2017 (4) TMI 1112 - Tri - Companies Law

Tribunal denies waiver request under Companies Act, 2013 - Petitioners fail to show economic impact.

Cyrus Investment Pvt. Ltd. and Anr. Versus M/s. Tata Sons Ltd. and Ors.

The Tribunal dismissed the petitioners' application seeking a waiver of the qualification mandate under Section 244(1) of the Companies Act, 2013, to ... Waiver of the qualification mandate set out in section 244{1) of the Companies Act 2013 to enable to pursue their Petition filed u/s 241 on the ground that the interest of the Petitioners in Tata Sons Limited (Rl) is substantial - whether the issues raised in the Petition are more appropriate to be dealt with u/s 241 and the cause raised is substantial in importance to the Petitioners, to class of members, to the Company itself and to the Public? - Held that:- Tests for invocation of reliefs keep changing from one situation to other, public interest and company interest are shown back seat as against members' interest, especially economic interest; public interest and company interest are actions fall under derivative actions. To avoid frivolous grounds under the cause of derivative actions, English law bifurcated the actions and put almost iron curtain on derivative actions, lifting that curtain is made difficult by screening it with prima facie test. We are not blindly going by English law, but by seeing reason behind it to curtail unnecessary litigation and to let the companies run their business in their usual course, we have adopted this to consider waiver plea. However, at the cost of repetition, it is hereby mentioned, that no issue raised in this case is related to personal action of shareholders, directorial complaint, in a company like this, will not fall within the ambit of shareholder action. It could not even be said that actions impugned in this case will have impact upon public, usually such situation will arise when business of the company effects the health of public or economy of the country, but by reading the petition, such issue is not present anywhere in the petition. Therefore, we are of the view that the case seeking waiver must be for seeking shareholder action in relation to their economic interest, two there must be a case likely to succeed. On the top of it, the reasons for granting waiver shall be supported by fairly strong and compelling reasons. As to other points of public interest and company interest, we don't believe the issues manifested in the petition are fit for grant of waiver plea. If any violations are noticed to other Acts, there are other forums for it, if anybody is so bent upon to seek action on such violations, such as the issue raised in this case in relation to violation of SEBI regulations, they can complain to those forums, not before NCLT especially under section 241. The petitioners' allegation, one after another have been dealt with, first they have not disclosed any cause of action, second they are not shareholder actions, hence forth, they are not actions fit to be considered for granting waiver. In view of these reasons, the waiver is not granted, accordingly waiver application as well as main company petition are hereby dismissed without costs. Issues Involved:1. Waiver of Qualification Mandate under Section 244(1) of the Companies Act, 2013.2. Allegations of Oppression and Mismanagement under Section 241 of the Companies Act, 2013.Detailed Analysis:1. Waiver of Qualification Mandate under Section 244(1) of the Companies Act, 2013:The petitioners, holding 18.37% equity in Tata Sons Limited, sought a waiver of the qualification mandate under Section 244(1) to pursue their petition under Section 241. The Tribunal discussed the legal propositions and the necessity of fulfilling the characteristics of Sections 241, 242, and 244. It emphasized that the waiver could be granted only in rare and compelling circumstances, and the petitioners must establish a strong case showing that their economic interests were affected. The Tribunal concluded that the petitioners failed to make out any cause of action or prima facie case to justify the waiver.2. Allegations of Oppression and Mismanagement under Section 241 of the Companies Act, 2013:- Articles of Association: The petitioners alleged that certain Articles of Association were oppressive. The Tribunal found that the petitioners had acquiesced to these amendments and did not raise any objections until the termination of Mr. Cyrus Mistry. Therefore, no cause of action was established.- Investment in Corus Group PLC: The petitioners questioned a $12 billion investment made by Tata Steel Limited (TSL) in Corus Group PLC. The Tribunal noted that this transaction occurred in 2007, and the petitioners never objected to it in the past. Moreover, TSL was not a subsidiary of Tata Sons, and Tata Steel Limited was not a party to the petition. Hence, no cause of action was identified.- Nano Car Project: The petitioners criticized the continuation of the Nano Car Project by Tata Motors, leading to substantial losses. The Tribunal highlighted that the petitioners did not specify Tata Sons' shareholding in Tata Motors, nor did they establish that Tata Motors was a subsidiary of Tata Sons. Thus, this allegation did not fall within the affairs of Tata Sons.- Removal of Mr. Cyrus Mistry: The petitioners claimed that Mr. Mistry's removal as Chairman was illegal. The Tribunal acknowledged that the removal did not follow the procedure outlined in Article 118 but concluded that the outcome would have been the same even if the procedure was followed, as the majority of the Board members were from the Trusts. Therefore, this did not constitute a cause of action under Section 241.- Requisition of EGMs for Removal of Mr. Mistry from Group Companies: The Tribunal stated that the companies from which Mr. Mistry was removed were not parties to the proceedings, and hence, this allegation did not relate to the affairs of Tata Sons.- Undermining Independent Directors: The Tribunal reiterated that the affairs of other companies not party to the proceedings could not be considered under Section 241.- Breach of SEBI Regulations: The Tribunal held that allegations of SEBI violations should be addressed by SEBI, not the Tribunal.- Allegations of Favoritism: The petitioners alleged that R2 favored certain individuals in transactions involving Tata Teleservices Limited (TTSL) and other companies. The Tribunal found these allegations to be stale and not related to the affairs of Tata Sons. Additionally, TTSL was not a party to the proceedings.- Air Asia Joint Venture: The petitioners alleged fraudulent transactions involving Air Asia. The Tribunal noted that Mr. Mistry was involved in these transactions and did not raise any objections during his tenure. Therefore, this did not constitute a prima facie case.- Immovable Property and Contracts: The Tribunal dismissed allegations regarding R2's personal benefits from company transactions due to lack of specific details and relevance to Tata Sons' affairs.The Tribunal concluded that the petitioners failed to establish any cause of action or prima facie case under Section 241. Consequently, the waiver application and the main company petition were dismissed without costs.