TaxTMI 
TaxTMI 
2021 (3) TMI 1181
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....straining Shri Ratan N. Tata (“RNT” for short) and the nominees of Tata Trust from taking any decision in advance; (v) restraining the Company, its Board of Directors and Shareholders from exercising the power under Article 75 of the Articles of Association against the minority members except in exceptional circumstances and in the interest of the Company; and (vi) declaring as illegal, the decision of the Registrar of Companies for changing the status of Tata Sons Limited from being a public company into a private company. 1.2 RNT has come up with two independent appeals in Civil Appeal Nos.1920 of 2020 against the same Order of the NCLAT, on similar grounds. 1.3 The trustees of two Trusts namely Sir Ratan Tata Trust and Sir Dorabji Tata Trust have come up with two independent appeals in Civil Appeal Nos.444445 of 2020, challenging the impugned order of the Appellate Tribunal. A few companies of the Tata Group, which were referred to in the course of arguments, as the operating companies or downstream companies, such as the Tata Consultancy Services Limited, the Tata Teleservices Limited and Tata Industries Limited have come up with separate appeals in Civil Appeal N....
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.... Companies Act, 2013. Therefore, Tata Sons have come up with these 2 appeals in C.A.Nos. 263 and 264 of 2020. 1.6 Thus we have on hand, 15 Civil Appeals, 14 of which are on one side, assailing the Order of NCLAT in entirety. The remaining appeal is filed by the opposite group, seeking more reliefs than what had been granted by the Tribunal. 1.7 For the purpose of easy appreciation, we shall refer to the appellants in the set of 14 Civil Appeals as “the Tata Group” or “the Appellants”. We shall refer to the other group as “SP Group” (Shapoorji Pallonji Group) or “the respondents”. Similarly we shall refer to Tata Sons Limited (or Tata Sons Private Limited) merely as ‘Tata Sons’, as there is a controversy regarding the usage of the word “Private” before the word “Limited”. 2. Background of the Litigation 2.1 On 08.11.1917, Tata Sons was incorporated as a Private Limited Company under the Companies Act, 1913. 2.2 Two companies by name Cyrus Investments Private Limited and Sterling Investment Corporation Private Limited, forming part of the SP Group respectively acquired 48 preference shares and 40 equity shares of the paidup share capital o....
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.... 244 of the Companies Act, 2013, on the grounds of unfair prejudice, oppression and mismanagement. 2.10 But these two companies, hereinafter referred to as ‘the complainantcompanies’, together had only around 2% of the total issued share capital of Tata Sons. This is far below the deminimus qualification prescribed under Section 244(1)(a) to invoke sections 241 and 242. Therefore, the complainant companies filed a miscellaneous application under the proviso to Subsection (1) of Section 244 seeking waiver of the requirement of Section 244(1)(a), which requires atleast one hundred members of the company having a share capital or onetenth of the total number of fixed members or any member or members holding not less than onetenth of the issued share capital of the company alone to be entitled to be the applicant/applicants. 2.11 Along with the application for waiver of the requirement of Section 244(1)(a), the complainant companies also moved an application for stay of an Extraordinary General Meeting (“EGM” for short) of Tata Sons, in which a proposal for removing CPM as a Director of Tata Sons had been moved. The NCLT refused stay, as a consequence of which t....
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....stances and in the interest of the company, but before exercising such power, reasons should be recorded in writing and intimated to the concerned shareholders whose right will be affected. (iv) The decision of the Registrar of Companies changing the Company (‘Tata Sons Limited’) from ‘Public Company’ to ‘Private Company’ is declared illegal and set aside. The Company (‘Tata Sons Limited’) shall be recorded as ‘Public Company’. The ‘Registrar of Companies’ will make correction in its record showing the Company (‘Tata Sons Limited’) as ‘Public Company’.” 2.16 After NCLAT disposed of the appeals by its order dated 18122019, the Registrar of Companies moved 2 interlocutory applications seeking the deletion of certain remarks made by NCLAT against them. These applications were dismissed by NCLAT by order dated 06012020. Therefore, as against the final Order of NCLAT dated 18122019, (i) Tata Sons Private Limited (ii) RNT (iii) the Trustees of the two Tata Trusts and (iv) three operating companies of Tata Group have come up with 2 Civil Appeals each (totalling to 12 appeals) and the complainant companies have come up with one Civi....
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....ata Sons (xi) RNT making a personal gain for himself through the sale of a flat owned by a Tata group company to Mehli Mistry; (xii) companies controlled by Mehli Mistry receiving favours due to the personal relationship that RNT had with him; and (xiii) fraudulent transactions in the deal with Air Asia which led to financing of terrorism. 3.3 On the foundation of the above, the complainantcompanies contended before NCLT: (i) that the directors of Tata Sons are not carrying out their fiduciary responsibilities for and on behalf of the shareholders, but have become mere puppets controlled by RNT and the Trustees of the two Trusts; (ii) that the powers contained in the Articles of Association are being exercised in a malafide manner prejudicial to the interest of the petitioners and to public interest; (iii) that various operating decisions are taken either for emotional reasons or for pampering the ego of RNT; (iv) that attempts are made to shield persons responsible for fraudulent transactions at Air Asia; (v) that attempts are made to ensure that no legal action is initiated against Siva who owes Rs. 694 crores; (vi) that Ratan Tata enabled his associates to unjustly enrich....
