 252)Corus acquisitionThe allegation that TataNo specificSteel acquired Corus at anfinding.inflated price is withoutGbasis. (Para 301)The price quoted by TataSteel was GBP 608 Penceper share, while theircompetitors’ final bid wasGBP 603 Pence per share.H(Para 301)

TATA CONSULTANCY SERVICES LIMITED v. CYRUS995INVESTMENTS PVT. LTD. AND ORS.Acquisition of Corus was aAcollective decision by TataSteel. CPM (Director at TataSteel) approved everyresolution of Tata Steel, forentering into auction and forconfirming the finalBacquisition share price.Acquisition was undertakenfollowing due governanceprocess under thesupervision of the Board,without any dissent ofCshareholders of Tata Steel.(Para 300)To salvage the company fromthe losses incurred from theCorus acquisition, TSLentered into a merger withDThyssenKrupp. There is nomaterial to prove that RNThad any role in preventingthe same. (Para 303)Tata Motors - NanoIt is well established thatNo specificProject :-RNT was not in thefinding.Emanagement of either TataMotors or the company afterretirement. There is not asingle instance where theadvice of RNT was directlyimplemented withoutFconsideration by therespective Board. (Para 267)Tata Motors and Jayem Autoincorporated a JointVenture. This happenedunder the stewardship ofGCPM. (Para 275)CPM never objected over anyvisit, correspondence orinvestment by RNT in JayemAuto. (Para 272)H

AMerely because Tata MotorsFinance (TMF) had a loss ofRs. 392 Crores (towards Nanoout of Rs.2000 Crores) forfinancing Nano, it cannot beused to make a case ofBmismanagement againstRNT. (Para 280)With regard to personal visitsof RNT to the Jayem Autofactory and about theenquiries sought apropos toCthe projects, no personalbenefit to RNT or harm toTata Motors has been proved.(Para 281-282)No evidence of the UPSIcausing prejudice to theDinterest of Tata Motors hasbeen placed by CPM, uponwhom the burden of proof was.(Para 284)Seeking information doesnot amount to conductingEaffairs of the company. (Para285)The correspondences of RNTto CPM regarding the supplyof cars to Ola/ Uber, weredone to try to get intoFbusiness with either of thetwo. (Para 290-293)WellspunSince the acquisition ofNo specificAcquisition by TataWelspun was not put up tofinding.Powerthe Board of Tata Sons forprior approval and it came upGonly after Tata Power hadsigned the papers foracquisition, making TataSons a fait accompli, thenominee directors had toindulge in consultations andH

the same did not tantamountAto interference by theTrusts.(Para 384, 385, 543)The oppressiveCPM’s father was a directorNo specificnature of Articlesat the time whenfinding.104B, 121, 121Aamendments were made toBand 75the Articles of Associationon 13/09/2000. (Para 371)Article 118 was amended on06/12/2012 when CPM waschairman. (Para 372)CPM was also a party to theCresolution passed on 09/04/2014, amending thearticles so as to conferaffirmative rights in favourof the Trust-Nominateddirectors. (Para 373)DArticle 75 was always inexistence and neither CPMnor his father nor thecomplainant companiesever made a complaint.(Para 393)EThe provision in theThe two Trusts, if they reallyNo specificArticles ofwished, could have had thefinding.AssociationBoard of Directors entirelyentitling the twowith their nominees. Buttrusts to have 1/3they allowed the Articles ofof the directorsAssociation only to have theFwith affirmativeminimum requirement andvote, is prejudicialhence the same cannot beto the interests oftermed as oppressive of thethe members andminority. (Para 419)the interests of thecompanyG

A16.8 NCLAT, being an Appellate Tribunal, conferred with thepower under sub-Section (4) of Section 421 to confirm, modify or setaside the order of NCLT, can be taken to be a final court of fact. Anappeal from the Order of the NCLAT to this Court under Section 423 isonly on a question of law. Considering the nature of the jurisdictionconferred upon NCLAT, it is clear that the findings of the NCLT, notBspecifically modified or set aside by NCLAT should be taken to havereached finality, unless the parties aggrieved by such non-interferenceby NCLAT have approached this Court, raising this as an issue. ThoughSP group has also filed an appeal in C.A. No. 1802 of 2020, the grievanceaired therein, as seen from para 3 of the memorandum of appeal, isClimited to the failure of NCLAT to grant certain reliefs. The failure ofNCLAT to specifically overturn the findings of fact recorded by NCLT,is not assailed in the SP group’s appeal. Therefore, we have no hesitationin holding that the allegations relating to

(i) transactions with Siva and Sterling Group of Companies;D(ii) Air Asia;

(iii) Transactions with Mehli Mistry;

(iv) the losses suffered by Tata Motors in Nano car project; and

(v) the acquisition of CorusEreached finality.

16.9 The findings recorded by NCLAT for the grant of reliefs,revolved primarily around the removal of CPM, the affirmative votingrights, interference by nominee Directors and the conversion of TataSons into a private company. In other words, these are the 4 areas inFwhich NCLAT can be taken to have undertaken a scrutiny and reversedthe findings of NCLT. Therefore, for answering the first question of law,we need to focus mainly on these issues on which NCLAT expresslyoverruled NCLT.

16.10 Out of these 4 specific issues on which NCLAT overruledGNCLT, 3 issues will also be covered in our discussion on questions oflaw 4 and 5.. Therefore, we shall take up in this chapter, the question (i)whether the removal of CPM could have been the basis for the allegationthat the company’s affairs have been or are being conducted in a manneroppressive or prejudicial to the interests of some of the members and (ii)H

whether the findings recorded by NCLAT about the existence of justand equitable clause is in accordance with the well established principlesof law.

Removal of CPM

16.11 CPM was first removed only from the post of ExecutiveChairman of Tata Sons, but not from the Directorship, by the resolutionof the Board dated 24.10.2016. This acted as the trigger point for CPM,to launch an offensive. On the very next day namely 25.10.2016, CPMwrote a mail alleging total lack of corporate governance and failure onthe part of the directors to discharge their fiduciary duties. He also calledall the Trust nominee directors as postmen. Though the mail was labelledas ‘confidential’, a copy of the mail landed up with the media creating a“sensation”. NCLT recorded a finding that CPM who owes a duty toexplain this leakage of confidential mail, could not provide a satisfactoryanswer and that therefore, by virtue of section 106 of the Evidence Act,the leakage has to be traced to CPM. NCLAT did not overrule thisfinding.

16.12 The mail compelled Tata sons to issue a Press Statementon 10.11.2016. This was followed by the removal of CPM from theDirectorship of Tata Industries Limited, Tata Consultancy ServicesLimited and Tata Teleservices Limited, all of which happened during theperiod from December 12 to December 14, 2016. Seeing clearly thecourse of destiny (which was actually set in motion by none other thanhimself), CPM resigned from other operating companies of Tatas suchas The Indian Hotels Company Limited, Tata Steel Limited, Tata MotorsLimited, Tata Chemicals Limited and Tata Power Limited, on 19.12.2016,on the eve of the Extraordinary General Meetings of those companies,convened for considering resolutions for his removal. On the very nextday namely, 20.12.2016 the complainant companies, of which CPM isthe pivot, filed a petition C.P.No.82 of 2016 before NCLT, Mumbai,under Sections 241 and 242 read with Section 244 of the CompaniesAct, 2013.

16.13 Around this time, as if by coincidence, the Principal Officerof Tata Sons received a letter dated 29.11.2016 from the DeputyCommissioner of Income Tax (Exemptions) seeking certain informationunder Section 133(6) of the Income Tax Act, 1961 in the case of TataEducation Trust. Tata Sons, through a reply dated 09.12.2016 furnished A

BC

D

E

F

G

H

Anecessary information along with the requested documents. The DeputyCommissioner of Income Tax also called for some additional informationby subsequent letters, and the information so called for, was alsofurnished.

16.14 Claiming that a mail dated 20.12.2016 issued by the DeputyBCommissioner of Income Tax seeking further information under Section133(6) was copy-marked to him, CPM sent a reply to the Income Taxdepartment confirming (i) that the Directors appointed by Tata Trustcontrolled the decision making processes by virtue of the affirmativevoting rights; (ii) that RNT and Soonawala have on many occasionssought prior information and consultation; (iii) that the conduct of theCTrustees posed several regulatory risks; and (iv) that the office of RNT,in his capacity as Chairman Emeritus was funded by Tata Sons, includingthe cost of his overseas travel by private jet. To this letter to the DeputyCommissioner of Income Tax was enclosed certain files purportedlycontaining the information sought.D

16.15 Upon coming to know of CPM’s letter to the DeputyCommissioner of Income Tax, Tata Sons lodged a protest through aletter dated 26.12.2016. It was followed by a legal notice issued by TataSons to CPM on 27.12.2016 pointing out that he was guilty of breach ofconfidentiality and that he had passed on confidential and sensitiveEinformation contained in 4 box files, without any authority. CPM sent alegal reply dated 05.01.2017 claiming that he had a statutory obligationto cooperate with Income Tax authorities. As if to display his courageof conviction, CPM sent another letter dated 12.01.2017 to the DeputyCommissioner of Income Tax sending one more file and assuring theauthorities that he would continue to check the records and submit anyFadditional data/information as and when available.

16.16 In the light of whatever transpired as narrated above, a“Special Notice and Requisition” was moved on 03.01.2017 conveningan EGM of Tata Sons for considering the removal of CPM as Directorof Tata sons. It must be remembered at this stage that by the ResolutionGof the Board of Tata Sons dated 24.10.2016, CPM was merely removedfrom the post of Executive Chairman, but he continued to be a memberof the Board as a Non Executive Director even after 24.10.2016. Itmust also be remembered that it was during his continuance as themember of the Board that CPM exchanged correspondence/legal notice H

with Tata Sons and also passed on information along with certain files,to the Income Tax authorities claiming to be a very “law abiding citizen”.

16.17 Since the EGM of Tata sons was scheduled to be held on06.02.2017, for considering the resolution for CPM’s removal from theDirectorship, the Companies (S.P. Group) which filed the complaint beforethe NCLT moved an interim application before NCLT for a stay of theEGM. NCLT declined stay and the appeal against the refusal to grantstay was also dismissed by NCLAT. Therefore, the EGM proceeded asscheduled on 06.02.2017 and CPM was removed from the Directorshipof Tata Sons. In his place Mr. N. Chandrasekharan, was appointed asExecutive Chairman.

16.18 In the Company Petition as it was originally filed on20.12.2016, the complainant companies had sought a set of 21 reliefs,one of which was for a direction to the respondents (the company andits directors) not to remove CPM (who was cited as R-11 in the originalpetition) from the directorship of Tata Sons. This was in prayer clause(F) of Paragraph 153 of the main company petition. This prayer was indirect contrast to the reliefs sought in prayer clauses (A) and (B). Prayerclause (A) was for superseding the existing Board of Directors andappointment of an Administrator. Prayer in clause (B) was forappointment of a retired Supreme Court Judge as Non ExecutiveChairman and for appointment of a new set of independent Directors.

16.19 After the dismissal of the interim application moved forstalling the EGM scheduled to be held on 06.02.2017 and after the passingof the resolution for the removal of CPM in the EGM held on 06.02.2017,the complainant companies moved an application for amendment of theoriginal petition so as to include two additional prayers namely (i)reinstatement of the representative of the complainant companies onthe Board of Tata Sons; and (ii) amendment of the Articles of Associationto provide for proportional representation.

16.20. However, eventually the prayers made in clauses (A), (B)and (C) were not pressed. Prayers in clauses (F), (Q) & (R) were alsonot pressed on the ground that they had become infructuous. In Paragraph3.4 above we have extracted the reliefs as originally sought in the maincompany petition and in the table in Paragraph 4.11 we have indicatedthe prayers additionally made and the reliefs either given up or sought tobe modified.

AB

C

D

E

F

G

H

A16.21 In fact the real reason why the complainant companiesthought fit, quite tactfully, not to press for the reinstatement of CPM isthat the mere termination of Directorship cannot be projected as somethingthat would trigger the just and equitable clause for winding up or to grantrelief under Sections 241 and 242. A useful reference can be made inthis regard to the decision of this Court in Hanuman Prasad Bagri &BOrs. vs. Bagress Cereals Pvt. Ltd.[2].

A

16.22 It must be remembered : (i) that a provision for inclusion ofa representative of small shareholders in the Board of Directors, is of arecent origin under Section 151 of the Companies Act, 2013 and it isapplicable only to a listed company; (ii) that Tata sons is not a listedCCompany; (iii) that the Articles of Association of Tata sons, to whichthe complainant companies, CPM and his father had subscribed, do notprovide for any representation; (iv) that despite there being no statutoryor contractual obligation, Tata Sons inducted CPM’s father as a directoron the board in the year 1980 and continued him for a period of almostD25 years; (v) that CPM himself was inducted, again without referenceto any statutory or contractual obligation, as a Director on the Board inAugust, 2006; and (vi) that within 6 years of such induction, CPM wasidentified as a successor to RNT and was appointed as Executive DeputyChairman and elevated to the position of Executive Chairman.

E16.23 It is an irony that the very same person who representsshareholders owning just 18.37% of the total paid up share capital andyet identified as the successor to the empire, has chosen to accuse thevery same Board, of conduct, oppressive and unfairly prejudicial to theinterests of the minorities. In support of such allegation, the complainantcompanies have pointed out certain business decisions taken during theFperiod of more than 10 years immediately preceding the date of removalof CPM. That failed business decisions and the removal of a personfrom Directorship can never be projected as acts oppressive or prejudicialto the interests of the minorities, is too well settled. In fact it may beconcede today by Tata sons that one important decision that the BoardGtook on 16.03.2012 certainly turned out to be a wrong decision of a lifetime.

16.24 Therefore, the fact that the removal of CPM was only fromthe Executive Chairmanship and not the Directorship of the company ason the date of filing of the petition and the fact that in law, even theH2 (2001) 4 SCC 420

removal from Directorship can never be held to be an oppressive orprejudicial conduct, was sufficient to throw the petition under section241 out, especially since NCLAT chose not to interfere with the findingsof fact on certain business decisions.

16.25 The subsequent conduct on the part of CPM in leaking hismail dated 25-10-2016 to the Press and sending replies to the IncomeTax Authorities enclosing 4 box files, even while continuing as a Director,justified his removal even from the Directorship of Tata Sons and othergroup companies. A person who tries to set his own house on fire for notgetting what he perceives as legitimately due to him, does not deserve tocontinue as part of any decision making body (not just the Board of acompany). It is perhaps this realisation that made the complainantcompanies give up their original prayer for restraining the company fromremoving CPM and singing a different tune seeking proportionaterepresentation on the Board.

16.26 For assailing the decision to remove CPM from theChairmanship of Tata Sons, it is contended (i) that Tata Group performedexceedingly well under his stewardship; (ii) that the Nomination andRemuneration Committee for the Financial Year 2015-16 endorsed hisperformance and even recommended a pay hike and performance linkedbonus; and (iii) that the Board unanimously approved theserecommendations on 29.6.2016 just four months before his unceremoniousremoval.

16.27 First of all, the above contention is in direct conflict with theentire foundation on which the whole case of the complainant companieswas erected. If CPM and the members of the Nomination andRemuneration Committee as well as the entire Board were on the samepage till 29.6.2016 that the company was doing well under the stewardshipof CPM, then there can be no allegation that the company’s affairswere conducted in a manner oppressive or prejudicial to the interest ofanyone, namely the company or the minority, at least until 29.6.2016. Onthe contrary if the company’s affairs have been conducted in a manneroppressive or prejudicial, even before 29.6.2016, the other members ofthe Board and CPM could not have formed themselves into a mutualadmiration society to laud CPM’s performance and CPM acknowledgingthat the company was doing well when he was in the driver’s seat.

16.28 An important aspect to be noticed is that in a petition underSection 241, the Tribunal cannot ask the question whether the removalof a Director was legally valid and/or justified or not. The question to be A

B

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D

E

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H

Aasked is whether such a removal tantamount to a conduct oppressive orprejudicial to some members. Even in cases where the Tribunal findsthat the removal of a Director was not in accordance with law or wasnot justified on facts, the Tribunal cannot grant a relief under Section242 unless the removal was oppressive or prejudicial.

B16.29 There may be cases where the removal of a Director mighthave been carried out perfectly in accordance with law and yet may bepart of a larger design to oppress or prejudice the interests of somemembers. It is only in such cases that the Tribunal can grant a reliefunder Section 242. The Company Tribunal is not a labour Court or anadministrative Tribunal to focus entirely on the manner of removal of aCperson from Directorship. Therefore, the accolades received by CPMfrom the Nomination and Remuneration Committee or the Board ofDirectors on 29.6.2016, cannot advance his case.

