2018 (7) TMI 1397 - Tri - Companies Law

Company petition dismissed for lack of merit under Companies Act, 2013. Shareholder rights upheld.

The court dismissed the company petition, finding no merit in the arguments presented by the petitioners. The issues raised did not fall within the ambit ... Removal of director - removal of Mr. Cyrus as Executive Chairman - leak of information of TATA sons - Held that:- When confidential information was admittedly come from Mr. Cyrus’s mail id, the burden lies upon Mr. Cyrus to prove that it was not leaked from his side, but no such efforts has been made by either by the petitioners or by Mr. Cyrus to prove that this information was not leaked by him. According to law, a fact admitted as done results into another action, such other action presumed to be remained in the special knowledge of the person done first act, it could be inferred as done by him only as envisaged under section 106 of Indian Evidence Act unless it has been disproved that fact of leaking information is proved as done by somebody else. In view of the same, for Mr. Cyrus has not made any effort to show that somebody else leaked that email, it is to be construed that it is done by Mr. Cyrus only. Here in this case, since the letter dated 25.10.2016 came from Mr. Cyrus through email and the same not been disproved that it has not been leaked from his end, it has to be held that it was leaked by him only. With such presumption, we hereby hold that the information letter dated 25.10.2016 about hotel issue, Tata Capital issue, DoCoMo issue, Airlines issue, is leaked by Mr. Cyrus to the media, in the same line, we further hold that Mr. Cyrus sent Tata Sons information to DCIT, though he was not continuing as Executive Chairman at the time when he sent such information to the DCIT without even putting it to the responsible officers of the Tata Sons. In view of these two reasons, we hereby hold that Mr. Cyrus perhaps by virtue of being removed as Executive Chairman, leaked the information above, forgetting that he was giving out Tata Sons information, whose affairs today Mr. Cyrus impugned before this Bench, to the outsiders, which does not go well to the company. Whatever be the differences, as long as Mr. Cyrus continuing as one of the directors along with others as on the date the aforesaid episode happened, he should not have divulged the information at least for the sake of fiduciary obligations cast upon him. All these things, according to the answering respondents led the board to initiate proceedings for removal of him as director of the company on 06.02.2017. To conclude:- a) Removal of Mr. Cyrus Mistry as Executive Chairman on 24.10.2016 is because the Board of Directors and Majority of Shareholders, i.e., Tata Trusts lost confidence in Mr. Cyrus as Chairman, not because by contemplating that Mr. Cyrus would cause discomfort to Mr. Tata, Mr. Soonawala and other answering Respondents over purported legacy issues. Board of Directors are competent to remove Executive Chairman; no selection committee recommendation is required before removing him as Executive Chairman. (b) Removal of Mr. Cyrus Mistry from the position of Director is because he admittedly sent the company information to Income Tax Authorities; leaked the company information to Media and openly come out against the Board and the Trusts, which hardly augurs well for smooth functioning of the company, and we have not found any merit to believe that his removal as director falls within the ambit of section 241 of Companies Act 2013. (c) We have not found any merit to hold that proportional representation on Board proportionate to the shareholding of the petitioners is possible so long as Articles do not have such mandate as envisaged under section 163 of Companies Act, 2013. (d) We have not found any merit in purported legacy issues, such as Siva issue, TTSL issue, Nano car issue, Corus issue, Mr. Mehli issue and Air Asia issue to state that those issues fall within the ambit of section 241 and 242 of Companies Act 2013. (e) We also have not found any merit to say that the company filing application under section 14 of Companies Act 2013 asking this Tribunal to make it from Public to Private falls for consideration under the jurisdiction of section 241 & 242 of Companies Act 2013. (f) We have also found no merit in saying that Mr. Tata & Mr. Soonawala giving advices and suggestions amounted to interference in administering the affairs of the company, so that to consider their conduct as prejudicial to the interest of the company under section 241 of Companies Act 2013. (g) We have found no merit in the argument that Mr. Tata and Mr Soonawala acted as shadow directors superimposing their wish upon the company so that action to be taken under section 241 & 242 of Companies Act 2013. (h) We have not found any merit in the argument that Articles 75, 104B, 118, 121 of the Articles of Association per se oppressive against the petitioners. (i) We have not found any merit in the argument that Majority Rule has taken back seat by introduction of corporate governance in Companies Act, 2013, it is like corporate democracy is genesis, and corporate governance is species. They are never in conflict with each other; the management is rather more accountable to the shareholders under the present regime. Corporate governance is collective responsibility, not based on assumed free-hand rule which is alien to the concept of collective responsibility endowed upon the Board. (j) We have observed that prejudice remedy has been included in 2013 Act in addition to oppressive remedy already there and also included application of “just and equitable” ground as precondition to pass any relief in mismanagement issues, which was not the case under old Act. Issues Involved:1. Removal of Mr. Cyrus as Executive Chairman.2. Removal of Mr. Cyrus as Director.3. Allegations of mismanagement and legacy issues.4. Conversion of the company from public to private.5. Validity of Articles 75, 104B, 118, 121 of the Articles of Association.6. Alleged interference by Mr. Tata and Mr. Soonawala.7. Concept of shadow directors.8. Corporate governance and majority rule.Detailed Analysis:1. Removal of Mr. Cyrus as Executive Chairman:The removal of Mr. Cyrus as Executive Chairman on 24.10.2016 was due to the Board of Directors and the majority of shareholders, i.e., Tata Trusts, losing confidence in him. The Board of Directors are competent to remove the Executive Chairman, and no recommendation from the selection committee is required for such removal. The claim that his removal was due to his attempts to address legacy issues was not substantiated.2. Removal of Mr. Cyrus as Director:Mr. Cyrus was removed as Director because he sent company information to the Income Tax Authorities and leaked information to the media. His actions were seen as not conducive to the smooth functioning of the company. The removal did not fall within the ambit of Section 241 of the Companies Act, 2013.3. Allegations of Mismanagement and Legacy Issues:The purported legacy issues, including the Siva issue, TTSL issue, Nano car issue, Corus issue, Mr. Mehli issue, and Air Asia issue, were examined. The court found no merit in these issues to consider them under Section 241 and 242 of the Companies Act, 2013.4. Conversion of the Company from Public to Private:The application filed by the company under Section 14 of the Companies Act, 2013, to convert from a public to a private company was not considered under the jurisdiction of Section 241 and 242. The court found no merit in this argument.5. Validity of Articles 75, 104B, 118, 121 of the Articles of Association:The court found no merit in the argument that these articles were per se oppressive against the petitioners. The articles were part of the company's governance structure and did not inherently cause oppression.6. Alleged Interference by Mr. Tata and Mr. Soonawala:The advices and suggestions given by Mr. Tata and Mr. Soonawala were not considered interference in administering the affairs of the company. The court held that these were not actions falling under Section 241 and 242 of the Companies Act, 2013.7. Concept of Shadow Directors:The argument that Mr. Tata and Mr. Soonawala acted as shadow directors was dismissed. The court found no evidence that their actions amounted to interference or oppression under the Companies Act, 2013.8. Corporate Governance and Majority Rule:The court held that corporate governance and majority rule are not in conflict. Corporate democracy is the genesis, and corporate governance is a species. The management is more accountable to shareholders under the present regime, and the concept of free-hand rule is alien to the collective responsibility of the Board.Conclusion:The court dismissed the company petition, finding no merit in the arguments presented by the petitioners. The issues raised did not fall within the ambit of Section 241 and 242 of the Companies Act, 2013, and the actions of the majority shareholders and the Board were not oppressive or prejudicial to the petitioners.