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....t No. 2 on account of surrender of the subtenancy of the Bakhtawar flat; (L) appoint a forensic auditor to reinvestigate the transactions executed by AirAsia with entities in India and Singapore and such findings of the audit should be referred by the Hon’ble Tribunal to the Serious Fraud Investigation Office of the Ministry of Corporate Affairs, Government of India; (M) strike of Articles numbered 86, 104(B), 118, 121 and 121A in their entirety and in so far as Article 124 of the Articles of Association of Respondent No. 1 is concerned, the following portion of the said Article, which is offending and/or repugnant, should be deleted: “… Any committee empowered to decide on matters which otherwise the Board is authorised to decide shall have as its member at least one director appointment pursuant to Article 104B. The Provisions relating to quorum and the manner in which matters will be decided contained in Articles 115 and 121 respectively shall apply mutatis mutandis to the proceedings of the committee. “from the Articles of Association of Respondent No. 1; and substitute these articles with such articles as the nature and circumstances of this case ....
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.... several documents relating to Tata Education Trust, to the Deputy Commissioner of Income Tax with a view to create trouble, a special notice was issued for convening the EGM of Tata Sons on 06.02.2017 for considering the proposal for the removal of CPM as a Director of Tata Sons. 4.5 Therefore, the complainantcompanies moved a contempt application. The said application was disposed of by NCLT by an order dated 18.01.2017, permitting the complainantcompanies and CPM to file an additional affidavit limiting to the proposal for the removal of Cyrus 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 prayer of S.P. Group for stay of EGM scheduled to be held on 06.02.2017. 4.7 S.P. Group filed an appeal against the order refusing the stay of EGM. The appeal was disposed of on 03.02.2017, merely permitting the S.P. Group to file a petition for amendment, in the event of CPM being removed in the EGM. In the EGM held on 06.02.2017, CPM was removed. 4.8 Therefore, the complainantcompanies filed an amendment application dated 10.02.2017 seeking addition of two more pr....
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....etitioners on the Board of Respondent No.1 (G1): Direct that the Articles of Association of Respondent No.1 be amended to provide for proportionate representation of shareholders on the Board of Directors of Respondent No.1 3. Application for stay dated 31.10.2017 Through this application, the complainants sought Stay of conversion of Tata Sons into a Private Limited Company. 4. Memo dated 12.01.2018 By this memo, certain reliefs originally sought, were given up, certain reliefs originally prayed for, were not pressed and one particular relief was sought to be restricted. The prayer in the Memo was as follows: a. Prayer M, which sought the striking of Articles 86, 104(B), 118, 121 and 121A, and striking of a portion of Article 124, is restricted as under: i. The necessity of an affirmative vote of the majority of directors nominated by the Trusts, which are majority of shareholders, be deleted; ii. The Petitioners be entitled to proportionate representation on Board of Directors of Respondent No.1; iii. The Petitioners be entitled to representation on all committees formed by the Board of Directors of Respondent No.1; and ....
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....ghts of Tata Trusts; (xii) that there was a growing trust deficit between the Board of Directors of Tata Sons and CPM due to several reasons, such as the conflict of interest in the matter of award of contracts to S.P. Group of companies and his systematic and planned reduction of the representation of Tata Sons Directors on the Boards of other major Tata Companies; (xiii) that even when the Directors of Tata Sons resolved on 24.10.2016 to replace CPM as Executive Chairman, the Board agreed to his continuance as a Director of Tata Sons; (xiv) that however CPM addressed a vitriolic mail on 25.10.2016 to the Directors making false allegations; (xv) that though the mail was marked confidential, it was simultaneously leaked to the press; (xvi) that CPM also breached his fiduciary and contractual duties by disclosing confidential information and documents pertaining to Tata Sons to third parties; (xvii) that CPM made representations to the shareholders of all operating companies, with unsubstantiated and false allegations, thereby attempting to make the operating companies vulnerable to make confidential data available for public inspection; (xviii) that the shareholders of Tata Industr....