16.30 A contention was raised that CPM’s removal was a pre-meditated act, carried out at the behest of Tata Trusts and RNT and thatDthe removal was not only contrary to Article 118, but also contrary toArticle 105(a) read with the second proviso to Section 179(1) and Article122(b).

16.31 As we have pointed out above, the validity of and justificationfor the removal of a person can never be the primary focus of a TribunalEunder Section 242 unless the same is in furtherance of a conductoppressive or prejudicial to some of the members. In fact the post ofExecutive Chairman is not statutorily recognised or regulated, thoughthe post of a Director is. At the cost of repetition it should be pointed outthat CPM was removed only from the post of (or designation as)FExecutive Chairman and not from the post of Director till the CompanyPetition was filed. But CPM himself invited trouble, by declaring an allout war, which led to his removal from Directorship.

16.32 It is true that as per the evidence available on record hewas requested before the Board meeting, to step down from the post ofGExecutive Chairman. That does not tantamount to the act being pre-meditated. The induction of new members on 8.8.2016 into the Boardand the Board securing a legal opinion prior to the Board meeting, cannotmake the act a pre-meditated one. There is a thin line of demarcationbetween a well-conceived plan and a pre-meditated one and the line canmany times be blurred.H

16.33 Article 118 around which arguments were advanced readsas follows:

“118. APPOINTMENT OF CHAIRMAN

For the purpose of selecting a new Chairman of the Board ofDirectors and so long as the Tata Trusts own and hold in theaggregate at least 40% of the paid up Ordinary Share Capitalof the Company for the time being, a Selection Committeeshall be constituted in accordance with the provisions of thisArticle to recommend the appointment of a person as theChairman of the Board of Directors and the Board may appointthe person so recommended as the Chairman of the Board ofDirectors, subject to Article 121 which requires the affirmativevote of all Directors appointed pursuant to Article 104B.

The same process shall be followed for the removal of theincumbent Chairman.

The Selection Committee shall comprise – (a) Three (3) personsnominated jointly by the Sir Dorabji Tata Trust and the SirRatan Tata Trust who may or may not be Directors of theCompany, (b) one (1) person nominated by and from amongstthe Board of Directors of the Company and (c) one (1)independent outside person selected by the Board for thispurpose.

The Chairman of the Committee will be selected by the SirDorabji Tata Trust and the Sir Ratan Tata Trust from amongstthe nominees nominated by the Trusts.

The quorum for a meeting of the Selection Committee shall bethe presence of a majority of members nominated jointly bythe Sir Dorabji Tata Trust and the Sir Ratan Tata Trust.

Explanation: The words “nominated jointly’ used in thisArticle shall mean that the Sir Dorabji Tata Trust and the SirRatan Tata Trust shall together decide the nominees. In thecase of any difference, the decision of the majority of theTrustees in the aggregate of the Sir Dorabji Tata Trust andthe Sir Ratan Tata Trust shall prevail.”

16.34 The sentence in Article 118 reading “the same processshall be followed for the removal of incumbent Chairman” actually A

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Agoes along with the last limb of the portion immediately preceding thisline. It deals with the appointment of a person as Chairman, pursuant tothe recommendation of a Selection Committee, subject to Article 121which requires the affirmative vote of the Directors appointed interms of Article 104B.

B16.35 It is absurd to interpret Article 118 to mean that SelectionCommittee is to be constituted for the removal of an incumbent Chairman.The necessity for taking recourse to the affirmative voting right underArticle 121 is what is meant by the expression “the same process”appearing in the second part of Article 118.

C16.36 The argument pitched upon Article 105(a) is also completelyunfounded. Article 105(a) deals with the power of the Board to appointa Managing Director, Joint/Deputy Managing Director or Whole TimeDirector. The provision relating to Executive Chairman is not to be foundin Article 105(a) but in Article 105(b) which reads as follows:

D“The Board shall have the power to designate the Chairmanof the Board as the Executive Chairman and pay him suchremuneration as, in their opinion, they deem fit”.

Therefore, the argument on the basis of Article 105(a) is ill-founded.E16.37 The contention that the removal was in violation of the E16.37 The contention that the removal was in violation of thesecond proviso to Section 179(1) read with Article 122(b) is also ill-conceived. The second proviso to Section 179(1) prohibits the Boardfrom exercising any power that could be exercised by the company onlyin a General Meeting. Article 122(a) is only a reiteration of the principleFbehind the second proviso to Section 179(1). Article 122(b) says that theBoard may exercise all such powers as are not required to be exercisedby the company in General Meeting. The designation of a person asExecutive Chairman, is not one of the functions to be performed in ageneral meeting, either under the Act or under the Articles of association.

16.38 It is also contended that no advance notice of his removalGwas given to CPM and no agenda item was placed in advance in termsof Article 121B, which reads as follows:

“121B. Any Director of the Company will be entitled to giveat least fifteen days notice to the Company or to the Boardthat any matter or resolution be placed for deliberation by H

the Board and if such notice is received it shall be mandatoryfor the Board to take up such matter or resolution forconsideration and vote, at the Board meeting next held afterthe period of such notice, before considering any other matteror resolution.”

16.39 We do not know how Article 121B is sought to be invoked.It deals with a situation where a Director wants to bring up any matteror resolution before the Board. It has no relevance to the agenda thatthe Board wants to take up. Even according to the complainantcompanies, the Directors of a Company have a fiduciary relationship. Itis a relationship in which one party places special trust, confidence andreliance on another. It is claimed by the appellants (Tata Group) that theremoval of CPM was as a result of lack of confidence and trust in him.By his own subsequent conduct, CPM unfortunately enhanced thefirepower of the management of Tata Sons, with regard to their claimrelating to lack of confidence and trust.

16.40 The decision in Central Bank of India Ltd. vs. HartfordFire Insurance Co. Ltd.[3] is relied upon by the S.P. Group to contendthat the power of removal of a Director is subservient to the agreedduration of office. But the decision in Central Bank of India arose outof the termination of a fire insurance policy. It had nothing to do with theremoval of a Director. But a decision of the King’s Bench in Nelsonvs. James Nelson[4] was relied upon in the said case to assail thetermination of the insurance policy. After pointing out that Nelson was acase where the termination assailed was that of the services of theManaging Director and that the contract of his appointment did not providefor his termination except on the condition of his ceasing to be a Director,this Court rejected the citation in Central Bank of India on the groundthat it had no relevance to the termination of a policy of insurance.

16.41 The decision in M.I. Builders Pvt. Limited vs. RadheyShyam Sahu & Others[5], to the effect that an important issue cannotbe decided under the residuary agenda item “any other item”, will notalso go to the rescue of the complainant companies, since the matter inM.I. Builders concerned the permission granted by the MunicipalCorporation to a builder to construct an underground shopping complex 3 AIR 1965 SC 12884 1914-2K.B. 7705 (1999) 6 SCC 464

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Ain a park. The Court found the decision taken by the Mahapalika to be inclear breach of Sections 91 and 119 of the U.P. Municipal CorporationAct, 1959. Therefore, the said decision has no application.

16.42 In any event the removal of a person from the post ofExecutive Chairman cannot be termed as oppressive or prejudicial. TheBoriginal cause of action for the complainant companies to approach NCLTwas the removal of CPM from the post of Executive Chairman. Thoughthe complainant companies padded up their actual grievance with varioushistorical facts to make a deceptive appearance, the causa proxima forthe complaint was the removal of CPM from the office of ExecutiveChairman. His removal from Directorship happened subsequent to theCfiling of the original complaint and that too for valid and justifiable reasonsand hence NCLAT could not have laboured so much on the removal ofCPM, for granting relief under Sections 241 and 242.

Invocation of just and equitable clause

Invocation of just and equitable clause

D16.43 Interestingly, NCLAT has recorded a finding, though notbased upon any factual foundation, that the facts otherwise justify themaking of a winding up order on just and equitable ground. But as heldby the Privy Council in Loch v. John Blackwood[6], “there must lie ajustifiable lack of confidence in the conduct and management ofthe company’s affairs, at the foundation of applications for windingEup.” More importantly, “the lack of confidence must spring not fromdissatisfaction at being out-voted on the business affairs or on whatis called the domestic policy of the company”. But, “wherever thelack of confidence is rested on a lack of probity in the conduct ofthe company’s affairs, then the former is justified by the latter.”F16.44 A passage from the opinion of Lord President of the Courtof Session (Lord Clyde) in Baird v. Lees[7], quoted in Loch (supra),reads as follows:- “A shareholder puts his money into a company on certainconditions. The first of them is that the business in which heGinvests shall be limited to certain definite objects. The secondis that it shall be carried on by certain persons elected in aspecified way. And the third is that the business shall beconducted in accordance with certain principles of commercial 6 [1924] AC 783H7 (1924) SC 83 Scottish Supreme Court administration defined in the statute, which provide someguarantee of commercial probity and efficiency. Ifshareholders find that these conditions or some of them aredeliberately and consistently violated and set aside by theaction of a member and official of the company who wieldsan overwhelming voting power, and if the result of that isthat, for the extrication of their rights as shareholders, theyare deprived of the ordinary facilities which compliance withthe Companies Acts would provide them with, then there doesarise, in my opinion, a situation in which it may be just andequitable for the Court to wind up the company.”

16.45 If the above tests are applied, the case on hand will not fallanywhere near the just and equitable standard, for the simple reasonthat it was the very same complaining minority whose representativewas not merely given a berth on the Board but was also projected as thesuccessor to the Office of Chairman.

16.46 In Ebrahimi v. Westbourne Galleries Ltd.[8], decided byHouse of Lords, one of the Directors who was voted out of office by theother two Directors (father-son duo) petitioned for an order under Section210 of the English Companies Act, 1948. The very relief sought by theousted director was for a direction to the other two persons to purchasehis shares in the Company or to sell their shares to him on such terms asthe Court should think fit. Alternatively, he prayed for winding up. TheCourt of the first instance held that a case for winding up had beenmade out, as the majority was guilty of abuse of power and a breach ofgood faith which the partners owed to each other not to exclude one ofthem from all participation in the business. The court of Appeal reversedit by applying the tests of (i) bonafide exercise of power in the interestof the company; and (ii) whether a reasonable man could think that theremoval was in the interest of the Company. While reversing the decisionof the Court of Appeal, the House of Lords held, that “the formula‘bonafide interest of the company’ should not become little morethan an alibi for a refusal to consider the merits of the case.” Holdingthat, “equity always does enable the Court to subject the exercise oflegal rights to equitable considerations namely considerations thatis of a personal character”, the House of Lords added some caution inthe following words:- 8 [1972] 2 WLR 1289

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A“The superimposition of equitable considerations requiressomething more, which typically may include one, or probablymore, of the following elements: (i) an association formed orcontinued on the basis of a personal relationship, involvingmutual confidence – this element will often be found where apre-existing partnership has been converted into a limitedBcompany; (ii) an agreement, or understanding, that all, orsome (for there may be “sleeping” members), of theshareholders shall participate in the conduct of the business;(iii) restriction upon the transfer of the members’ interest inthe company – so that if confidence is lost, or one member isCremoved from management, he cannot take out his stake andgo elsewhere.”

A

16.47 But it must be remembered that the origin of just andequitable clause is to be traced to the Law of Partnership which hasdeveloped, according to the House of Lords, “the conceptions of probity,Dgood faith and mutual confidence”. Having said that, Ebrahimi pointedout that the reference to quasi partnerships or “in-substance partnerships”is also confusing for the reason that though the parties may have beenpartners in their ‘Purvashrama’, they had become co-members of acompany accepting new obligations in law. Therefore, “a company,however small, however domestic, is a company and not aEpartnership or even a quasi partnership”.

16.48 That, “for superimposing an equitable fetter on the exerciseof the rights conferred by the Articles of Association, there must besomething in the history of the company or the relationship between theshareholders”, is fairly well settled[9].F

16.49 In Lau v. Chu[10], the House of Lords indicated, “that a justand equitable winding up may be ordered where the company’s membershave fallen out in two related but distinct situations, which may or maynot overlap”. The first of these is labelled as, “functional dead lock”,where the inability of members to cooperate in the management of theGcompany’s affairs leads to an inability of the company to function atBoard or shareholder level. The House of Lords pointed out thatfunctional dead lock of a paralysing kind was first clearly recognised as 9 Re Saul D. Harrison and Sons Plc. 1994 BCC 475

H10 [2020] 1 WLR 4656

a ground for just and equitable winding up In Re Sailing Ship KentmereCo.[11]. The second of these is where a company is a corporate quasipartnership and an irretrievable breakdown in trust and confidencebetween the participating members has taken place. In the first type ofthese cases, where there is a complete functional dead lock, winding upmay be ordered regardless whether the company is a quasi partnershipor not. But in the second type of cases, a breakdown of trust andconfidence is enough even if there is not a complete functional deadlock.

16.50 Therefore, for invoking the just and equitable standard, theunderlying principle is that the Court should be satisfied either that thepartners cannot carry on together or that one of them cannot certainlycarry on with the other[12].

16.51 In the case in hand there was never and there could neverhave been a relationship in the nature of quasi partnership between theTata Group and S.P. Group. S.P. Group boarded the train half-way throughthe journey of Tata Sons. Functional dead lock is not even pleaded norproved.

16.52 Coming to the Indian cases, this court held in RajahmundryElectric Supply Corpn. Ltd. v. Nageshwara Rao[13]that for theinvocation of just and equitable clause, there must be a justifiable lack ofconfidence on the conduct of the directors, as held. A mere lack ofconfidence between the majority shareholders and minority shareholderswould not be sufficient, as pointed out in S.P. Jain v. Kalinga TubesLtd.[14]

16.53 It was contended repeatedly that lack of probity in theconduct of the directors is a sufficient cause to invoke just and equitableclause. Drawing our attention to the landmark decision in NeedleIndustries (India) Ltd. and Ors. v. Needle Industries Newey (India)Ltd. and ors.[15], it was contended that even the profitability of the companyhas no bearing if just and equitable standard is fulfilled and that the testis not whether an act is lawful or not but whether it is oppressive or not.

11 [1897] WN 58

12 The advantage that the English courts have is that irretrievable breakdown of relation-ship is recognised as a ground for seperation both in a matrimonial relationship and incommercial relationship, while it is not so in India.

13 (1955) 2 SCR 1066

14 AIR 1965 SC 1535

15 (1981) 3 SCC 333

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A16.54 But all these arguments lose sight of the nature of thecompany that Tata Sons is. As we have indicated elsewhere, TataSons is a principal investment holding Company, of which the majorityshareholding is with philanthropic Trusts. The majority shareholders arenot individuals or corporate entities having deep pockets into which thedividends find their way if the Company does well and declares dividends.BThe dividends that the Trusts get are to find their way eventually to thefulfilment of charitable purposes. Therefore, NCLAT should have raisedthe most fundamental question whether it would be equitable to wind upthe Company and thereby starve to death those charitable Trusts,especially on the basis of un-charitable allegations of oppressive andCprejudicial conduct. Therefore, the finding of NCLAT that the factsotherwise justify the winding up of the Company under the just andequitable clause, is completely flawed.

17. Question of Law No.2

17.1 The second question of law arising for consideration is as toDwhether the reliefs granted and directions issued by NCLAT includingthe reinstatement of CPM into the Board of Tata Sons and other TataCompanies are in consonance with (i) the pleadings made, (ii) the reliefssought and (iii) the powers available under Sub-Section (2) of Section242.

E

17.2 As we have indicated in Para 3.4 above, the complainantcompanies originally sought a set of 21 reliefs listed in para 153 (A) to(U). Subsequently, the complainant companies sought the addition oftwo more prayers, through an application for amendment filed on10.2.2017. The additional reliefs sought to be included were for: (i)Freinstatement of a representative of the complainant companies on theBoard of Tata Sons and (ii) Amendment of the Articles of Associationso as to provide for proportional representation on the Board.