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....oppression and mismanagement, raised in the company petition, such as (i) over priced and bleeding acquisition of Corus PLC of UK; (ii) doomed Nano car project; (iii) loan advanced by Kalimati Investments to Siva; (iv) sale of the residential flat to Mehli Mistry; (v) unjust enrichment of Mehli Mistry and the companies controlled by him, due to the personal equation of RNT with him; (vi) aviation industry misadventures; and (vii) a huge loss due to purchase of shares of Tata Motors, the reply filed by Tata Sons contained an elaborate and graphic rebuttal. We shall take note of them later, while dealing with the question whether or not the allegations constitute the ingredients 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 the allegations of oppression, mismanagement and prejudice and recorded categorical findings. In brief, these findings, allegation-wise, were as follows: On the allegations revolving around Siva and Sterling group of companies (i) Tata Teleservices shares were acquired in the year 2006 with the approval of the Board and hence almost after 10 years, it cannot be raised as a....
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....hat CPM had no say in the Air Asia transaction, but on the other hand, they claim that CPM protected the interest of the company by limiting its exposure to 30% equity of USD 30 million and by ensuring that no fall back liability came on the company. (iv) A person privy to a transaction is estopped from questioning it, but the complainant companies and CPM have made all kinds of allegations with impunity flouting all legal principles. They have proceeded as though they did not take active part in the Air Asia incorporation and as though CPM did not preside over the meeting on 15.09.2016 for further funding it. In addition, they have made a scurrilous statement, without a shred of paper, that RNT funded one Terrorist through hawala with diversion of Air Asia India funds. On the Transactions with Mehli Mistry, including the sale of the flat (Bhakthawar) and a land (Alibaug) (i) There is nothing to indicate that RNT got enriched at the cost of the company. Forbes Golak was not made a Party and the transaction happened somewhere in the year 2002, but the allegation is raised in the year 2016. (ii) As to these allegations relating to Mehli deriving hugebene....
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....on that Articles 104B, 121, 121A and 75 of the Articles of Association were per se oppressive and that they have been used as tools of oppression and mismanagement, is unacceptable since CPM’s father was party to the amendments made to the Articles of Association on 13.09.2000. The amendment of Article 118 was passed on 06.12.2012 when CPM was the Executive Deputy Chairman. CPM was also party to the Resolutions passed on 09.04.2014, in which the Articles were amended so as to confer affirmative rights in favour of the Directors of the Trusts. In so far as Article 75 is concerned, it was in existence throughout and hence the question whether persons who acquired shares of such a company consciously despite the presence of Article 75, can turn around later and project them as oppressive, looms large. (ii) The fact that the nominee Directors stepped out of the meeting of the Board held on 29.06.2016 to take instructions from RNT on the issue of acquisition of Welspun by Tata power, cannot be projected as an incident where Article 121 was abused, since the issue of acquisition of Welspun should have come up before the Board of Tata Sons even prior to Tata Power taking a deci....
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....d 25.10.2016 issued by CPM could not have been leaked to the media by anyone other than CPM and hence his removal from Directorship on 06.02.2017 became inevitable. 6.2 What we have provided in the preceding paragraph, is an abridged version of the findings recorded by NCLT on every one of the allegations contained in the main company petition. Apart from those findings recorded in the body of the judgment, NCLT itself gave a summary of findings in paragraph 581 of its decision. It is extracted verbatim as follows: “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....
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....essive 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.” 7. The Approach of NCLAT 7.1 While NCLT dealt with every one of the allegations contained in the main company petition and recorded its findings, NCLAT, curiously, focused attention only on (i) the removal of CPM (ii) the affirmative voting rights of the Directors nominated by the 2 Trusts in the decision making process and (iii) the amended certificate of incorporation issued by the RoC, deleting the word “Public” and making it a private company once again. 7.2 The findings recorded by NCLAT are presented, to a great extent, in the language of NCLAT itself, as follows: (i) The word ‘unfairly prejudicial’ has not been used in Section 241. The Indian Law (Sections 241 & 242 of the Companies Act, 2013) does not recognize the term ‘legitimate expectation’ to hold any act prejudicial or oppressive. (paragraphs 101 and 102 of the impugned order) (ii) In the general meeting of the shareholders of ‘Tata Sons Limited’ or the Board of Directors, the majority dec....
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....the same date decision had already been taken by RNT in presence of Mr. Nitin Nohria to remove CPM, who asked him to step down from the post of the ‘Executive Chairman’ of the Company (‘Tata Sons Limited’). (paragraph 130 of the impugned order) (viii) RNT was determined to remove CPM even prior to the meeting of the board and the majority shareholders of Tata Trust knew that there was a requirement of advance notice before the removal of CPM. Therefore, they had taken opinion from eminent lawyers and a former Judge of the Supreme Court. (paragraph 133 of the impugned order) (ix) There is nothing on the record to suggest that the Board of Directors or any of the trusts, namely- Sir Dorabji Tata Trust or the Sir Ratan Tata Trust at any time expressed displeasure about the performance of CPM. (paragraph 134 of the impugned order) (x) From the opening sentence of ‘Press Statement’ dated 10^th November, 2016, issued by Tata Sons it is clear that sudden and hasty removal of CPM as Executive Chairman of ‘Tata Sons Limited’ raised concerns in the industrial group. (paragraph 137 of the impugned order) (xi) The allegations as made in the ....
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....of the ‘Nomination and Remuneration Committee’ was unanimously approved by the Board of Directors of ‘Tata Sons’ in its meeting held on the next day i.e. on 29th June, 2016. (paragraph 150 of the impugned order) (xix) Three Directors who also voted for removal of CPM, including Mr. Amit Chandra, who spearheaded the removal proceedings and Mr. Ajay Piramal and Mr. Venu Srinivasan, had been inducted into the Board of ‘Tata Sons Ltd.’ only on 8th August, 2016 i.e. after the appraisal report of ‘Nomination and Remuneration Committee’. They attended just one Board meeting prior to the meeting held on 24th October, 2016. (paragraph 151 of the impugned order) (xx) Two of the Directors, Mr. Ranendra Sen and Mr. Vijay Singh, a Trust Nominee Director, who voted for the removal of CPM, were members of the ‘Nomination and Remuneration Committee’ which just four months’ prior to his removal on 28th June, 2016 praised the performance of CPM as Executive Chairman. These two Directors also voted against CPM just four months thereafter which has not been explained by Mr. Ranendra Sen and Mr. Vijay Singh. Further, what is accepted is that prior to the meeting ....
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....nd, after 24th October, 2016, when CPM was removed as Executive Chairman and Director of the Company (‘Tata Sons Limited’). It continued even thereafter with the removal of CPM from the Directorship of other group companies and the conversion of Tata Sons Limited from being a public limited company into a private company, after the decision of NCLT. (paragraph 165 of the impugned order) (xxvi)Tata Sons Limited became a public company by virtue of Section 43(1A) of the Companies Act, 1956 on the basis of average annual turnover, w.e.f. 01.02.1975. (para 165) In terms of Subsection (2) of Section 43A Tata Sons informed the Registrar and the Registrar deleted the word “private” in the name of the Company upon the Register. By virtue of Subsection (4), such a company is to continue to be a public company until it becomes a private company with the approval of the Central Government 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 “Public Company” under Clauses (68) and (71) of Section 2. (para 169 to 172). Under the 2013 Act, there is no provision similar to Secti....
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....t of such removal, as accepted by the Company in its ‘Press Statement’ form a consecutive chain of events with cumulative effect justifying the Tribunal to hold that the Appellants have made out a clear case of ‘prejudicial’ and ‘oppressive’ action by the contesting respondents, including Mr. Ratan N. Tata (2nd Respondent), Mr. Nitin Nohria (7th Respondent) and Mr. N.A. Soonawala (14th Respondent) and other nominee Directors. (paragraph 183 of the impugned order) (xxix) The company’s affairs have been or are being conducted in a manner ‘prejudicial’ and ‘oppressive’ to members including Appellants, Mr. Cyrus Pallonji Mistry (11th Respondent) as also ‘prejudicial’ to the interests of the Company and its group Companies i.e., ‘Tata Companies’ and winding up of the Company would unfairly prejudice the members, but otherwise the facts, as narrated above, would justify a winding up order on the ground that it was just and equitable that the Company should be wound up and thereby, it is a fit case to pass order under Section 242 of the Companies Act, 2013. (xxx) The Resolution dated 24th October, 2016 passed by the Board of Directors of Com....
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....ny’ to ‘Private Company’; the manner in which Mr. Cyrus Pallonji Mistry (11th Respondent) was suddenly and hastily removed without any reason and in absence of any discussion in the meeting shown in the Board of Directors held on 24th October, 2016 and his subsequent removal as Director(s) of different ‘Tata Companies’, coupled with global effect of such removal, as accepted by the Company in its ‘Press Statement’ form a consecutive chain of events with cumulative effect justifying us to hold that the Appellants have made out a clear case of ‘prejudicial’ and ‘oppressive’ action by contesting Respondents, 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 Corus acquisition (ii) doomed Nano car project (iii) undue favours to Siva and Sterling (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 the shares of Tata Motors etc., were not individua....
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....ement nor a right that could emanate from a preexisting relationship of trust and confidence, before the 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 became shareholders long after the incorporation of the company and they did not acquire any privilege, prerogative or right. S.P. Group became shareholders, accepting the rights and obligations inter se among shareholders, as spelt out by the Articles of Association. S.P. Group also accepted without any demur, all the amendments made to the Articles of Association, when Pallonji Mistry was on the Board and also when CPM was on the Board; (vii) The removal of CPM was on account of the loss of confidence inCPM and the complete breakdown of trust between the other members of the Board and CPM. To say that his removal required the stamp of approval of the Selection Committee, is completely amiss; (viii) NCLAT failed to appreciate in the right perspective, the effectsof the Amendment Act 53 of 2000 on a ‘deemed to be a public company’ under Section 43A and the provisions of the 2013 Act, while dealing w....