17.3 Thereafter the complainant companies sought a few moreprayers through an application for amendment dated 31.10.2017.However, by a Memo dated 12.01.2018 the complainant companies gaveGup certain prayers, sought a modification of some other prayers andrecorded that they were not pressing certain reliefs. At the cost ofrepetition, we have to present in a tabular form, the reliefs originallysought and the metamorphosis that they underwent through applicationsfor amendment or Memo. It is as follows:H

AReliefs as originally soughtReliefs that are added, givenin the main Companyup or restricted throughPeititonAdditional affidavit dated 31-10-2017, Application foramendment dated 31-10-2017 and Memo datedB12.1.2018(A)Supersede the existingUnder Affidavit (31-10-2017)Board of Directors of Respondentconversion of Tata Sons from beingNo. 1 and appoint ana Public Limited Company into aadministrator to look after thePrivate Limited Company is badday-to-day affairs of RespondentNo. 1 with such powers as mayUnder Application (31-10-Cbe necessary to take such2017)decisions and actions, in the(M-1): Set aside the resolutionfacts and circumstances of thepassed by the shareholders ofpresent case, till such time as arespondent No.1 on Septembernew Board of Directors of21, 2017 insofar as it seeks toRespondent No. 1 is constituted;amend the Articles ofD(B)In the alternative toAssociations and Memorandumprayer (A) above, appoint a retiredof Association of RespondentSupreme Court Judge as theNo.1 for conversion ofnon-executive Chairman of theRespondent No.1 into a privateBoard of Directors of Respondentcompany.No. 1 and appoint such numberof new independent directors of(M-2): Strike off/Delete Article75 as the same is a tool in theEprofessional competence,hands of the majorityreputation and standing to theshareholders to oppress theBoard of Directors of Respondentminority; and;No. 1 such that these newlyappointed directors constitute(M-3): Pending the final hearingthe majority of the Board ofdisposal of the Company Petition,FDirectors of Respondent No. 1;the effect and operation of theresolution dated September 21,(C)restrain the so-called2017 be stayed.“Interim Chairman” i.eRespondent No. 2 from attending(F-1): Direct Respondent No.1any meeting of the Board ofand/or Respondent No. 2 to 10Directors of Respondent No. 1,and 12 to 22 to reinstate aor sub-committee thereof and/orrepresentative of the PetitionersGinterfering in the affairs ofon the Board of Respondent No.1Respondent No. 1;(G-1): Direct that the Articles of(D)restrain Respondent No.Association of Respondent No.114 from interfering in the affairsbe amended to provide forof Respondent No. 1;proportionate representation ofH

A(E)direct Respondent No. 1shareholders on the Board ofnot to issue any securities whichDirectors of Respondent No.1results in dilution of the presentUnder Memo (12-01-2018)paid-up equity capital held by thePetitioners in Respondent No. 1;Prayer M, which sought thestriking of Articles 86, 104(B), 118,(F)direct Respondent No. 1Band/or Respondent Nos. 2 to 10121 and 121A, and striking of aand 12 to 22 not to removeportion of Article 124, is restrictedas under:Respondent No. 11 as a directorfrom the Board of Respondenti. The necessity of anNo.1;affirmative vote of themajority of directors(G)restrain Respondent No.nominated by the Trusts,C1 and/or Respondent Nos. 2 to 10which are majority ofand 12 to 22 from making anyshareholders, be deleted;changes to the Articles ofAssociation of Respondent No. 1ii. The Petitioners be entitledunless such changes have beento proportionatemade with the leave of thisrepresentation on Board ofHon’ble Tribunal;Directors of RespondentDNo.1;(H)order and investigationinto the role of the Trustees ofiii.The Petitioners be entitledthe Tata Trusts in the operationsto representation on allof Respondent No. 1 and/or Tatacommittees formed by theGroup companies as also in theBoard of Directors offunctioning of the Board ofRespondent No.1; andEDirectors of Respondent No. 1iv The Articles of Associationand /or Tata Group companies,be amended accordingly.and prohibit the Trustees frominterfering in the affairs ofPrayers A, B and C were notRespondent No. 1 and/or Tatapressed.Group companies;Prayers F, Q and R, beingF(I)appoint an independentinfructuous were not pressedauditor to conduct a forensic auditand independent investigationinto transactions and dealings ofRespondent No. 1 with particularregard to:(i)all transactions betweenGMr. C. Sivasankaran and hisbusiness entities on the onehand, and the Respondent No.1 and various Tata Groupcompanies under the controlof Respondent No. 1 or ofHwhich Respondent No. 1 is the promoter on the other hand, toAdetermine and crystallize thebreach of trust, violation offiduciary duties and failure todischarge the duty of care, andfix accountability therefor; andB(ii)all transactions involvingMr. Mehli Mistry and hisassociated entities withRespondent No. 1 and/or TataGroup companies whereby anyunjust enrichment has beenCgenerated in favour of anythese parties;and submit a report to thisHon’ble Tribunal such thatthis Hon’ble Tribunal can passsuch further orders as may beDnecessary so as to recover fromconcerned persons the lossthat has been caused inter aliato the Petitioners and suchfindings of the audit andinvestigation should bereferred by the Hon’ble TribunalEto the Serious FraudInvestigation Office of theMinistry of Corporate Affairs,Government of India;(J)Appoint an inspector(under applicable law) toFinvestigate into the breach of theSEBI (Prohibition of InsiderTrading) Regulations, 2015, withparticular regard to the breach byRespondent No. 2 andRespondent No. 14, of theobligation not to procure, demandGor acquire unpublished pricesensitive information and submita report to this Hon’ble Tribunalsuch that this Hon’ble Tribunalcan pass such further orders asmay be necessary and/or refer theH

Afindings of such investigation tothe Serious Fraud InvestigationOffice of the Ministry of CorporateAffairs, Government of India.(K)direct Respondent No.2 topay Respondent No. 1 the amountBof unjust enrichment that hasaccrued to Respondent No. 2 onaccount of surrender of the sub-tenancy of the Bakhtawar flat,along with interest at such rateas this Hon’ble Tribunal may deemfit, from the date on which theCRespondent No. 2 was unjustlyenriched;(L)appoint a forensic auditorto re-investigate the transactionsexecuted by AirAsia India withentities in India and Singapore toDascertain whether any proceedshave been diverted to any secretbank account of Mr. Venkatramanand to submit a report to thisHon’ble Tribunal; such that thisHon’ble Tribunal can pass suchfurther orders as may beEnecessary so as to recover fromMr. Venkatraman the loss that hasbeen caused inter alia to thePetitioners; and such findings ofthe audit should be referred by theHon’ble Tribunal to the SeriousFFraud Investigation Office of theMinistry of Corporate Affairs,Government of India;(M)strike of Articlesnumbered 86, 104(B), 118, 121 and121A in their entirety and in sofar as Article 124 of the Articles ofGAssociation of Respondent No. 1is concerned, the following portionof the said Article, which isoffending and/or repugnant,should be deleted: “… Anycommittee empowered to decideon matters which otherwise theH

Board is authorised to decide shallAhave as its member at least onedirector appointment pursuant toArticle 104B. The Provisionsrelating to quorum and the mannerin which matters will be decidedcontained I Articles 115 and 121Brespectively shall apply mutatismutandis to the proceedings of thecommittee. “ from the Articles ofAssociation of Respondent No. 1;and substitute these articles withsuch articles as the nature andcircumstances of this case mayCrequire;(N)direct the Respondents(excluding Respondent Nos. 4, 10&11) to bring back into RespondentNo. 1, the funds used byRespondent No. 1 for acquiringDshares of Tata Motors;(O)restrain Respondent No.1 from initiating any new line ofbusiness or acquiring any newbusiness in existing lines ofbusiness without leave of thisEHon’ble Tribunal and that too onlyafter the matter is discussed anddecided upon by the Board ofDirectors of Respondent No. 1without applying Article 121 of theArticles of Association;(P)restrain the trustees ofFthe Trusts from interfering in theaffairs of Respondent No. 1 andin the various companies thatform part of the Tata Group;(Q)restrain the existingSelection Committee from actingGany further and/or discharging anyfunctions and a new SelectionCommittee be appointed.(R)direct that no candidateselected by the SelectionCommittee constituted pursuantH

Ato Article 118 of the Articles ofAssociation of Respondent No. 1to be appointed without leave ofthis Hon’ble Tribunal;(S)direct Respondent No. 1not to demand and/or procure anyBunpublished price sensitiveinformation from any listedoperating companies within theTata Group;(T)grant interim and ad-interim reliefs in terms of PrayersC(A) to (S) above; and(U)pass such further ordersthat this Hon’ble Tribunal may, inthe interest of justice, deemnecessary for bringing an end tothe acts of oppression andDmismanagement in the running ofRespondent No. 1.17.4 Therefore, after all the confusion created by affidavits,application for amendment and the memo mentioned above, the reliefsthat remained to be considered by NCLT were as follows:

E(1)restrain Respondent No. 14 (N.A. Soonawala) frominterfering in the affairs of Respondent No. 1; (Reliefclause D)

(2) direct Respondent No. 1 (Tata Sons) not to issueany securities which will result in dilution of the paid-Fup equity capital; (Relief clause E)

(3) restrain the Respondents from making any changesto the Articles of Association of Respondent No. 1without the leave of the Tribunal; (Relief clause G)

(4) order an investigation into the role of the TrusteesGof the Tata Trusts in the operations of RespondentNo. 1, the Tata Group companies as also in thefunctioning of the Board of Directors of RespondentNo. 1 and Tata Group companies, and prohibit theTrustees from interfering in the affairs of RespondentNo. 1 and Tata Group companies; (Relief clause H)H

(5) appoint an independent auditor to conduct a forensicAaudit and independent investigation into transactionsand dealings of Respondent No. 1 with particularregard to:

(i) Mr. C. Sivasankaran and hisbusiness entities; and B

(ii) Mr. Mehli Mistry and his associatedentities; and submit a report to this Hon’ble Tribunal andinvestigation should be referred by the Hon’bleTribunal to the Serious Fraud Investigation Officeof the Ministry of Corporate Affairs, Governmentof India; (Relief clause I)

C

(6) Appoint an inspector (under applicable law) toinvestigate into the breach of the SEBI (Prohibitionof Insider Trading) Regulations, 2015. (Relief clauseJ)

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(7) direct Respondent No.2 to pay Respondent No. 1the amount of unjust enrichment that has accruedto Respondent No. 2 on account of surrender of thesub-tenancy of the Bakhtawar flat; (Relief clauseK)

E

(8) appoint a forensic auditor to re-investigate thetransactions executed by Air Asia India with entitiesin India and Singapore; (Relief clause L)

F

(9) Read down and amend Articles 86, 104B, 118, 121and 121A as well as Article 124 so that:

i.The necessity of an affirmative voteof the majority of directors nominatedby the Trusts, which are majority ofshareholders, be deleted; G

ii.The Petitioners be entitled toproportionate representation on Boardof Directors of Respondent No.1;

iii.The Petitioners be entitled torepresentation on all committeesformed by the Board of Directors ofRespondent No.1; ((Relief clause Mrestricted through memo dated 12-01-2018)

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(10) Set aside the resolution passed on 31-09-2017 foramendment of the Articles and declare the conversionof Tata Sons into a private company as illegal (AdditionalRelief sought to be included as clause M-1 throughApplication for amendment)

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(11) To delete Article 75 (Additional Relief sought to beincluded as clause M-2 through Application foramendment)

(12) To reinstate a representative of the petitioners on theBoard (Additional Relief sought to be included as clauseF-1 through Application for amendment)

D

17.5 Out of the aforesaid reliefs that came to stay till the end,NCLAT granted only certain reliefs, which in simple terms, were asfollows:- E

(i) Setting aside the removal of CPM and directinghis reinstatement both as Executive Chairmanof Tata Sons and as Director of other TataCompanies for the rest of the tenure.

(ii) Restraining RNT and the nominees of TataFTrust from taking any advance decision.

(iii) Restraining Tata Sons from exercising its powerunder Article 75 against the complainantcompanies and other minority members, exceptin exceptional circumstances and in the interestof the Company and that too after recordingreasons and informing the affected parties.

G

(iv) Setting aside the decision of the Registrar ofCompanies recognising Tata Sons conversioninto a Private Company.

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17.6 Thus NCLAT granted to the complainant companies (andindirectly to CPM) four reliefs namely:

(i) reinstatement of CPM;

(ii) declaring Tata Sons as a Public LimitedCompany;

(iii) restraining the nominee Directors and RNTfrom taking any decision in advance and

(iv) restraining the invocation of Article 75 except in exceptional circumstances.

We shall now see whether NCLAT could have granted any ofthese reliefs.

Reinstatement of CPM

17.7 Removal and reinstatement are two different things. We havedealt with the issue of removal of CPM, while answering question oflaw No.1, in the context of whether it was part of a scheme of oppressiveand prejudicial conduct. Now we shall deal with the issue of reinstatementin the context of the contours of section 242(2) and the nature of theorders that could be passed.

17.8 As we have seen already, the original motive of thecomplainant companies, was to restrain Tata Sons from removing CPMas Director. Subsequently, there was a climb down and the complainantcompanies sought what they termed as “reinstatement” of arepresentative of the complainant companies. Thereafter, it wasmodulated into a cry for proportionate representation on the Board.

17.9 In this background it was repeatedly argued both before theNCLAT and before this Court that the objective of the litigation was notto have CPM reinstated, but only to set things right in the State ofDenmark (of which CPM himself was the Premier for 4 years). Butinterestingly, NCLAT understood what the complainant companies andCPM actually wanted, though they attempted to camouflage theirintentions with legal niceties. Therefore, despite there being no prayerfor reinstatement of CPM either as a Director or as an ExecutiveChairman of Tata Sons, NCLAT directed the restoration of CPM asExecutive Chairman of Tata Sons and as Director of Tata Companiesfor the rest of the tenure.

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A17.10 While granting much more than what the complainantcompanies and CPM themselves thought as legally feasible, NCLATfailed to notice one important thing. The appointment of CPM as ExecutiveDeputy Chairman of Tata Sons, was to be for a period of 5 years from01.04.2012 to 31.03.2017, subject to the approval of the shareholders. Inthe Meeting of the shareholders held on 01.08.2012, the appointment ofBCPM as Executive Deputy Chairman was approved and the GeneralBody left it to the Board to re-designate CPM as Chairman. Accordingly,the Board re-designated CPM as Executive Chairman, with effect from29.12.2012, by a resolution passed on 18.12.2012.

17.11 The judgment of the NCLAT was passed on 18.12.2019, byCwhich time, a period of nearly 7 years had passed from the date ofCPM’s appointment as Executive Chairman. Therefore, we fail tounderstand : (i) as to how NCLAT could have granted a relief notapparently sought for (though wished for); and (ii) what NCLAT meantby reinstatement “for the rest of the tenure”. That the question ofDreinstatement will not arise after the tenure of office had run its course,is a settled position. In this regard, we may refer to the decisions in RajKumar Dey vs. Tarapada Dey[16]and Mohd. Gazi vs. State of MadhyaPradesh[17]. While so, it is incomprehensible that the NCLAT directedreinstatement, and that too, of a Director of a company, after the expiryof his term of office. Needless to say that such a remedy would notEhave been granted even by a labour court/service Tribunal in matterscoming within their jurisdiction.

17.12 In fact NCLAT has gone to the extent of reinstating CPMnot only on the Board of Tata Sons, but also on the Board of Tata groupcompanies, without they being parties, without there being any complaintFagainst those companies under section 241 and without there being anyprayer against them. These companies have followed the procedureprescribed by Statute and the Articles and they have validly passedresolutions for his removal. For instance, TCS granted an opportunity toCPM and held a general meeting in which 93.11% of the shareholders,Gincluding public institutions who hold 57.46% of shares supported theresolution. In any case CPM’s tenure itself was to come to an end on16.06.2017 but NCLAT passed the impugned order reinstating him “forthe rest of the tenure”. In respect of other companies which had convened 16 (1987) 4 SCC 398H17 (2000) 4 SCC 342

the EGM for considering the resolution for his removal, CPM submittedresignations. But now by virtue of the impugned order, CPM will have tobe reinstated even on the Board of companies from which he has resigned.This is why even the complainant companies have found it extremelydifficult to support the order.

17.13 As an aside, we should record here, the words of gratitude(if any) expressed by CPM himself in the meeting of the Board of TataSons on 18.12.2012, immediately after the resolution appointing him asExecutive Chairman was carried through unanimously. This is what CPMsaid in the Board Meeting dated 18.12.2012:- “Mr. Mistry responded by saying that – “the past one yearhas been a great learning experience under the directguidance of Mr. Ratan Tata. The TATA Group is founded onstrict values. We will face all the ups and down, whatevermay lie in our path. We are ready to face all the challengesthat will come our way. The Board recognises the stellarcontribution of Mr. Ratan Tata and wishes, to designate himChairman Emeritus. We shall continue to seek his guidanceon significant matters.”

17.14 It is interesting to note that at the time of his appointment inDecember 2012, what CPM saw and acknowledged, was a “greatlearning experience he had under the direct guidance of RNT”, butat the time of departure in October 2016, what he saw was only a conductfor over 10 years, that was oppressive and prejudicial to the interests ofthe company and of the minority. NCLAT failed to take note of this,while granting reliefs neither sought for nor feasible in law.

17.15 NCLAT appears to have granted the relief of reinstatementgratis without any foundation in pleadings, without any prayer and withoutany basis in law. By doing so, the NCLAT has forced upon the appellantan Executive Chairman, who now is unable to support his ownreinstatement.