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.... or continued on the basis of a relationship involving mutual trust and confidence; (b) that there was an understanding that some of the members would participate in the management of the company; or (c) that there was a restriction upon the transfer of the member’s interest in the company. One or more of these elements were found 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 undermine the Board of Directors of Tata Sons and also caused erosion of their ability to exercise independent judgment and to act in the interest of the Company. RNT as well as Soonawala demanded preconsultation and prior clearance of the agenda items to be placed before the Board. There were instances (a) when the TrustNominee Directors objected to matters being placed before the Board without the approval of the Trust, (b) when RNT edited the minutes of the Board meetings that he did not attend, (c) when RNT questioned certain operational and business decisions of Tata Motors, (d) when the Trustees overruled the views of the Tata Group legal counsel in the DoCoMo dis....
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.... into force of the Companies Act, 2013, law has moved from ‘corporate majority’ or ‘Corporate democracy’ to ‘corporate governance’, which includes the principles of fairness. This is seen from sections 135, 148, 151, 166 and 177. (ii) Law now enjoins companies to be operated and managed within a statutory framework i.e. by a Board of Directors and no one else, as per s.149 of the 2013 Act. (iii) Directors of companies have a fiduciary role visàvis the company with the highest level of duty, which cannot be outsourced or delegated and their allegiance should only be to the company alone. (iv) Once a director is appointed, his duty is only to the company and none else, irrespective of how he is appointed. (v) There was a series of acts of oppression, including the breach of Articles, misuse of Articles and also a violation of the essential understanding between the two groups. This was found by the NCLAT. (vi) There was a clear lack of probity and honesty in the dealings of the majority. The concept of probity is much broader and wider than integrity. (vii) There was a long good faith relationship between the Tata....
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....d. (iv) The role and duties of nominee Directors should have been well defined and kept within the confines of law. (v) The Nomination and remuneration Committee, in its meeting held on June 28, 2016, expressed the need for clarity on the functioning of the Board of Tata Sons in relation to Tata Trusts as well as its role visavis the group companies. (vi) NCLAT has recorded a finding that 3 attempts were made by CPM to place before the Board of Tata Sons, a governance structure and that this became the principal cause for his removal. This finding of fact cannot be set at naught by this court. 11 Contentions on behalf of the Tata Trusts Assailing the judgment of NCLAT, Shri Mohan Parasaran, learned Senior counsel appearing for the Trusts, contended as follows: (i) Impugned judgment did not deal with the detailed findings of fact rendered by NCLT, nor the arguments advanced on behalf of the Trustees of the Tata Trust. (ii) Impugned judgment employed erroneous tests to determine oppression under section 241 of the 2013 Act (iii) Mere unwise or loss making business decisions etc. cannot be construed as acts of mismanageme....
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....granted opportunity to make a representation against the proposed resolution for his removal in compliance with section 169 of the Companies Act. Unanimous approval was granted by the board of directors of TCS at their meeting dated 17.11.2016 for convening an EGM for removal of CPM from the board of directors. Circulation of representation against his proposed removal on 05.12.2016 was made by CPM to members. Requisite majority of shareholders (93.11%) passed resolution at EGM dated 13.12.2016, for the removal of CPM. 57.46% of public institutional shareholders were in favor of the resolution for his removal. Further, 71.88% of public shareholders were in favor of resolution for his removal. (iii) Action against TCS not maintainable by the SP Group as they did not meet the requisite threshold under section 244 of the Companies Act, 2013. The SP Group held only 0.24% in direct equity interests in TCS which stood at 0.55% on 13.12.2016, and has since been diluted to 0.05% on 18.12.2019 – the date of the impugned order. (iv) There was no allegation of oppression and mismanagement made out against TCS. (v) TCS was denied the opportunity of hearing which wa....
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....ons, the questions of law that arise are formulated as follows: (i) Whether the formation of opinion by the Appellate Tribunal that the company’s affairs have been or are being conducted in a manner prejudicial and oppressive to some members and that the facts otherwise justify the winding up of the company on just and equitable ground, is in tune with the well settled principles and parameters, especially in the light of the fact that the findings of NCLT on facts were not individually and specifically overturned by the Appellate Tribunal ? (ii) Whether the reliefs granted and the directions issued by the Appellate Tribunal, including the reinstatement of CPM into the Board of Tata Sons and other Tata companies, are in consonance with the pleadings made, the reliefs sought and the powers available under Subsection (2) of Section 242 ? (iii) Whether the Appellate Tribunal could have, in law, muted the power of the Company under Article 75 of the Articles of Association, to demand any member to transfer his ordinary shares, by simply injuncting the company from exercising such a right without setting aside the Article ? (iv) Whether the char....
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.... the South Sea Company became so wealthy despite having done no real business that it assumed the public debt of the 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 of companies without a Royal Charter and it remained in force until its repeal in 1825. By 1825, Industrial Revolution had gathered pace, necessitating a legal change. The Bubble Companies Act 1825 lifted the restrictions, but it did not resolve the problem fully. 15.5 Therefore in 1843, the Parliamentary Committee on Joint Stock Companies, chaired by William Gladstone made a report, which led to the enactment of the Joint Stock Companies Act 1844. This Act made it possible for ordinary people to incorporate companies through a simple registration procedure. However, it did not permit limited liability. 15.6 Then came the Limited Liability Act, 1855, which allowed investors to limit their liability in the event of business failure, to the amount they invested in the company. These two features ....
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....transferability of shares and (ii) the abuse of office by the Directors in siphoning off huge profits in the form of remuneration, to the detriment of the small shareholders. After analyzing these 2 issues in paragraphs 58 and 59 as illustrative cases, the Cohen Committee, recommended that “a step in the right direction would be to enlarge the power of the Court to make a windingup order by providing that the power shall be exercisable notwithstanding the existence of an alternative remedy”. Paragraphs 58 to 60 of the Report reads as follows: 58. Restrictions on transfer of shares. It has been represented to us that the provisions which are inserted in the articles of a private company for the restriction of the transfer of the shares have caused hardship especially where the legal representatives of minority shareholders have to raise money to pay estate duties. The directors of the company, who are usually the principal shareholders, sometimes exercise their power to refuse to register transfers to outsiders, with the result that executors, who must realise their testators' shares in order to pay estate duty, have to sell to the directors or persons app....
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...., in addition, the power to impose upon the parties to a dispute whatever settlement the Court considers just and equitable. This discretion must be unfettered, for it is impossible to lay down a general guide to the solution of what are essentially individual cases. We do not think that the Court can be expected in every case to find and impose a solution; but our proposal will give the Court a jurisdiction which it at present lacks, and thereby at least empower it to impose a solution in those cases where one exists. 15.10 Ultimately, in para 153 of the report, a recommendation was made to amend the provision relating to winding up, by adding the following: There be a new section under which, on a shareholder's petition, the Court, if satisfied that a minority of the shareholders is being oppressed and that a windingup order would not do justice to the minority, should be empowered, instead of making a windingup order, to make such other order, including an order for the purchase by the majority of 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 the Companies....
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....the company to the registrar of companies for registration; and if a company makes default in complying with this subsection, the company and every officer of the company who is in default shall be liable to a default fine. (5) In relation to a petition under this section, section three-hundred and sixtyfive of this Act shall apply as it applies in relation to a windingup petition, and proceedings under this section shall, for the purposes of Part V of the Economy (Miscellaneous Provisions) Act, 1926, be deemed to be proceedings under this Act in relation to the winding up of companies. 15.12 But the word “oppressive” appearing in section 210 of the 1948 Act, was construed by the House of Lords in Scottish Cooperative Wholesale Society vs. Meyer 1959 A.C.324 to mean “burdensome, harsh and wrongful”. The expression “wrongful” gave rise to some uncertainty as to whether it required actual illegality or invasion of legal rights. Moreover, the provision invited 2 criticisms namely (i) that the requirement to establish grounds which justified winding up under the just and equitable clause was itself harsh and (ii) that section 210 would not apply to an isolat....
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....orders under this Part (1) If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for 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 in the future, (b) require the company to refrain from doing or continuing an act complained of by the petitioner or to do an act which the petitioner has complained it has omitted to do, (c) authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the court may direct, (d) provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company's capital accordingly. (3) If an order under this Part requires the company not to make any, or any specified, alteration in the memorandum or articles, the company does not then have power without leave of the court to make any such alteration in breach of that....
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.... nota member of a company but to whom shares in the company have been transferred or transmitted by operation of law as they apply to a member of a company. (3) In this section, and so far as applicable for the purposesof 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 a statutorywater company within the meaning of the Statutory Water Companies Act 1991 (c. 58). 995 Petition by Secretary of State (1) This section applies to a company in respect of which- (a) the Secretary of State has received a report undersection 437 of the Companies Act 1985 (c. 6) (inspector’s report); (b) the Secretary of State has exercised his powers undersection 447 or 448 of that Act (powers to require documents and information or to enter and search premises); (c) the Secretary of State or the Financial Services Authorityhas exercised his or its powers under Part 11 of the Financial Services and Markets Act 2000 (c. 8) (information gathering and investigations); or (d) the Secretary of State has received ....
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....ntaining a provision that the shares in the stock or business of the said company, are transferable without the consent of all the partners. It will be fascinating for those interested in history, to know that under this 1850 Act, the Supreme Courts of Judicature at Calcutta, Madras and Bombay were conferred not only with the power of registration of such companies but also with a power to enforce the performance by the directors of any of their duties under the Act or the deed of partnership. These courts also had a consequential power to punish a person for contempt, if there was any disobedience of the order of the court. The concepts such as minority, majority, oppression, mismanagement etc., were alien to this Act of 1850. 15.17 Then came Act No.XIX of 1857 which provided for the incorporation and regulation of joint stock companies and other associations either with or without limited liability of the members thereof. The primary object of the Act was to enable the members of the joint stock companies and other associations to limit their liability for the debts and engagements relating to those companies and associations. It was under this Act that for the first time the ....