17.16 The NCLAT has found the dismissal to be illegal and not anullity. In law, a dismissal even if found to be wrongful and malafide isan effective dismissal and may give rise to a claim in damages. In Dr.S.B. Dutt vs. University of Delhi[18]this Court held: - A

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A“The award held that the appellant had been dismissedwrongfully and malafide. Now, it is not consequential to sucha finding that the dismissal was of no effect, for a wrongfuland malafide dismissal is nonetheless an effective dismissalthough it may give rise to a claim in damages. The award, nodoubt, also said that the dismissal of the appellant wasBultravires but as will be seen later, it did not thereby hold theact of dismissal to be a nullity and, therefore, of no effect.”

A

17.17 It is significant that Sections 241 and 242 of the CompaniesAct, 2013 do not specifically confer the power of reinstatement, nor wewould add that there is any scope for holding that such a power to reinstateCcan be implied or inferred from any of the powers specifically conferred.

17.18 The following words at the end of sub-section (1) of 242“the Tribunal may, with a view to bringing to an end the matters complainedof, make such order as it thinks fit” cannot be interpreted as conferringon the Tribunal any implied power of directing reinstatement of a directorDor other officer of the company who has been removed from such office.These words can only be interpreted to mean as conferring the power tomake such order as the Tribunal thinks fit, where the power to makesuch an order is not specifically conferred but is found necessary toremove any doubts and give effect to an order for which the power isEspecifically conferred. For instance, sub-section (2) of Section 242 confersthe power to make an order directing several actions. The words bywhich sub-section (1) of Section 242 ends, supra can be held to meanthe power to make such orders to bring an end, matters for whichdirections are given under sub-section (2) of Section 242.

F17.19 The architecture of Sections 241 and 242 does not permitthe Tribunal to read into the Sections, a power to make an order (forreinstatement) which is barred by law vide Section 14 of the SpecificRelief Act, 1963 with or without the amendment in 2018. Tribunal cannotmake an order enforcing a contract which is dependent on personalqualifications such as those mentioned in Section 149(6) of the CompaniesGAct, 2013. Moreover, it has been held in the case of Vaish DegreeCollege (supra) that the general rule is that a contract of personal servicesis not specifically enforceable unless a person who is removed fromservice is (a) a public servant who has been dismissed from service incontravention of provisions of Article 311 of the Constitution of India;H(b) dismissed under Industrial Law seeking reinstatement by Labour or

Industrial Tribunal; and (c) terminated in breach of a mandatory obligationimposed by statute by a statutory body. The Court observed:- “17. On a consideration of the authorities mentioned above,it is, therefore, clear that a contract of personal service cannotordinarily be specifically enforced and a court normally wouldnot give a declaration that the contract subsists and theemployee, even after having been removed from service canbe deemed to be in service against the will and consent of theemployer. This rule, however, is subject to three well recognisedexceptions — (i) where a public servant is sought to beremoved from service in contravention of the provisions ofArticle 311 of the Constitution of India; (ii) where a worker issought to be reinstated on being dismissed under the IndustrialLaw; and (iii) where a statutory body acts in breach orviolation of the mandatory provisions of the statute.”

17.20 The position in law that a contract of personal servicescannot be enforced by Court is a long standing principle of law andcannot be displaced by the existence of any implied power, though noneis shown in the present case. This is described as the Principle ofLegality[19]:-

“As statutes are not enacted in a vacuum, it is assumed thatlong standing principles of constitutional law andadministrative law are not displaced by use of merely generalwords. This is styled as the principle of legality. In the wordsof SIR JOHN ROMILLY: “The general words of the Act arenot to be so construed as to alter the previous policy of thelaw, unless no sense or meaning can be applied to those wordsconsistently with the intention of preserving the previous policyuntouched.” Since every new law involves some change theabove statement of LORD ROMILLY must be applied withcaution and should be normally confined to cases where ‘theabrogation of a long standing rule of law is in question’.There are many presumptions which an interpreter is entitledto raise which are not readily displaced merely by use ofgeneral words, e.g., an intention to bind the Crown or anintention to exclude the supervisory jurisdiction of superiorcourts will not be inferred merely by use of general words. Itis an application of the same principle that unless there beclearest provision to the contrary, Parliament is presumed not A

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Ato legislate contrary to rule of law which enforces ‘minimumstandard of fairness both substantive and procedural’. Thusa statutory power though conferred in wide terms has certainimplied limitations; provisions excluding challenge to an orderhave no application when the order is a nullity and a provisionexcluding an appeal against an order of a criminal court doesBnot bar an appeal against an order which the court had nopower to make. For the same reason, unless the statuteexpressly or by necessary implication provides otherwise anadministrative decision does not take effect before it iscommunicated to the person concerned.”

C17.21 It is interesting to note that one of the grounds of challengeto the order of NCLAT, raised by SP group in their appeal C.A.No. 1802of 2020 is that the Tribunal ought not to have granted the relief ofreinstatement. In paragraph 4 of the Memorandum of Grounds of CivilAppeal C.A. No. 1802 of 2020, the complainant companies (SP group)have given a tabulation of the reliefs granted by the Tribunal and theDreliefs that the Tribunal ought to have given instead. Para 4 of the memoof grounds of appeal along with a portion of the Table there under readsas follows:

“4. Having correctly arrived at these findings, it is submittedthat the Ld. NCLAT ought to have granted the reliefs sought.For ease of reference, the reliefs granted by the Ld. NCLATEunder the various heads of oppression as against certain keyreliefs sought by the Appellants, which the Ld. NCLAT hasnot granted and which the appellants are aggrieved by, aresummarized in the tabular form below:- F

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17.22 Thus the relief of reinstatement granted by the Tribunal,was too big a pill even for the complainant companies (and perhapsCPM) to swallow.

Relief relating to Article 75

17.23 The larger questions revolving around the attack to Article75, particularly the question whether the very presence of such an articlecould be construed as oppressive and prejudicial to some members, willbe dealt with in the next chapter concerning question of law No.3. Butwe shall consider here, the limited question whether the Tribunal couldhave granted a relief, that has the effect of sending Article 75 intocomatose.

17.24 Actually, the relief in respect of Article 75, technicallyspeaking, could not have been granted by NCLAT. The reason is that inthe Company Petition as it was originally filed, there was no prayerchallenging Article 75. It was only through an application for amendmentdated 31.10.2017 that the complainant companies sought to incorporatea prayer as Clause M-2 for striking off/ deleting Article 75 on the groundthat it is a tool in the hands of majority shareholders to oppress theminority. In the said application for amendment filed on 31.10.2017, thecomplainant companies sought to include five additional prayers, threeof them as Clauses M-1, M-2 and M-3, one of them as Clause F-1 andthe last as Clause G-1. The prayer for striking off/deleting Article 75was sought to be included in Clause M-2 of Para 153 of the main petition.

17.25 But what happened thereafter is quite interesting. Througha Memo dated 12.1.2018, the complainant companies sought to “notpress” the prayers in Clauses (A), (B), (C), (F), (Q) and (R). In additionthey sought to restrict the prayer in Clause M, as we have indicated inthe table above. There was no indication in the Memo filed on 12.1.2018as to whether the prayers included as M-1, M-2 and M-3 inserted underthe application for Amendment dated 31.10.2017 are to be retained, despitetheir prayer for restricting the claim made in Clause M.

17.26 It is true that the rigors of CPC and the Evidence Act arenot be applicable to Tribunals/Quasi-Judicial Authorities. These rigoursdo not even apply to Courts dealing with constitutional matters (referthe Explanation under Section 141 CPC).

17.27 Such a concession was incorporated in all Statutes by whichquasi judicial Tribunals are created, solely with a view to avoid delay in A

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Athe dispensation of justice. But instead of eliminating delay, it haseliminated discipline in pleadings and procedure.

17.28 If it is a Civil Court, the Memo dated 12.1.2018 will betaken to have superseded whatever had been done till then. In such acase, there would have been complete lack of clarity whether the prayerBincluded in Clause M-2 survived despite the Memo restricting prayermade in the Clause-M.

17.29 Even if we take it that the memo dated 12-01-2018 restrictedthe prayer in clause M alone and not clause M-2, NCLAT could nothave muted Article 75 by holding that it cannot be invoked except inCexceptional circumstances. This is for the reason that after all, Article75 just provides for an exit option to the unwilling partner. Eventraditionally, the law in England and in India is to pave the way for a safeand honourable exit, when 2 persons in commercial relationship cannotco-exist.

D17.30 In this context, it will be useful to take note of the nature ofthe directions that could be issued by a Tribunal, in matters of this nature,as indicated in Clauses (a) to (m) of Sub-section (2) of Section 242.Sub-section (2) of Section 242 has been extracted by us elsewhere andit shows that what is listed in Clauses (a), (b), (c), (e), (f) and (g) of Sub-section (2) of Section 242 are just the same as or similar to Clauses (a)Eto (f) of Section 402 of the 1956 Act. Clauses (d), (h), (i), (j), (k) and (l)of Sub-section (2) of Section 242 are new additions under the 2013 Act.

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17.31 Fundamentally, the object for the achievement of which,the Tribunal is entitled to pass an Order under Section 242(1) of the2013 Act, remains just the same, as in the 1956 Act. The words “theFTribunal may, with a view to bringing to an end the matterscomplained of, make such order as it thinks fit”, found in the lastlimb of Sub-section (2) of Section 397 of the 1956 Act, is also repeatedin the last limb of Sub-section (1) of Section 242 of the 2013 Act. Thesewords also found a place in the last limb of Sub-section (4) of Section153C of the 1913 Act.G

17.32 Even Section 210 of the English Companies Act of 1948used the very same words namely “the Court may, with a view tobringing to an end the matters complained of, make such order as itthinks fit”. Though the English Law made a paradigm shift from‘oppressive conduct’ to ‘unfairly prejudicial conduct’ under the CompaniesH

Act, 1985, the object to be kept in mind by the Court while passing anorder under Section 461 of the English Companies Act, 1985 continuedto be almost similar. Section 461(1) enabled the Court to make “suchorder as it thinks fit for giving relief in respect of the matterscomplained of”. Section 996 of the English Companies Act, 2006retained the very same wordings.

17.33 Therefore, despite the law relating to oppression andmismanagement undergoing several changes, the object that a Tribunalshould keep in mind while passing an order in an application complainingof oppression and mismanagement, has remained the same for decades.This object is that the Tribunal, by its order, should bring to an end thematters complained of.

17.34 In other words the purpose of an order both under the EnglishLaw and under the Indian Law, irrespective of whether the regime isone of “oppressive conduct” or “unfairly prejudicial conduct” or amere “prejudicial conduct”, is to bring to an end the matters complainedof by providing a solution. The object cannot be to provide a remedyworse than the disease. The object should be to put an end to the matterscomplained of and not to put an end to the company itself, forsaking theinterests of other stakeholders. It is relevant to point out that once upona time, the provisions for relief against oppression and mismanagementwere construed as weapons in the armoury of the shareholders, whichwhen brandished in terrorem, were more potent than when actually usedto strike with. While such a position is certainly not desirable, they cannottoday be taken to the other extreme where the tail can wag the dog.

17.35 The Tribunal should always keep in mind the purpose forwhich remedies are made available under these provisions, before grantingrelief or issuing directions. It is on the touchstone of the objective behindthese provisions that the correctness of the four reliefs granted by theTribunal should be tested. If so done, it will be clear that NCLAT couldnot have granted the reliefs of (i) reinstatement of CPM (ii) restrictionon the right to invoke Article 75 (iii) restraining RNT and the NomineeDirectors from taking decisions in advance and (iv) setting aside theconversion of Tata Sons into a private company.

18. Question 3

18.1 The third question of law to be considered is as to whetherNCLAT could have, in law, muted the power of the company under A

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AArticle 75 of the Articles of Association, to demand any member totransfer his shares, by injuncting the company from exercising the rightsunder the Article, even while refusing to set aside the Article.

18.2 Article 75 of the Articles of Association reads as follows:- “ 75. Company’s Power of TransferB

The Company may at any time by Special Resolution resolvethat any holder of Ordinary shares do transfer his Ordinaryshares. Such member would thereupon be deemed to haveserved the Company with a sale-notice in respect of hisOrdinary shares in accordance with Article 58 hereof, andCall the ancillary and consequential provisions of these Articlesshall apply with respect to the completion of the sale of thesaid shares. Notice in writing of such resolution shall be givento the member affected thereby. For the purpose of this Articleany person entitled to transfer an Ordinary share under ArticleD69 hereof shall be deemed the holder of such share.”

18.3 At the outset it should be pointed out that the complainantcompanies did not make a grievance out of Article 75 on the ground thatit had been misused in the past and that such misuse tantamount toconduct oppressive or prejudicial to the interests of some of the members.EThe sine qua non for invoking Section 241 is that the affairs of theCompany should have been conducted or are being conducted in amanner oppressive or prejudicial to some of the members. No singleinstance even of invocation of Article 75, leave alone misuse, is averredin the main company petition or in the application for amendment.Therefore, NCLAT could not have and should not have made Article 75Fcompletely ineffective by passing an order of restraint.

18.4 As a matter of fact, NCLAT has agreed, on first principles,that it has no jurisdiction to declare any of the Articles of Associationillegal. After having set a benchmark correctly, NCLAT neutralised Article75 merely on the basis of likelihood of misuse. Section 241(1)(a) providesGfor a remedy, only in respect of past and present conduct or past andpresent continuous conduct. NCLAT has stretched Section 241(1)(a) tocover the likelihood of a future bad conduct, which is impermissible inlaw.

18.5 That Articles of Association of a company constitute a contractHamong shareholders, is the bedrock of Company Law. In fact, Article 75

was not an invention of the recent origin in Tata Sons. It has been therefor nearly a century in one form or the other. As we have pointed outelsewhere, the Company was incorporated in the year 1917 and S.P.Group acquired shares nearly after 50 years in the year 1965. Even atthat time Article 75 was in existence in a different form. After 1965,Article 75 underwent several rounds of amendments, to which the S.P.Group, CPM’s father and CPM were parties. CPM himself was a partyto an amendment made to Article 75 on 13.09.2000. The Article in itspresent form was made only on 13.09.2000 and the amendment wasunanimously carried through in the presence of and with the consent ofCPM.

18.6 A person who willingly became a shareholder and therebysubscribed to the Articles of Association and who was a willing andconsenting party to the amendments carried out to those Articles, cannotlater on turn around and challenge those Articles. The same wouldtantamount to requesting the Court to rewrite a contract to which hebecame a party with eyes wide open.

18.7 It is not as though CPM or his father who was also a Directorfor nearly 25 years, were not aware of or blind to the existence of Article75. In fact, in the application for amendment filed by the complainantcompanies on 31.10.2017, seeking to incorporate a challenge to Article75, the complainant companies stated as follows:-

“…In as much as no occasion had arisen in exercise of thesaid Article, the petitioners i.e., Respondent Nos. 1 and 2 hadtaken a conscious decision not to challenge the same.Respondent Nos. 1 and 2 now foresee a real and immediatethreat of this Article being misused”

The above pleading on the part of the complainant companieswas sufficient to throw the challenge to Article 75 out, as it did notcorrelate to an actual conduct but the possibility of a future conduct.Section 241 is not intended to discipline a Management in respect of apossible future conduct.

18.8 It is no doubt true that the Tribunal has the power underSection 242 to set aside any amendment to the Articles that takes awayrecognised proprietary rights of shareholders. But this is on the premisethat the bringing up of amendment itself was a conduct that was oppressiveor prejudicial.

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A18.9 It was contended that Article 75 was repugnant to Sections235 and 236 of the Companies Act, 2013. We do not know how theseprovisions would apply. Section 235 deals with a scheme or contractinvolving transfer of shares in a Company called the transferor company,to another called the transferee company. Similarly, Section 236 dealsBwith a case where an acquirer acquired or a person acting in concertwith such acquirer becomes the registered holder of 90% of the equityshare capital of the Company, by virtue of amalgamation, share exchange,conversion of securities etc. These provisions have no relevance to thecase on hand.C

18.10 Even the contention revolving around Section 58(2) is whollyunsustainable, as Section 58(2) deals with securities or other interests ofany member of a Public Company.

18.11 Therefore, the order of NCLAT tinkering with the powerDavailable under Article 75 of the Articles of Association is whollyunsustainable. It is needless to point out that if the relief granted byNCLAT itself is contrary to law, the prayer of the S.P. Group in theirAppeal C.A. No.1802 of 2020 asking for more, is nothing but a requestfor aggravating the illegality.E

19. Question 4

19.1 The fourth question of law to be considered is whether thecharacterisation by the Tribunal, of the affirmative voting rights availableunder Article 121 to the Directors nominated by the Trusts in terms ofFArticle 104B, as oppressive and prejudicial, is justified especially afterthe challenge to these Articles have been given up expressly and whetherthe Tribunal could have granted a direction to RNT and the Nomineedirectors virtually nullifying the effect of these Articles.