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....y also be made by the Central Government if it is satisfied that the affairs of the company are being conducted as aforesaid. (3) No application under subsection (I) shall be made by any member, unless (a) In the case of a company having a share capital, the member complaining (i) has obtained the consent in writing of not less than one hundred in number of the members of the company or not less than onetenth in number of the members, whichever is less or (ii) holds not less than onetenth of the issued share capital of the company upon which all calls and other sums due have been paid; and (b) In the case of a company not having a share capital the member complaining has obtained the consent in writing of not less than onefifth in number of the members, and where there are several persons having the same interest in any such application and the condition specified in clause (a) or clause (b) of this subsection is satisfied with reference to one or more of such persons, any one or more of them may, with the permission of the court, make the application on behalf of, or for the benefit of, all persons so interested, and the p....
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....ing contained in any other provision of this Act, but subject to the provisions of the order, the company concerned shall not have power without the leave of the court to make any further alteration in, or addition to, the memorandum or articles inconsistent with the provisions of the order, but subject to the foregoing provisions of this subsection the alterations or additions made by the order shall have the same effect as is duly made by a resolution of the company, and the provisions of this Act shall apply to the memorandum or articles as so altered or added to accordingly. (7) A certified copy of every order under this section altering or adding to, or giving leave to alter or add to, the memorandum or articles of any company shall, within fifteen days after the making thereof, be delivered by the company to the registrar for registration, and if a company makes default in complying with the provisions of this subsection, the company and every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees. (8) It shall be lawful for the court upon the application of any petitioner or of any respondent to a....
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....d materially prejudiced” 15.21 After the country attained independence, a Company Law Committee was appointed by the Government of India for the revision of the Companies Act with particular reference to Indian trade and industry. The Committee submitted its report in March1952. After circulating the Report to all State Governments, Chambers of Commerce, Trade Associations and other bodies and after examining the inputs received, the Companies Act, 1956 (Act no.1 of 1956) was passed. This Act included a full Chapter in Chapter VI of Part VI, containing elaborate provisions for the prevention of oppression and mismanagement. This Chapter was divided into two parts, with Part A dealing with the powers of the Court/Tribunal and Part B dealing with the powers of the Central Government. Sections 397, 398 and 402 of the Act are of significance and, 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 affairs of the company are being conducted in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Court for an order under t....
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....t under section 397 or 398, any order under either section may provide for (a) the regulation of the conduct of the company's affairs in future; (b) the purchase of the shares or interests of any members of the company by other members thereof or by the company; (c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital; (d) the termination, setting aside or modification of any agreement, howsoever arrived at, between the company on the one hand, and any of the following persons, on the other, 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 the Court, be just and equitable in all the circumstances of the case. (e) the termination, setting aside or modification of any agreement between the company and any person not referred to in clause (d), provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provid....
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.... or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or (b) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company‘s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members, may apply to the Tribunal, provided such member has a right to apply under section 244, for an order under this Chapter. (2) The Central Government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter: 242. Powers of Tribunal.- (1) If, on any application made under section 241, the Tribunal is of the ....
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....overy including transfer to Investor Education and Protection Fund or repayment to identifiable victims; (j) the manner in which the managing director or manager of the company may be appointed subsequent to an order removing the existing managing director or manager of the company made under clause (h); (k) appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal 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 the Tribunal, it is just and equitable that provision should be made. (3) A certified copy of the order of the Tribunal under subsection (1) shall be filed by the company with the Registrar within thirty days of the order of the Tribunal. (4) The Tribunal may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company’s affairs upon such terms and conditions as appear to it to be just and equitable. (5) Where an order of the Tribunal under subsection (1) makes any alter....
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....56 Act, with certain modifications. An overhaul of these provisions resulted in Sections 241 and 242 of the 2013 Indian Act, on the model of (and not exact reproduction of) sections 459 to 461 of the English Companies Act, 1985 and sections 994 to 996 of the English Act of 2006. 15.26 The change of language and the consequential change of parameters for an inquiry relating to oppression and mismanagement from 1951 to 1956 and from 1956 to 2013 and thereafter can be best understood, if the anatomy of the statutory provisions are dissected and presented in a table : 1913 Act (After the Amendment Act 52 of 1951) 1956 Act (with the amendment made under Act 53 of 1963) 2013 Act (1) Company’s affairs are being conducted in a manner – (a) Prejudicial to the company’ interest; or (b) Oppressive to some part of the members; and (2) Winding up will unfairly and materially prejudice the interests of the company’s or any part of its members (3) The object should be to bring to an end, the matters complained of. (1) Company’s affairs are being conducted in a manner- (a) Prejudicial to public interest; or (b) Oppressive to a....