19.2 In the Company Petition as it was originally filed, thecomplainant companies sought a prayer in Paragraph 153(M) to strikedown Articles 86, 104B, 118, 121 and 121A in entirety and to strike offone portion of Article 124. These Articles (other than Article 118, whichis extracted elsewhere) read as follows:- G

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“86. Quorum at General Meetings

No quorum at a general meeting of the holders of the OrdinaryShares of the Company shall be constituted unless the memberswho are personally present are not less than five in numberincluding at least one authorised representative jointlynominated by the Sir Dorabji Tata Trust and the Sir RatanTata Trust so long as the Tata Trusts hold in aggregate atleast 40% of the paid-up Ordinary share capital, for the timebeing, of the Company.

Explanation:the words “jointly nominated” used in thisArticle shall mean that the Sir Dorabji Tata Trust and the SirRatan Tata Trust shall together nominate the authorizedrepresentative. In the case of any difference, the decision ofthe majority of the Trustees in the aggregate of the Sir DorabjiTata Trust and the Sir Ratan Tata Trust shall prevail.”

104. General Provisions

A. Number of Directors

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B. Nomination of Directors

So long as the Tata Trusts own and hold in the aggregate atleast 40% of the paid up Ordinary share capital, for the timebeing, of the company, the Sir Dorabji Tata Trust and SirRatan Tata Trust, acting jointly, shall have the right tonominate one third of the prevailing number of Directors onthe Board and in like manner to remove any such person soappointed and in place of the person so removed, appointanother person as Director.

The Directors so nominated by the Sir Dorabji Tata Trust andSir Ratan Tata Trust shall be appointed as Directors of theCompany.

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Explanation:the words ‘acting jointly’ used in this Articleshall mean that the Sir Dorabji Tata Trust and Sir Ratan TataTrust shall together nominate such Directos. In the case ofany difference, the decision of the majority of the Trustees inthe aggregate of the Sir Dorabji Tata Trust and Sir RatanTata Trust shall prevail.

121. Matters How Decided.

Matters before any meeting of the Board which are requiredto be decided by a majority of the directors shall require *theaffirmative vote of a majority of the Directors appointedpursuant to Article 104B present at the meeting and in thecase of an equality of vote’s the Chairman shall have a castingvote.”

**121A. The following matters shall be resolved upon by theBoard of Directors:

(a) a five-year strategic plan that should include an assessmentof the proposed strategic path of the Company, business andinvestment opportunities, proposed business and investmentinitiatives and a comparative analysis of similarly situatedholding companies, and any alterations to such strategic Plan.

(b) an annual business plan structured to form part of thestrategic plan, that should include proposed investments,incurring of debts, debt to equity ratio, debt service coverageratio, projected cash flow of the Company and any alterationsto such annual business plan”

(c) The incurring or renewal of any debt or other borrowingby the Company, which debt or borrowing causes thecumulative outstanding debt of the Company, to exceed twiceits net worth or which debt/borrowing is incurred/renewed ata time when the cumulative outstanding debt of the Companyhas already exceeded twice its net worth, if not alreadyapproved as part of the annual business plan; (d) any proposed investment by the Company in securities,shares, stocks, bonds, debentures, financial instruments, ofany sort or immovable property of a value exceeding Rs. 100Crores if not already approved as part of the annual businessplan; (e) Any increase in the authorized, subscribed, issued or paidup capital of the Company and any issue or allotment ofshares by the Company (whether on a rights basis orotherwise) ; (f) Any sale or pledge, mortgage or other encumbrance orcreation of any right or interest by the Company of or over itsshareholding in any Tata Company or of or over any partthereof, if not already approved as part of the annual businessplan; (g) any matter affecting the shareholding of the Tata Trustsin the company or the rights conferred upon the Tata Trustsby the Articles of the Company or the shareholding of theCompany in any Tata Company if not already approved aspart of the annual business plan;

(h) Exercise of the voting rights of the Company at the generalmeetings of any Tata Company, including the appointment ofa representative of the Company under Section 113(1)(a) ofthe Companies Act, 2013 in respect of a general meeting ofany Tata Company and, in any matter concerning the raisingof capital, incurring of debt and divesting or acquisition ofany undertaking or business of such Tata Company,instructions to such representative on how to exercise theCompany’s voting rights.

Explanation: the term “Tata Company” used in this articleshall, as the context requires, mean each or any of the 4following companies”

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ATata Consultancy Services ltd., Tata Steel Limited, Tata MotorsLimited, Tata Capital Ltd., Tata Chemicals Ltd., Tata PowerCompany Ltd., Tata Global Beverages Ltd., The Indian HotelsCompany Ltd., Trent Limited, Tata Teleservices (Maharashtra)Limited, Tata Industries Limited, Tata Teleservices Limited, TataBCommunications Limited, Titan Company Limited and InfinitiRetail Limited and any other Company in which the Company(or its subsidiaries) holds twenty percent or more of the paidup share capital and whose name is notified in writing to theCompany by the Directors nominated under Article 104B”.C19.3 But through a Memo dated 12.01.2018, the complainantcompanies restricted the relief prayed in Paragraph 153(M) to the extentas follows:-

(i) the necessity of affirmative voting of the majority of theDirectors nominated by the Trusts, which are majority ofDshareholders be deleted;

(ii) the petitioners be entitled to proportionate representationon the Board of Directors of Respondent No.1;

(iii) the petitioners be entitled to a representation on allcommittees formed by the Board of Directors of Respondent No.1;Eand

(iv) the Articles of Association be amended accordingly.

19.4 Therefore, what was actually sought by the complainantcompanies was the deletion of the Article that necessitated the affirmativeFvoting right of the majority of the Directors nominated by the two Trusts.There was no prayer for restraining RNT and the nominee Directors ofthe Trusts from taking any decision in advance.

19.5 In fact, even the complainant companies are not happy aboutthe relief so granted by NCLAT. In the Table given in Paragraph 4 ofGtheir Memorandum of Appeal in C.A.No.1802 of 2020, the complainantcompanies themselves seek a modification of the relief so granted. ThisTable found below Paragraph 4 of the Memorandum of Grounds ofappeal in C.A.No.1802 of 2020 reads as follows:- H

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A19.6 But for the fact that the complainant companies have alsocome up with an appeal, we would have simply set aside the order ofrestraint passed by NCLAT against RNT and nominee Directors, on theground that there was no such prayer. Now that S.P. Group has comeup with an appeal seeking an amplification or modulation of the relief sogranted, we shall deal with the challenge to the affirmative voting rights.B

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Affirmative voting rights

19.7 Under Article 104B, Sir Dorabjee Tata Trust and Sir RatanTata Trust, acting jointly, shall have a right to nominate 1/3[rd] of theprevailing number of Directors on the Board, so long as the Trusts ownCand hold, in the aggregate, at least 40% of the paid up share capital.Article 121 provides that the matters which require to be decided by amajority of the Directors, shall require the affirmative vote of the majorityof Directors appointed under Article 104B.

19.8 Article 121A contains the list of matters to be resolved byDthe Board of Directors. One of the items included therein is “any matteraffecting the share holding of the Tata Trusts in the Company…”

19.9 As seen from the Table under Paragraph 4 of theMemorandum of appeal filed by the S.P. Group in C.A.No.1802 of 2020,they are not seeking, even now, the scrapping of the affirmative votingErights. Interestingly, S.P. Group, through their Memo dated 12.01.2018wanted the deletion of the Article providing for affirmative voting right.But as per the Table under Paragraph 4 of the Memo of their appeal inC.A.No.1802 of 2020, the complainant companies have now reconciledthemselves to the unavoidability of affirmative voting rights but all thatthey want is that the applicability of affirmative voting right should beFrestricted to the matters covered by Article 121A. In addition, thecomplainant companies want a similar affirmative right to be conferredon the nominee Directors of the S.P. Group.

19.10 The swing that the S.P. Group has taken in their positionrelating to affirmative voting rights is quite funny. To begin with, theyGsought a prayer for striking off Article 121 in its entirety. Later theyrestricted their relief, by the Memo dated 12.01.2018, to the deletion of“the necessity of affirmative voting rights”. But now they are fine withthe existence of affirmative voting rights for the majority in respect ofmatters covered by Article 121A, but want a similar right in favour ofthe nominee directors of the S.P. Group.H

19.11 The frequent change of position that S.P. Group has takenand the relief that they now seek, raises a doubt whether it is actually afight on principles. If affirmative voting rights are bad in principle, we donot know how they may become good, if conferred on S.P. Group also.

19.12 Drawing our attention to Sections 135, 149, 151, 161 166and 177 of the Companies Act, 2013, it was argued on behalf of SPgroup that there is a sea change in the law, after the advent of the 2013Act and that today a paradigm shift has taken place from ‘corporatemajority/democracy’ to ‘corporate governance’ and that every action ofthe Board has to pass the test of fairness. It is further contended thatDirectors have a fiduciary responsibility with the highest level of dutyand that the same cannot be outsourced. According to the SP group, theDirectors, once appointed, owe their allegiance only to the company andnot to their nominators.

19.13 At first blush, these arguments, almost bordering on romanticidealism, appear very attractive. But on a deeper scrutiny, they are boundto get grounded. If we have a look at the history of evolution of corporateenterprises, it can be seen that there are 3 time periods through whichdevelopment of corporate entities have passed. In the first period, largecorporate houses were established by individuals with their own fundsand those individuals and their families controlled both ownership andmanagement of these enterprises. In the second time period, whenprofessionalism became the ‘Taraka mantra’, families which promotedenterprises, retained ownership, but appointed professional managers torun the show. Thus ownership got divested from management. In thethird time period, social participation increased by leaps and boundsthrough public issues and listing. This increased the social accountabilityand social responsibility of corporate entities. Every time a historicalshift/change took place, the legal regime had to undergo a change, albeitat snail’s pace.

19.14 As a matter of fact, the Companies Act, 1956 suffered 24amendments. Major amendments were made first in 1988 and then in2002, respectively on the basis of the recommendations of the SacharCommittee and the Report of the Eradi Committee. On August 4, 2004,the Ministry of Company Affairs, published a Concept Paper on CompanyLaw on its website, after which, the Government constituted an ExpertCommittee under the Chairmanship of Dr. J.J. Irani[20]. The mandate of 20 Incidentally J.J. Irani was the Chairman of Tata Sons for sometime.

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Athe Committee was to make recommendations on certain issues, one ofwhich was “protecting the interests of stakeholders and investors,including small investors”. This committee’s report crystallised intoCompanies Bill, 2009, which later became Companies Bill, 2011 andthen Companies Act, 2013.

B19.14 It is true that the 2013 Act brought a lot of drastic changes.Some of the salient features of the 2013 Act are:

(i) Every company is required to have at least one Directorwho has stayed in India for a total period of not less than 182days in the previous calendar year.

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(ii) Every listed Public Company is required to have at leastone-third of the total number of Directors as independentDirectors.

(iii) Some Public Companies are required to have at leasttwo independent Directors.

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(iv) Every independent Director should give a declarationat the first Board meeting that he meets the criteria ofindependence.

(v) Certain types of Public Companies are required toappoint at least one woman Director.

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(vi) Every listed company may appoint a small shareholders’Director, to be elected by the small shareholders.

(vii) The report of the Board of Directors should include aDirector’s Responsibility Statement, covering certain aspectsrelating to accounting standards, accounting policies andmaintenance of accounting records.

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(viii) Directors of a company are obliged to perform certainduties, such as duty to act in good faith, duty to exercisereasonable care, skill diligence and independent Judgment etc.

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(ix) A detailed Code of conduct for independent Directorsis stipulated in Schedule IV. This includes guidelines forprofessional conduct, roles and functions and duties.

(x) The resignation or removal of independent Directorsshould be in accordance with the procedure prescribed.

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(xi) Independent Directors are required to hold at least onemeeting in a year without the attendance of non-independentDirectors and members of management and they are entitledin this meeting to review the performance of non-independentDirectors and the Board as a whole. They can even reviewthe performance of the Chairperson of the Company and assessthe quality, quantity and timeliness of flow of informationbetween the management and the Board.

(xii) The Board of Directors of certain companies are requiredto have certain Committees such as (1) Audit Committee; (2)Nomination and Remuneration Committee and (3) StakeholdersRelationship Committee.

(xiii) A separate section on Corporate Governance is to beincluded in the Annual Reports of certain companies, with adetailed compliance Report on Corporate Governance.

(xiv) After the advent of the Companies Act, 2013, SEBIRegulations were also amended, inserting Clause 49 in theListing Agreement, to enforce compliance with CorporateGovernance standards.

19.15 But it must be remembered that the shift under theCompanies Act, 2013 is focused on listed and unlisted public companies.The requirement under Section 149(4) to have at least one-third of thetotal number of Directors as independent Directors applies only to everylisted public company. The requirement under Section 151 to have oneDirector elected by small shareholders is also applicable only to listedcompanies. The requirement to constitute an Audit Committee in termsof Section 177(1), a Nomination and Remuneration Committee and theStakeholders Relationship Committee in terms of Section 178(1) arealso only on listed public companies.

19.16 Insofar as Tata Sons is concerned, the Articles of Associationof the Company continue to contain the prescribed restrictions whichmake it a private company within the definition of the expression underSection 2(68). Therefore, the provisions discussed above do not apply toTata Sons. Yet Tata Sons has a Board packed with many people whoare ranked outsiders. If the idea was to run Tata Sons purely as a familybusiness, RNT need not have stepped down from the Chairmanship.Today nobody wants to step down from any office, except if afflicted by A

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Abrain stroke or sun stroke. As we have seen from the pleadings, the TataGroup was founded by Jamsetji Nusserwanji Tata (1839-1904). It wasfirst established as a private trading firm in 1868 and was laterincorporated as a private company on 8.11.1917 under Section 2(13) ofthe Companies Act, 1913. Later two Trusts were created, one in theyear 1919 under the name Sir Ratan Tata Trust and another in 1952Bunder the name Sir Dorabji Tata Trust. It was only in 1965 that S.P.Group acquired 48 preference shares and 40 equity shares, from amember of Tata Sons named Mrs. Rodabeh Sawhney. Shri Pallonji Mistry,the father of CPM was inducted as a Non-Executive Director on25.06.1980, though the Articles of Association did not confer any rightCof Directorship upon the S.P Group. He stepped down from this positionin December, 2004. Thereafter, CPM was appointed as Non-ExecutiveDirector on 10.08.2006. Ever since the establishment of the Tata Groupin 1868, there have only been six persons who became the Chairmen ofthe Group. While five of them namely Jamshedji Tata, Sir Dorab Tata,Nowroji Saklatwala, JRD Tata and Ratan Tata belonged to the sameDfamily, the sixth person namely CPM was inducted as ExecutiveChairman by Resolution dated 18.12.2012 with effect from 29.12.2012.Before the said appointment, CPM was identified by a SelectionCommittee which comprised of the nominees of the two Tata Trusts.This Selection Committee identified CPM as a successor to RNT asEChairman and appointed him first as Executive Deputy Chairman for aperiod of five years form 1.04.2012 till 31.03.2017, subject to the approvalof the General Body. The General meeting of the shareholders, held on1.8.2012 approved the appointment of CPM as Executive DeputyChairman and also left it to the Board to re-designate him as Chairman.This is how the Board, in its meeting dated 18.12.2012 re-designatedFCPM as Executive Chairman.

19.17 If the argument relating to corporate governance is carefullyscrutinized in the context of the fact: (i) that a large industrial housewhose origin and creation was familial, was willing to handover the mantleof heading the entire empire to a person like CPM (a rank outsider to theGfamily); and (ii) that the identification of CPM as the successor to RNTwas done by the very same nominees of the two Tata Trusts (who isnow accused of interference), then it will be clear that Tata Group wasguided by the principle of Corporate Governance (even without a statutorycompulsion) and not by tight-fisted control of the management of theHaffairs of the Group.

19.18 The provisions of sections 135, 149, 151, 166 and 177 aroundwhich the argument relating to corporate governance is fantasised, cannotadvance the case of the SP group. Section 135 deals with corporatesocial responsibility, which in any case is more pronounced in this companydue to the fact that charitable trusts hold majority of the shares. Section149 deals with the requirement to have Directors, section 151 providesfor appointment of a Director elected by small shareholders, section 166enumerates the duties of directors and section 177 and 178 speak ofsome committees. Some of these provisions such as sections 151, 177and 178 apply only to listed public companies. Yet, Tata Sons have compliedwith sections 177 and 178 by constituting necessary committees.

19.19 It was contended that a Director of a Company is to act ingood faith in order to promote the objects of the Company for the benefitof all the stakeholders and that he is in a fiduciary capacity vis-a-vis thecompany. The affirmative voting rights, according to S.P.Group, disabledthe nominee Directors from acting independently in the best interests ofthe company and its stakeholders and that once appointed, the loyalty ofthe nominee Directors should be to the Company and not solely to theTrusts which nominated him. It was further contended that under Articles121, 121A and 122, Tata Sons was to be a Board managed Companyand that the protective rights conferred under Article 121 were intendedto take care of the interests of the Tata Trust, in case they became aminority.

19.20 According to the S.P. Group, the pre-consultation/pre-clearance requirement disabled the Directors from effectively dischargingtheir fiduciary duties under Section 166, violated the Secretarial Standardsrequired to be adhered to under Section 118(10) and rendered nugatory,the scheme of Section 149 which requires 1/3[rd] of the members of theBoard to be independent Directors.

19.21 But all the above contentions are completely devoid of anysubstance, for they tend to overlook one basic fact namely that TataSons is not a company engaged either in any manufacturing activity or inany trading activity. As per the pleadings, on which there is no dispute,Tata Sons is a Principal Investment Holding Company and is a promoterof Tata Companies. Tata Sons holds a controlling interest in all theoperating companies of the Tata Group. Other than being the PrincipalInvestment Holding Company, Tata Sons, by itself is not engaged in anydirect business activity.

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A19.22 As we have indicated in the beginning, around 66% of theequity share capital of Tata Sons is held by philanthropic Trusts, includingSir Dorabji Tata Trust and Sir Rata Tata Trust. It is claimed that thesecharitable Trusts support education, health, livelihood generation and Art& Culture.B19.23 If we take these two important factors into considerationnamely: (i) that Tata Sons is only a Principal Investment Holding Company;and (ii) that the majority shareholders of Tata Sons are only philanthropiccharitable Trusts, it will be clear that the Directors nominated by theTrusts are not like any other Directors who get appointed in a GeneralMeeting of the Company in terms of Section 152(2) of the Act. In fact itCis a paradox to claim that by virtue of Sub-sections (2) and (3) of Section166, every Director of a Company is duty bound to act in good faith inorder to promote the objects of the company for the benefits of itsmembers and in the best interests of all the stakeholders as well asenvironment and a duty to exercise independent judgment, and yetDmandate the appointment of independent Directors under Section 149(4).If all Directors are required under Section 166(3) to exercise independentJudgment, we do not know why there is a separate provision in Section149(4) for every listed Public Company to have at least 1/3[rd] of the totalnumber of Directors as independent Directors. We do not also knowwhether the prescription in Section 149(4) is a tacit acknowledgmentEthat all the Directors appointed in a General meeting under Section 152(2)may not be independent in practice, though they may be required to beso in theory.

19.24 A person nominated by a charitable Trust, to be a Directorin a company in which the Trust holds shares, also holds a fiduciaryFrelationship with the Trust and fiduciary duty towards the nameless,faceless beneficiaries of those Trusts. As we have pointed out elsewhere,the history of evolution of the corporate world shows that it has movedfrom the (i) familial to (ii) contractual and managerial to (iii) a regime ofsocial accountability and responsibility. This is why Section 166(2) alsoGtalks about the duty of a Director to protect environment, in addition tohis duties to (i) promote the objects of the company for the benefit of itsmembers as a whole; and (ii) act in the best interests of the company, itsemployees, the shareholders and the community. It is common knowledgethat some of the industries which take good care of its shareholders andemployees also run polluting industries. Therefore there is always aH

conflict, a tug of war between competing interests and statutes cannotresolve these conflicts effectively.

19.25 Affirmative voting rights for the nominees of institutionswhich hold majority of shares in companies have always been acceptedas a global norm. As a matter of fact the affirmative voting rightsconferred by Article 121 of the Articles of Association, confers only alimited right upon the Directors appointed by the Trusts under Article104B. Article 121 speaks only about the manner in which matters beforeany meeting of the Board shall be decided. If it is a General Meeting ofTata Sons, the representatives of the two Trusts will actually have agreater say as the Trusts have 66% of shares in Tata Sons. Therefore, ifwe apply Section 152(2) strictly, the Trusts which own 66% of the paidup capital of Tata Sons will be entitled to pack the Board with their ownmen as Directors. But under Article 104B, only a minimum guarantee isprovided to the two Trusts, by ensuring that the Trusts will have at least1/3[rd] of the Directors, as nominated by them so long as they hold 40% inthe aggregate of the paid up share capital.

19.26 Section 43 of the Companies Act (which is equivalent ofSection 86 of the 1956 Act), recognises two types of share capital of acompany limited by shares. They are (i) equity share capital; and (ii)preference share capital. Again equity share capital can be of two kindsnamely, (i) those with voting rights; and (ii) those with differential rightsas to dividend, voting or otherwise in accordance with such rules as maybe prescribed.

19.27 Section 47(1)(b) of the 2013 Act (equivalent to Section87(1)(b) of the 1956 Act), declares that the rights of a member of acompany limited by shares, shall be in proportion to his share in the paidup equity share capital of the company. This right is subject to theprovisions of Section 43, Section 50(2) and Section 188(1) of the 2013Act. The restrictions under Sections 43, 50(2) and 188(1) respectivelyare, (i) shares with differential voting rights; (ii) disentitlement to votingrights, of a member who has not paid the unpaid share capital; and (iii)the disentitlement of a member to vote on a resolution for the approvalof any contract entered into by the company with a related party.

19.28 Under Section 10(1) of the Companies Act, 2013, theArticles of Association bind the company and the members thereof tothe same extent as if they respectively had been signed by the company AB

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Aand by each member. However, this is subject to the provisions of theAct.

19.29 Article 94 of the Articles of Association of Tata Sons is intune with Section 47(1)(b), as it says that upon a poll, the voting rights ofevery member, whether present in person or by proxy shall be inBproportion to his share of the paid up capital of the company. Therefore,a shareholder or a group of shareholders who constitute majority, canalways seek to be in the driving seat by reserving affirmative votingrights. So long as these special rights are incorporated in the Articles ofAssociation and so long as they are not in contravention of any of theprovisions of the Act, the same cannot be attacked on these grounds.C

19.30 Coming to the argument revolving around the duty of aDirector, it is necessary that we balance the duty of a Director, underSection 166(2) to act in the best interests of the company, its employees,the shareholders, the community and the protection of environment, withthe duties of a Director nominated by an Institution including a publicDcharitable trust. They have fiduciary duty towards 2 companies, one ofwhich is the shareholder which nominated them and the other, is thecompany to whose Board they are nominated. If this is understood, therewill be no confusion about the validity of the affirmative voting rights.What is ordained under Section 166(2) is a combination of private interestEand public interest. But what is required of a Director nominated by acharitable Trust is pure, unadulterated public interest. Therefore, thereis nothing abhorring about the validity of the affirmative voting rights.

19.31 Relying upon the decision of this Court in VodafoneInternational Holdings BV vs. Union Of India[21], it was contendedFthat a minority investor has what is called “participative rights, which isa sub-sect of protective rights” and that these participative rights enablethe minority to overcome the presumption of consolidation of operationsor assets by the controlling shareholder.

19.32 But the decision in Vodafone (supra) arose under aGcompletely different context. It was a tax dispute in relation to capitalgains arising from the sale of share capital of a company resident for taxpurposes in Cayman Islands, on the basis that it held underlying Indianassets. It was in that context that this Court analysed the independent legal existence of a subsidiary and held that even if directors are appointedat the behest of the parent company or removable by the parent company,such directors of the subsidiary company will owe their duty to thosecompanies and are not to be dictated by the parent company if it is not inthe interest of the subsidiaries.

19.33 The decisions Re: Neath Rugby Limited[22]and CentralBank of Ecuador and others vs. Conticorp SA and others(Bahamas)[23], are relied upon to show that while a nominee director isentitled to take care of the interests of the nominator, he is duty bound toact in the best interests of the company and not fetter his discretion.

19.34 The question as to (i) what is in the interest of the company,(ii) what is in the best interest of the members of the company as awhole and (iii) what is in the interest of a nominator, all lie in locationswhose borders and dividing lines are always blurred. If philosophicalrhetoric is kept aside for a moment, it will be clear that success andprofit making are at the core of business enterprises. Therefore, thebest interest of the majority shareholders need not necessarily be inconflict with the interest of the minority or best interest of the membersof the company as a whole, unless there is siphoning of or diversion.Such a question does not arise when the majority shareholders happento be charitable Trusts engaged in philanthropic activities. It is good towish that the creation gets liberated from the creator, so long as thecreator does not have any control or ability to manipulate. In thecorporate world, democracy cannot be seen as an ugly expression, afterusing the very same democratic process for the appointment of directors.

19.35 Much ado was made about pre-consultation and pre-clearance by the Trustees, even before the Board took a call. But it wasactually about nothing. Whenever an institution happens to be ashareholder and a notice of a meeting either of the Board or of theGeneral body is issued, it is but normal for the institution to have an ideaabout the stand to be taken by them in the forthcoming meeting.

19.36 Objections were raised about RNT vetting the minutes ofthe meetings of the Board post facto and his participation as a shadowDirector. But as we have pointed out elsewhere, CPM himself sought, 22 (2010) B.C.C. 597

23 (2015) UKPC 11 Judicial Committee of the Privy Council (UK)

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Awhile accepting the office of Executive Chairmanship, the continuedguidance of RNT. When the Board, of which CPM was a Chairman,nominated RNT as Chairman Emeritus and recorded their desire to lookforward to his support and guidance, it is not open to the complainantcompanies to call RNT a shadow Director. If someone, aggrieved afterBhis removal from office can engage in shadow-boxing through thecompanies controlled by him, he cannot accuse the very same personwho chose him as successor to be a shadow director. Someone whogained entry through the very same door, cannot condemn it when askedto exit.C19.37 Therefore, the challenge to the affirmative voting rightsand the allegations revolving around pre consultation and pre clearanceby the Trusts of all items in the agenda and RNT’s indirect or directinfluence or grip over the Board are all liable to be rejected. That leavesus with one more related issue, under this question of law and the sameDrelates to the claim of SP group for proportionate representation on theBoard. We shall now go to the same.

Claim for proportionate representation

19.38 As we have pointed out elsewhere, the Statute confers uponEthe members of a company limited by shares, a right to vote in a generalmeeting. And this right is proportionate to his shareholding as per Section47(1)(b). Section 152 which contains provisions for the appointment ofDirectors, does not confer any right of proportionate representation onthe Board of any company, be it public or private.F

19.39 The maximum extent, to which the Parliament has goneunder the 2013 Act, is to make a provision under Section 151, enabling“a listed company” to have one Director elected by such smallshareholders in such manner and on such terms and conditions as mayGbe prescribed. Though a similar prescription was incorporated in Section252(1) of the Companies Act, 1956, under Act 53 of 2000, it was notexactly the same. For the purpose of easy appreciation, the proviso toSub-section (1) of Section 252 of the 1956 Act and Section 151 of the2013 Act are presented in a tabular column as follows:H

19.40 The important features to be noticed in the 1956 Act andthe 2013 Act are : (i) that Section 252 of the 1956 Act was applicable toevery public company but not to a public company which has becomesuch by virtue of Section 43A, indicating thereby that it would not havehad any application to Tata Sons; (ii) that in contrast, Section 151 of the2013 Act applies only to listed companies; (iii) that for the application ofthe proviso to Section 252(1) of the 1956 Act, the public company shouldhave a paid-up capital of Rs.5 crores or more and 1000 or more smallshareholders; (iv) that in contrast the applicability of Section 151 of the2013 Act does not depend upon either the paid-up capital or the numberof small shareholders; and (v) that the definition of the expression “smallshareholders” is just the same under both the enactments.

19.41 It is interesting to note that the smallness conceived by the1956 Act is virtually minuscule. One would qualify to be a smallshareholder only if he holds shares of a nominal value of Rs.20,000/- orless, in a public company having a paid-up capital of Rs.5 crores ormore. This proportion works out to 1/2500 or 0.04%.

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A19.42 One must be careful to note that both under Section 252(1)of the 1956 Act and under Section 151 of the 2013 Act, the spotlight wasonly on “small shareholders” and not on “minority shareholders”like the S.P. Group which holds around 18.37%. In fact, admittedly thevalue of this 18.37% of shareholding of the S.P. Group, as of March-2016 was around Rs.58,441 crores. It is claimed that the purchaseBconsideration of these shares at the relevant point of time was Rs.69crores and that during the period from 1991 to 2016, SP group had receivedaggregate dividends to the tune of Rs.872 crores. We do not knowwhether this kind of a huge return on investment and the skyrocketing ofthe appreciation of the value of investment, is also due to oppressiveCconduct or despite oppressive conduct.

19.43 Whatever it be, the right to claim proportionate representationis not available even to a minority shareholder statutorily, both under the1956 Act and under the 2013 Act. It is available only to a smallshareholder, which S.P. Group is certainly not.

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19.44 The right to claim proportionate representation is not availablefor the S.P. group even contractually, in terms of the Articles ofAssociation. Neither S.P. Group nor CPM can request the Tribunal torewrite the contract, by seeking an amendment of the Articles ofAssociation. The Articles of Association, as they exist today, are bindingEupon S.P. Group and CPM by virtue of Section 10(1) of the Act.

19.45 Realising the fact that they have no right, statutorily orcontractually or otherwise to demand proportionate representation onthe Board, S.P. Group has come up with a very novel idea, namely theclaim of existence of a quasi-partnership between the Tata group andFSP group. It is contended by S.P. Group that there existed a personalrelationship between those in management of the S.P. Group and thosein management of Tata Sons for over several decades and that therelationship was one of trust and mutual confidence. According to S.P.Group, they acted as the guardian of the Tata Group when the TataTrust had no voting rights. Therefore, it is claimed that there is a rightGand a legitimate expectation to have a representation on the Board ofTata Sons.

19.46 But we do not think that there ever existed a relationship inthe nature of quasi partnership. As we have pointed out elsewhere, thecompany was incorporated in the year 1917 and S.P. Group became aH

shareholder in 1965, namely after 50 years. A berth on the Board ofTata Sons was granted only in the year 1980 to CPM’s father. Therefore,there is nothing on record in the form of pleadings or proof, to show thatthere was either (i) a pre-existing relationship before the incorporationof the company or (ii) a living in relationship picked up half way through,by entering into an agreement in the nature of a partnership.

19.47 In fact, CPM’s father was inducted into the Board in 1980,after 15 years of acquisition of shares and such induction was not inrecognition of any statutory or contractual right. After his father’s exit in2004, CPM was inducted in 2006, neither in recognition of a contractualright nor in recognition of a hereditary or statutory right.

19.48 The claim for proportionate representation can also be lookedat from another angle. RNT who was holding the mantle as the Chairmanof Tata Sons for a period of 21 years from 1991 to 2012, actuallyconceded a more than proportionate share to the S.P. Group by nominatingCPM as his successor. Accordingly CPM was also crowned as ExecutiveDeputy Chairman on 16.3.2012 and as Chairman later. CPM continuedas Executive Chairman till he set his own house on fire in 2016. If thecompany’s affairs have been or are being conducted in a manneroppressive or prejudicial to the interests of the S.P. group, we wonderhow a representative of the S.P. Group holding a little over 18% of theshare capital could have moved upto the top most position within a periodof six years of his induction. Therefore, we are of the considered viewthat the claim for proportionate representation on the Board is neitherstatutorily or contractually sustainable nor factually justified.

19.49 Placing reliance upon section 163 of the Companies Act,2013, it was contended that proportionate representation is statutorilyrecognised. But this argument is completely misconceived. Section 163of the 2013 Act corresponds to section 265 of the 1956 Act. It enables acompany to provide in their Articles of Association, for the appointmentof not less than two-thirds of the total number of Directors in accordancewith the principle of proportionate representation by means of asingle transferable vote. First of all, proportionate representation bymeans of a single transferable vote, is not the same as representation onthe Board for a group of minority shareholders, in proportion to thepercentage of shareholding they have. It is a system where the votersexercise their franchise by ranking several candidates of their choice,with first preference, second preference etc. Moreover, it is only an A

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Aenabling provision and it is upto the company to make a provision for thesame in their Articles, if they so choose. There is no statutory compulsionto incorporate such a provision.

19.50 Therefore, the fourth question of law is also to be answeredin favour of the Tata group and the claim in the cross appeal relating toBaffirmative voting rights and proportionate representation are liable tobe rejected.

20. Question No.5

20.1 The 5[th] question of law formulated for consideration is as towhether the re-conversion of Tata Sons from a public company into aCprivate company, required the necessary approval under section 14 ofthe Companies Act, 2013 or at least an action under section 43-A(4) ofthe Companies Act, 1956 during the period from 2000 (when Act 53 of2000 came into force) to 2013 (when the 2013 Act was enacted) as heldby NCLAT ?D

20.2 As we have pointed out elsewhere, Tata Sons was actuallyincorporated as a Private Limited Company, but was deemed to havebecome a Public Limited Company, with effect from 01.02.1975, byvirtue of Section 43-A (1A) of the Companies Act, 1956. However, byvirtue of the proviso to Sub-section (1A), the Articles of Association ofEthe Company, continued to retain the provisions relating to the mattersspecified in sub-clauses (a), (b) and (c) of Clause (iii) of Sub-section (1)of Section 3 of the 1956 Act.

20.3 By Act 53 of 2000, the deeming fiction in section 43A wasremoved and the whole concept of private companies becoming publicFcompanies disappeared from the date of coming into force of this Act 53of 2000.

20.4 The Companies Act, 2013 did not include any provision similarto section 43A. Therefore, Tata Sons passed a resolution in its 99[th] AnnualGeneral meeting held on 21-09-2017 to alter the Memorandum andArticles so as to insert the word “private” in between the words “Sons”Gand “Limited” in its name.

20.5 On 09.07.2018, the complaint under sections 241 and 242was dismissed by NCLT and hence Tata Sons approached the Registrarof Companies on 19.07.2018 seeking an amendment to the Certificateof Incorporation. It appears that S.P. Group filed objections with theH

Registrar of Companies on the ground that they were filing appeals againstthe order of the NCLT. But the Registrar of Companies issued anamended certificate on 06.08.2018.

20.6 Upon coming to know of the issue of amended Certificate ofIncorporation, S.P. Group filed an additional affidavit before NCLAT on10.08.2018 in the appeals that came up for hearing.

20.7 While allowing the appeals of S.P. Group by a judgment dated18.12.2019, NCLAT declared the action of the Registrar of Companiesin issuing the amended Certificate of Incorporation as illegal with afurther direction to the Registrar of Companies to make necessarycorrections in the records showing the Company as a Public Company.

20.8 The Registrar of Companies moved an application underSections 420(2) and 424(1) of the Companies Act, 2013 read with Rule11 of the NCLAT Rules, 2016, seeking removal of the observations madein Paragraphs 181, 186 and 187(iv) of the judgment. This applicationwas dismissed by the NCLAT by an order dated 06.01.2020, not onlyholding that no aspersions were cast in the judgment of the NCLAT onthe Registrar of Companies warranting any review/clarification, but alsoproviding certain additional reasons. It is under these circumstances thatthe 5[th] question of law revolving around Section 43A of the 1956 Act asamended by Act 53 of 2000, and the Companies Act, 2013 has arisen forconsideration.

20.9 A look at Section 43A would show that it was actually insertedunder Companies (Amendment) Act 65 of 1960 with effect from28.12.1960. This Section underwent two amendments, one under Act41 of 1974 with effect from 01.02.1975 and another under Act 31 of1988 with effect from 15.06.1988. Finally, by Act 53 of 2000, Section43A was made inapplicable with effect from 13.12.2000.

20.10 Section 43A, as inserted by Act 65 of 1960, together withthe amendments made under Act 41 of 1974, Act 31 of 1988 and Act 53of 2000, is reproduced as follows:- “43A. Private Company to become a public company incertain cases.-

(1) Save as otherwise provided in this section, where not lessthan twenty-five per cent of the paid-up share capital of aprivate company having a share capital is held by one ormore bodies corporate, the private company shall,- A

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A(a) on and from the date on which the aforesaidpercentage is first held by such body or bodies corporate,or (b) where the aforesaid percentage has been first soheld before the commencement of the CompaniesB(Amendment) Act, 1960 (65 of 1960), on and from the expiryof the period of three months from the date of suchcommencement unless within that period the aforesaidpercentage is reduced below twenty-five per cent of thepaid-up share capital of the private company, Cbecome by virtue of this section a public company :

Provided that even after the private company has so becomea public company, its articles of association may includeprovisions relating to the matters specified in clause (iii) ofsub-section (1) of section 3 and the number of its membersDmay be, or may at any time be reduced, below seven :

Provided further that in computing the aforesaidpercentage, account shall not be taken of any share in theprivate company held by a banking company if, but only if,the following conditions are satisfied in respect of such share,Enamely:- (a)that the share-

(i) forms part of the subject matter of a trust,(ii) has not been set apart for the benefit of any bodycorporate, and F

(iii) is held by the banking company either as atrustee of that trust or in its own name on behalf of atrustee of that trust; or G(b)that the share-

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(iii) is held by the banking company either as anexecutor or administrator of the deceased personor in its own name on behalf of an executor oradministrator of the deceased person, and the registrar may, for the purpose of satisfying himselfthat any share is held in the private company by a bankingcompany as aforesaid, call for at any time from the bankingcompany such books and papers as he considers necessary.

Explanation.-For the purposes of this sub-section, “bodiescorporate” means public companies, or private companieswhich had become public companies by virtue of this section.

(1A) Without prejudice to the provisions of sub-section (1),where the average annual turnover of a private company,whether in existence at the commencement of the Companies(Amendment) Act, 1974, or incorporated thereafter, is not,during the relevant period, less than 2 [such amount as maybe prescribed], the private company shall, irrespective of itspaid-up share capital, become, on and from the expiry of aperiod of three months from the last day of the relevant periodduring which the private company had the said averageannual turnover, a public company by virtue of this sub-section:

Provided that even after the private company has so becomea public company, its articles of association may includeprovisions relating to the matters specified in clause (iii) ofsub-section (1) of section 3 and the number of its membersmay be, or may at any time be reduced, below seven.

(1B) Where not less than twenty-five per cent of the paid-up share capital of a public company, having share capital,is held by a private company, the private company shall,-

(a) on and from the date on which the aforesaidpercentage is first held by it after the commencement ofthe Companies (Amendment) Act, 1974, or (b) where the aforesaid percentage has been first soheld before the commencement of the Companies(Amendment) Act, 1974 on and from the expiry of the period A

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of three months from the date of such commencement,unless within that period the aforesaid percentage isreduced below twenty-five per cent of the paid-up sharecapital of the public company, become, by virtue of this sub-section, a public company,and thereupon all other provisions of this section shall applythereto:

Provided that even after the private company has so becomea public company, its articles of association may includeprovisions relating to the matters specified in clause (iii) ofsub-section (1) of section 3 and the number of its membersmay be, or may at any time be reduced, below seven.

(1C) Where, after the commencement of the Companies(Amendment) Act, 1988, a private company accepts, after aninvitation is made by an advertisement, or renews, depositsfrom the public other than its members, directors or theirrelatives, such private company shall, on and from the dateon which such acceptance or renewal, as the case may be, isfirst made after such commencement, become a publiccompany and thereupon all the provisions of this section shallapply thereto:

Provided that even after the private company has so becomea public company, its articles of association may includeprovisions relating to the matters specified in clause (iii) ofsub-section (1) of section 3 and the number of its membersmay be, or may at any time be, reduced below seven.

(2) Within three months from the date on which a privatecompany becomes a public company by virtue of this section,the company shall inform the Registrar that it has become apublic company as aforesaid, and thereupon the Registrarshall delete the word “Private” before the word “Limited” inthe name of the company upon the register and shall alsomake the necessary alterations in the Certificate ofIncorporation issued to the company and in its memorandumof association.

(2A) Where a public company referred to in sub-section(2) becomes a private company on or after the commencement of the Companies (Amendment) Act, 2000, such company shallinform the Registrar that it has become a private companyand thereupon the Registrar shall substitute the word ‘privatecompany’ for the word ‘public company’ in the name of thecompany upon the register and shall also make the necessaryalterations in the Certificate of Incorporation issued to thecompany and in its memorandum of association within fourweeks from the date of application made by the company.

(3) Sub-section (3) of section 23 shall apply to a changeof name under sub-section (2) as it applies to a change ofname under section 21.

(4) A private company which has become a public companyby virtue of this section shall continue to be a public companyuntil it has, with the approval of the Central Government andin accordance with the provisions of this Act, again become aprivate company.

(5) If a company makes default in complying with sub-section (2), the company and every officer of the companywho is in default, shall be punishable with fine which mayextend to five hundred rupees for every day during which thedefault continues.

(6) & (7) omitted by Act 31 of 1988

(8) Every private company having a share capital shall, inaddition to the certificate referred to in sub-section (2) ofsection 161, file with the Registrar along with the annualreturn a second certificate signed by both the signatories ofthe return, stating either- (a) that since the date of the annual general meeting withreference to which the last return was submitted, or in thecase of a first return, since the date of the incorporationof the private company, no body or bodies corporate hasor have held twenty-five per cent or more of its paid-upshare capital, (b) …

(c) that the private company, irrespective of its paid-upshare capital, did not have, during the relevant period, an A

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average annual turnover of such amount as is referred toin sub-section (1A) or more, (d) that the private company did not accept or renewdeposits from the public.]

(9) Every private company, having share capital, shall filewith the Registrar along with the annual return a certificatesigned by both the signatories of the return, stating that sincethe date of the annual general meeting with reference to whichthe last return was submitted, or in the case of a first return,since the date of the incorporation of the private company, itdid not hold twenty-five per cent or more of the paid-up sharecapital of one or more public companies.

Explanation.- For the purposes of this section,- (a) “relevant period” means the period of threeconsecutive financial years.-

(i) immediately preceding the commencement of theCompanies (Amendment) Act, 1974, or

(ii) a part of which is immediately preceded suchcommencement and the other part of whichimmediately, followed such commencement, or

(iii) immediately following such commencement orat any time thereafter; (b)“turnover”, of a company, means the aggregatevalue of the realization made from the sale, supply ordistribution of goods or on account of servicesrendered, or both, by the company during a financialyear;

(c) “deposit has the same meaning as in section 58A

(10) Subject to the other provisions of this Act, anyreference in this section to accepting, after an invitation ismade by an advertisement, or renewing deposits from thepublic shall be construed as including a reference to accepting,after an invitation is made by an advertisement, or· renewingdeposits from any section of the public and the provisions ofsection 67 shall, so far as may be, apply, as if the reference to invitation to the public to subscribe for shares or debenturesoccurring in that section, includes a reference to invitationfrom the public for acceptance of deposits.

(11) Nothing contained in this section, except sub-section(2A), shall apply on and after the commencement of theCompanies (Amendment) Act, 2000.”

20.11 In its inception, Section 43A contained only one stipulationnamely that a private company in which not less than 25% of the paid upshare capital was held by one or more bodies corporate, shall become apublic company. But by Act 41 of 1974, two additional stipulations wereincluded. They are (i) that a private company whose average turnoverduring the relevant period is not less than an amount prescribed, shallbecome a public company, irrespective of its paid up share capital; and(ii) that a private company which holds not less than 25% of the paid upshare capital of a public company, shall become a public company.

20.12 By Act 31 of 1988, the benchmark of the average annualturnover that would determine the applicability of Section 43A wasprescribed as not less than Rs. 1 crore. In addition, Act 31 of 1988 alsomade a private company which accepts deposits from the public, otherthan its members or directors, to be a public company.

20.13 Two important prescriptions, which continued without anychange, from the date of insertion of Section 43A, namely 28.12.1960,till the coming into force of Act 53 of 2000 namely 13.12.2000, wereSub-sections (2) and (4) of Section 43A. Sub-section (2) imposed anobligation upon a private company which became a public company byvirtue of section 43A, to inform the Registrar. Upon receipt of suchinformation, the Registrar was ordained to delete the word “private” inthe name of the company upon the register and also to make necessaryalterations in the Certificate of Incorporation and its Memorandum ofAssociation.

20.14 Sub-section (4) declared that the status of such a companyas a public company would continue until such time it becomes a privatecompany (i) with the approval of the Central Government; and (ii) inaccordance with the provisions of the Act.

20.15 In Needle Industries (India) Ltd vs Needle IndustriesNewey(India) Ltd[24], this court pointed out (A) that there are 3 distinct 24 (1981) 3 SCC 333

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Atypes of companies, namely Private companies, Public Companies anddeemed to be public companies which occupy a distinct place in thescheme of the Act (B) that private companies, which become publiccompanies, but which continue to retain in their articles those mattersmentioned in section 3(1)(iii) of the Act are also broadly and generallysubjected to the rigorous discipline of the Act and (C) that though sectionB43A companies cannot claim the same privileges to which privatecompanies are entitled, there are certain provisions of the Act whichwould apply to public companies, but not to Section 43A companies. Animportant observation found in Needle Industries, is that “the policy ofthe Act if anything, points in the direction that the integrity andCstructure of section 43A proviso companies should, as far aspossible, not be broken up”.

20.16 Keeping the above stipulations in mind, let us now come tothe amendments made to Section 43A under Act 53 of 2000, with effectfrom 13.12.2000. By this Act, two sub-sections namely Sub-section (2A)Dand Sub-section (11) were inserted in Section 43A.

20.17 By virtue of sub-section (11), all the provisions of Section43A except sub-section (2A) were made inapplicable on and after thecommencement of Act 53 of 2000. This meant that with effect from13.12.2000, the whole of Section 43A except Sub-section (2A) gotEwashed out.

20.18 Sub-section (2A) prescribes the procedure to be followedby a company, which has earlier become a public company by virtue ofSection 43A, but which has later become a private company after thecommencement of Act 53 of 2000, to have necessary changes effected.FThe procedure prescribed by sub-section (2A) for such re-conversion(or Ghar Wapsi) is as follows:-

(i) The company shall inform the Registrar thatthe company has again become a privatecompany; and G

(ii) The Registrar shall thereupon substitute theword “Private Company” for the word“Public Company” upon the register andalso make necessary alterations in theCertificate of Incorporation and itsMemorandum of Association.”

H

20.19 But Act 53 of 2000 did not stop with section 43A. It alsoamended section 3(1)(iii) by inserting an additional sub-clause, namely“(d)” along with sub-clauses (a), (b) and (c). Under this sub-clause (d)of clause (iii) of sub-section (1) of section 3, the articles of associationof a private company should also contain a prohibition on any invitationor acceptance of deposits from persons other than its members, directorsor their relatives. Section 3(1)(iii) after amendment under Act 53 of2000 read as follows:

“3 (1) In this Act, unless the context otherwise requires, theexpressions “company”, “existing company”, “privatecompany” and “public company”, shall, subject to theprovisions of sub-section (2), have the meanings specifiedbelow:-

(iii) “private company” means a company which has aminimum paid-up capital of one lakh rupees or such higherpaid-up capital as may be prescribed, and by is articles, - (a) restricts the right to transfer its shares, if any ; (b) limits the number of its members to fifty not including -(i) persons who are in the employment of the company ; and(ii) persons who, having been formerly in the employment ofthe company, were members of the company while in thatemployment and have continued to be members after theemployment ceased ; and

(c) prohibits any invitation to the public to subscribe forany shares in, or debentures of, the company ; (d) prohibits any invitation or acceptance of deposits frompersons other than its members, directors or their relatives:

Provided that where two or more persons hold one or moreshares in a company jointly, they shall, for the purposes ofthis definition, be treated as a single member;”

20.20 Sub-clause (d) was what was added to section 3(1)(iii) byAct 53 of 2000, even while scrapping the concept of a deemed publiccompany. But this sub-clause (d) is nothing but sub-section (1C) of section43A. Though section 43A was being scrapped in effect, the Parliamentwanted to retain the prescription contained in sub-section (1C) of section A

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A43A and which is why sub-clause (d) was inserted under section 3(1)(iii).

20.21 But while doing so under Act 53 of 2000, a major omissionhappened. The omission related to section 27 (3) of the 1956 Act. Section27 of the 1956 Act contained stipulations as to what the Articles ofBAssociation of (i) an unlimited company (ii) a company limited byguarantee and (iii) a private company limited by shares, should contain.It reads as follows:

“27. REGULATIONS REQUIRED IN CASE OFUNLIMITED COMPANY, COMPANY LIMITED BYCGUARANTEE OR PRIVATE COMPANY LIMITED BY SHARES

(1) In the case of an unlimited company, the articles shallstate the number of members with which the company is to beregistered and, if the company has a share capital, the amountof share capital with which the company is to be registered.

D(2) In the case of a company limited by guarantee, thearticles shall state the number of members with which thecompany is to be registered.

(3) In the case of a private company having a share capital,the articles shall contain provisions relating to the mattersEspecified in sub-clauses (a), (b) and (c) of clause (iii) of sub-section (1) of section 3; and in the case of any other privatecompany, the articles shall contain provisions relating to thematters specified in the said sub-clauses (b) and (c).”

20.22 No corresponding amendment was made to Section 27 (3),Fby Act 53 of 2000, so as to make it in tune with the amended section3(1)(iii). The result was that on and from 13-12-2000 (the date of cominginto force of Act 53 of 2000), section 3(1)(iii) contained 4 requirementsfor a private company, but section 27(3) referred only to 3 requirements.The incongruity can be stated thus. To fall within the definition of aprivate company, 4 stipulations contained in section 3(1)(iii) were to beGsatisfied. But under section 27(3), it is enough if the Articles of Associationof a private company contained only 3 prescriptions.

20.23 Be that as it may, the consequence of the amendment tosection 3(1)(iii), under Act 53 of 2000, was that a company which wantedto take the route of sub-section (2A) of section 43A, after the comingH

into force of Act 53 of 2000 and reconvert itself into a private company,was required to satisfy the rigours of sub-clauses (a), (b) and (c) as wellas (d) of clause (iii) of sub-section(1) of section 3. In other words, theArticles of Association of such a company should contain all the 4prescriptions namely (i) restriction on the right to transfer shares (ii)limitation on the number of members (iii) prohibition of any invitation tothe public to subscribe for shares/debentures and (iv) prohibition of anyinvitation or acceptance of deposits from persons other than members/Directors or their relatives.

20.24 The Articles of Association of Tata Sons had the prescriptionscontained in sub-clauses (a), (b) and (c), but not sub-clause (d).Therefore, they did not take any steps in terms of sub-section (2A) ofsection 43A after the advent of Act 53 of 2000.

20.25 But Companies Act, 2013 changed the complexion of thegame. It not merely put an end to the concept of deemed public companies,but also restored the definition of the expression ‘private company” tothe position that prevailed before Act 53 of 2000. Section 2(68) of the2013 Act which defines a “private company” incorporated only the original3 prescriptions contained in sub-clauses (a), (b) and (c) of clause (iii) ofsub-section (1) of section 3. The stipulation inserted as sub-clause (d)by Act 53 of 2000, is omitted in section 2(68). Section 2(68) of the 2013Act reads as follows:- Sec 2 (68) “private company” means a company having aminimum paid-up share capital of one lakh rupees or suchhigher paid-up share capital as may be prescribed, and whichby its articles,

(i) restricts the right to transfer its shares;

(ii) except in case of One Person Company, limits thenumber of its members to two hundred:

Provided that where two or more persons hold one ormore shares in a company jointly, they shall, for thepurposes of this clause, be treated as a single member:

Provided further that—

(A) persons who are in the employment of the company;and A

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(B) persons who, having been formerly in theemployment of the company, were members of thecompany while in that employment and have continuedto be members after the employment ceased, A

shall not be included in the number of members; andB

(iii) prohibits any invitation to the public to subscribe forany securities of the company; 20.26 But Companies Act, 2013, created one confusion. Differentprovisions of the Companies Act, 2013, came into force on differentdates (driving people crazy). Section 2(68) which defines a privateCcompany, came into force on 12-09-2013 vide S.O. 2754 (E) dated 12-09-2013. This notification issued under section 1(3) of the 2013 Act,fixed 12-09-2013 as the appointed date for the coming into force ofsection 2(68).

20.27 But on 12-09-2013, the date appointed for the coming intoDforce of section 2(68) of the Companies Act, 2013, the old Act, namelythe Companies Act, 1956 had not been repealed. The provisions forrepeal are contained in Section 465 of The Companies Act, 2013. Section465(1) repeals the 1956 Act, subject to certain stipulations mentioned inthe provisos there under. Sub-section (2) of Section 465 of the CompaniesEAct, 2013 provides a list of matters which will stand saved despite therepeal of the 1956 Act. Sub-section (3) of Section 465 makes it clearthat the mention of particular matters in Sub-section (2) shall not be heldto prejudice the general application of Section 6 of the General ClausesAct, 1897.F20.28 The provisions of Section 465, in so far as they relate to therepeal of the 1956 Act are concerned, came into force on 30-01-2019,vide S.O. 560 (E) dated 30-01-2019. In other words, the provisions ofthe 1956 Act continued to be in force till repealed on 30-01-2019. Itmeans that the criteria for a “private company” under sub-clauses (a),(b), (c) and (d) of clause (iii) of sub-section (1) of section 3 of the 1956GAct, did not stand repealed until 30-01-2019. But the new definition of a“private company” under section 2(68) of the 2013 Act had alreadycome into effect on and from 12-09-2013.

20.29 As a result, we had 2 definitions of the expression “privatecompany” from 12-09-2013 [the date appointed for the coming into forceHof section 2(68) of the 2013 Act] to 30-01-2019 (the date on which section 3(1) of the 1956 Act became a dead letter consequent upon therepeal of the 1956 Act through the notification of the repeal provisionunder section 465).

20.30 Therefore, we have to fall back upon section 465(3) of the2013 Act to conclude that section 2(68) of the 2013 Act will prevail oversection 3(1)(iii) of the 1956 Act. In other words, on and from 12-09-2013, the question whether a company is a private company or not, willbe determined only by the definition of the expression “private company”found in section 2(68) of the 2013 Act.

20.31 The articles of association of Tata sons contain the restrictionsprescribed in sub-clauses (a), (b) and (c) of Section 3(1)(iii) of the 1956Act, but they do not satisfy the requirement of sub-clause (d) incorporatedin the year 2000. However, on and from 12-09-2013, which is the dateappointed for the coming into force of section 2(68) of the 2013 Act, thearticles of association of Tata Sons satisfy the requirements of Section2(68) of the 2013 Act. Therefore, it was and it continues to be a privatecompany.

20.32 In other words, the status of Tata Sons-

(i) was that of a private company till 31-01-1975;

(ii) was that of a deemed public company under section 43A from01-02-1975 till 12-12-2000;

(iii) was that of a company that continued to be a deemed to bepublic company from 13-12-2000 till 11-09-2013 by virtue of section3(1)(iii) of the 1956 Act as amended by Act 53 of 2000 with effect from13-12-2000; and

(iv) was that of a private company with effect from 12-09-2013within the meaning of section 2(68) of the 2013 Act.

20.33 Interestingly, it is not disputed by anyone that today TataSons satisfy the parameters of section 2(68) of the 2013 Act. The disputeraised by the S.P. Group and accepted by NCLAT is only with regard tothe procedure followed for reconversion. NCLAT was of the opinionthat Tata Sons ought to have followed the procedure prescribed in Section14(1)(b) read with Sub-sections (2) and (3) of Section 14 of the CompaniesAct, 2013 for getting an amended certificate of incorporation. NCLATwas surprised (quite surprisingly) that Tata Sons remained silent for morethan 13 years from 2000 to 2013 without taking steps for reconversion in AB

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Aterms of Section 43A(4) of the 1956 Act. While on the one hand, NCLATtook note of the “lethargy” on the part of Tata Sons in taking action forreconversion, NCLAT, on the other hand also took adverse notice of thespeed with which they swung into action after the dismissal of thecomplaint by NCLT.B20.34 But what NCLAT failed to see was that Tata sons did notbecome a public company by choice, but became one by operation oflaw. Therefore, we do not know how such a company should also beasked to follow the rigors of Section 14(1)(b) of the 2013 Act. As amatter of fact, Section 14(1) does not ipso facto deal with the issue ofconversion of private company into a public company or vice versa.CPrimarily, Section 14(1) deals with the issue of alteration of Articles ofAssociation of the company. Incidentally, Section 14(1) also deals withthe alteration of Articles “having the effect of such conversion”.

20.35 By virtue of the proviso to sub-section(1A) of Section 43Aof the 1956 Act, Tata Sons continued to have articles that covered theDmatters specified in sub-clauses (a), (b) and (c) of Clause(iii) of Sub-section(1) of Section 3 of the 1956 Act. Though it did not have theadditional stipulation introduced by Act 53 of 2000, namely the stipulationrelating to acceptance of deposits from public, this additional requirementdisappeared in the 2013 Act. Therefore, Tata Sons wanted a mereEamendment of the Certificate of Incorporation, which is not somethingthat is covered by Section 14 of the 2013 Act. NCLAT mixed up theattempt of Tata Sons to have the Certificate of Incorporation amended,with an attempt to have the Articles of Association amended. Since TataSons satisfied the criteria prescribed in Section 2(68) of the 2013 Act,they applied to the Registrar of companies for amendment of theFcertificate. The certificate is a mere recognition of the status of thecompany and it does not by itself create one.

20.36 As pointed out by this court in Ram Parshotam Mittal Vs.Hillcrest Realty[25], “it is not the records of the Registrar of Companieswhich determines the status of the company”. The status of theGcompany is determined by the Articles of association and the statutoryprovisions.

20.37 NCLAT was wrong in thinking that Tata Sons ought tohave taken action during the period 2000-2013 and obtained approval of25 (2009) 8 SCC 709H

the Central Government to become a private company under Sub-section(4) of Section 43A of the 1956 Act. Sub-section (11) of section 43A,inserted under Act 53 of 2000 made all sub-sections of Section 43Aexcept sub-section (2A), inapplicable on and after the commencementof the Act. Therefore, it is clear that Sub-section (4) ceased to exist onand from 13.12.2000 and hence the question of Tata Sons seeking theapproval of the Central Government under Sub-section (4) during theperiod 2000-2013 did not arise.

20.38 The only provision that survived after 13.12.2000 was Sub-section (2A) of Section 43A. It survived till 30-01-2019 until the wholeof the 1956 Act was repealed. There are two aspects to Sub-section(2A). The first is that the very concept of “deemed to be public company”was washed out under Act 53 of 2000. The second aspect is theprescription of certain formalities to remove the remnants of the past.What was omitted to be done by Tata Sons from 2000 to 2013 was onlythe second aspect of Sub-section (2A), for which Section 465 of the2013 Act did not stand as an impediment. Section 43A(2A) continued tobe in force till 30-01-2019 and hence the procedure adopted by TataSons and the RoC in July/August 2018 when section 43A(2A) was stillavailable, was perfectly in order.

20.39 As rightly held by this court in Darius Rutton Kavasmaneckvs. Gharda Chemicals Ltd[26], Parliament always recognised thepossibility of a deemed public company again reverting back to thestatus of a private company. Though this court took note of the conflictbetween section 27(3) and section 3(1)(iii)(d), after the amendment byAct 53 of 2000, this court nevertheless held in Gharda Chemicals thatby incorporating the requirement of sub-clause (d) of section 3(1)(iii) inthe Articles of Association, a deemed public company can revert backto its status as a private company, in view of sub-section (2A) of section43A, by incorporating necessary provisions in the Articles. In simpleterms, a company which becomes a deemed public company by operationof law, cannot be taken to have undergone a process of fermentation orcoagulation like milk to become curd or yogurt, having an irreversibleeffect.

20.40 Therefore, NCLAT was completely wrong in holding asthough Tata Sons, in connivance with the Registrar of companies did 26 (2015) 14 SCC 277 [see the editor’s note in the SCC report regarding the conflictbetween sec.27(3) and sec. 3(1)(iii)(d)]

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Asomething clandestinely, contrary to the procedure established by law.The request made by Tata Sons and the action taken by the Registrar ofCompanies to amend the Certificate of Incorporation were perfectly inorder.

20.41 It was argued on behalf of SP group (i) that in 1995 TataBSons allowed renunciation of entitlement to rights issue, in favour ofrank outsiders, throwing the restriction contained in section 3(1)(iii) tothe wind (ii) that till September 2002, Tata Sons accepted deposits frompublic and hence sub-clause (d) of section 3(1)(iii) was not satisfied (iii)that as per the circular of the Department of Company Affairs, acompany which does not approach the RoC for reconversion would beCdeemed to have chosen to remain as a public company (iv) that as perRBI circular dated 1-1-2002 private companies accepting deposits wouldbecome public companies (v) that till the year 2009, Tata Sons chose todescribe itself only as a public company in the forms filed under Rule 10of the Companies (Acceptance of Deposits) Rules, 1975 (vi) that theDconversion adversely affected the ability of Tata Sons to raise fundsincreasing borrowing costs (vii) that Tata Sons will be required to refundthe investments made by insurance companies on account of theconversion and (viii) that the act of conversion lacked probity and wasalso prejudicial to the interests of the minority shareholders and thecompany as well as independent directors.E

20.42 But we are not impressed with the above contentions. Oncethe company had become a deemed public company with effect from 1-2-1975, the privileges of a private company stood withdrawn and thecompany was entitled in law to allow renunciation of shares under rightsissue. In any case, the validity of what was done in 1995 was not inFquestion. That they accepted deposits from public till September 2002, isthe reason why they were not reconverted as a private company at thattime. Once a new definition of the expression “private company” cameinto force with effect from 12-09-2013 under section 2(68) of the 2013Act, the only test to be applied is to find out if the company fits into theGscheme under the new Act or not. We need not go to the circularsissued by the department or the RBI when statutory provisions show thepath with clarity. The description of the company in the forms filed underRule 10, reflected the true position that prevailed then and they wouldnot act as estoppel when the company was entitled to take advantage ofthe law. That the ability of the company to raise funds has now gone andH

that the company will have to repay the investments made by insurancecompanies, are all matters which the shareholders and the Directors areto take care. The question before the court is whether the reconversionis in accordance with law or not. The question is not whether it is goodfor the company or not.

20.43 The real reason why SP group and CPM are aggrieved bythe conversion is, that most of their arguments are traceable to provisionswhich apply only to public and listed public companies. If re-conversiongoes, they may perhaps stand on a better footing. But that wouldtantamount to putting the cart before the horse. One may be entitled toa collateral benefit arising out of a substantial argument. But one cannotseek to succeed on a collateral issue so as to make the substantialargument sustainable.

20.44 Therefore, question of law No. 5 is accordingly answeredin favour of Tata Sons and as a consequence, all the observations madeagainst the appellants and the Registrar of companies in Paragraphs181, 186 and 187 (iv) of the impugned judgment are set aside.

21. Conclusion

21.1 Thus in fine, all the questions of law are liable to be answeredin favour of the appellants-Tata group and the appeals filed by the TataGroup are liable to be allowed and the appeal filed by S.P. Group is liableto be dismissed. But before we do that we should also deal with theapplication moved by S.P. Group before us during the pendency of theseproceedings, praying for the alternative relief of directing Tata Sons andothers to cause a separation of ownership interests of the S.P. Group inTata sons through a scheme of reduction of capital by extinguishing theshares held by the S.P. Group in lieu of fair compensation effected througha transfer of proportionate shares of the underlying listed companies,with the balance value of unlisted companies and intangibles includingbrand value being settled in cash.

21.2 Interestingly, such an application was filed after Tata Groupmoved an application for restraining S.P. Group from raising money bypledging shares and this court passed an order of status quo on22.09.2020. For the first time S.P. Group seems to have realized thefutility of the litigation and the nature of the order that the Tribunal canpass under Section 242. This is reflected in Paragraph 62 of the application, A

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Awhere S.P. Group has stated that they are seeking such an alternativeremedy as a means to put an end to the matters complained of.

21.3 As a matter of fact, S.P. Group should have sought such arelief from the Tribunal even at the beginning. As we have pointed outelsewhere a divorce without acrimony is what is encouraged both inBEngland and in India under the statutory regime.

21.4 But in an appeal under Section 423 of the Companies Act,2013, this Court is concerned with questions of law arising out of theorder of NCLAT. Therefore, we will not decide this prayer. It should bepointed out at this stage that Article 75 of the Articles of Association isCnothing but a provision for an exit option (though one may think of it asan expulsion option). After attacking Article 75 before NCLT, the S.P.Group cannot ask this Court to go into the question of fixation of fairvalue compensation for exercising an exit option. What is pleaded inParagraph 72 of the application for separation of ownership interests,require an adjudication on facts, of various items. The valuation of theDshares of S.P. Group depends upon the value of the stake of Tata Sonsin listed equities, unlisted equities, immovable assets etc., and also perhapsthe funds raised by SP group on the security/pledge of these shares.Therefore, at this stage and in this Court, we cannot adjudicate on thefair compensation. We will leave it to the parties to take the Article 75Eroute or any other legally available route in this regard.

21.5 In the result, all the appeals except C.A. No.1802 of 2020are allowed and the order of NCLAT dated 18.12.2019 is set aside. TheCompany Petition C.P. No. 82 of 2016 filed before NCLT by the twoCompanies belonging to the S.P. Group shall stand dismissed. The appealFC.A. No.1802 of 2020 filed by Cyrus Investments Pvt. Ltd., and SterlingInvestments Corporation Pvt. Ltd. is dismissed. There will be no orderas to costs.

All IAs including the one for causing separation of ownershipinterests of the S.P. Group in Tata Sons namely IA No.111387 of 2020,are dismissed.G

Bibhuti Bhushan Bose

Appeals disposed of.

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