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....6 Act 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 the United Kingdom. A table similar to the one given in para 15.26, is presented below insofar as the English Law is concerned: 1948 English Act 1985 English Act with Amendment in 1991 2006 Act (i) the company’s affairs are being conducted in a manner oppressive to some part of the members (ii) to wind up the company would unfairly prejudice that part of the members, though winding up on just and equitable ground may be justified. (iii) the order of the Court should be passed with a view to bringing to an end the matters complained of. (i) the company’s affairs are being or have been conducted in a manner unfairly prejudicial to the interests of some part of its members or: (ii) that any actual or proposed act would be so prejudicial then the Court may pass such order as it thinks fit for giving relief in respect of the matters complained of. (i) the company’s affairs are being or have been conducted in a manner unfairly prejudicial to the interests of the members generally or of some part of its members and....
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....especially in the light of the fact that the findings of NCLT on facts were not individually and specifically overturned by the Appellate Tribunal ? 16.2 An analysis of the provisions of Section 241(1)(a) read with clauses (a) and (b) of Subsection (1) of Section 242 shows that a relief under these provisions can be granted only if the Tribunal is of the opinion – “(1) that the company’s affairs have been or are being conducted in a manner – (a) Prejudicial to any member or members or (b) Prejudicial to public interest or (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 up order on the basis of just and equitable clause, such a winding up would unfairly prejudice such member or members. 16.3 Keeping in mind the above statutory prescription, if we go back to the pleadings, it will be seen that the complainant companies forming part of the S.P. Group pitched their claim in their original petition on the ground: (i) that the affairs of Tata Sons are being carried as though it was the proprietary ....
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....PM requesting him to meet Siva to discuss the predicament, in lieu of latter’s previous contributions in the history of TTSL. However, this was three years before the Docomo issue, which cropped up in 2016. (Para 222, 233) 2. The loan given by one of the Tata Group Companies (Kalimati) to Siva Company was paid back and undertaking given by the company was released. Siva himself provided personal guarantee for the loan taken from Standard Chartered Bank. Moreover, no Tata Group company paid any money for acquisition of TTSL shares by Siva Group. (Para 228) 3. Ultimately, Siva had to pay its group pro-rata share of the Docomo award. Siva, on 19.09.2016, then sought damages from Tata Sons for the alleged mismanagement of TTSL, for the ensuing losses incurred by it. However, this did not prove any special relationship with RNT.(Para 221, 230, 233,234) 4. Acquisition price of TTSL by both Siva and Temasek had unanimous approval of the shareholders. (Para 230) 5. Transaction was not done not behind the back of CPM and connected parties. (Para 230) 6. The reason for the difference in the acquisition prices between Temasek (Rs. 26/ share) and Siva Group (Rs. 17/share) wa....
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....he has no say in the AirAsia transactions, CPM claims to have protected the interest of the company by limiting its exposure and ensuring no fallback liability. These two claims conflict with each other. (Para 242) With respect to the Joint Venture with Singapore Airlines to set up Vistara, all Air Asia decision are fait accompli upon him, and thus, he is estopped from denying knowledge regarding these transactions. (Para 244) It would be preposterous to allege that RNT funded a terrorist through hawala with diversion of AirAsia India funds. (Para 245) No specific finding. Mehli Mistry:- 1. Awarding of dredging and Shipping contracts (without tenders) to Mehli’s Companies by Tata Power. 2. Purchase of agricultural land by RNT at Alibaug in 1993 where Aqua Farms (in which Mr. Mehli was a partner) was a confirming party to the sale deed. 3. Sale of Bakhtawar Apartment at Colaba to MPCPL (which belongs to Forbes Gokak Ltd.) The contract for dredging at Trombay was awarded in 1993 and renewed for various tenures (5 times) from 2002 – 2014. CPM held directorship of Tata Power from 1996-2006 & 2011- 2016, but never raised any objection. (Para 258) 2004 barg....
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....ting the same. (Para 303) Moreover, CPM never raised this issue before the board when he was chairman. (Para 305) TSL has not been made a party. No specific finding Tata Motors – Nano Project:- It is well established that RNT was not in the management of either Tata Motors or the company after retirement. There is not a single instance where the advice of RNT was directly implemented without consideration by the respective Board. (Para 267) Tata Motors and Jayem Auto incorporated a Joint Venture. This happened under the stewardship of CPM. (Para 275) CPM never objected over any visit, correspondence or investment by RNT in Jayem Auto. (Para 272) Merely because Tata Motors Finance (TMF) had a loss of Rs. 392 Crores (towards Nano out of Rs. 2000 Crores) for financing Nano, it cannot be used to make a case of mismanagement against RNT. (Para 280) With regard to personal visits of RNT to the Jayem Auto factory and about the enquiries sought apropos to the projects, no personal benefit to RNT or harm to Tata Motors has been proved. (Para 281-282) No evidence of the UPSI causing prejudice to the interest of Tata Motors has been placed by CPM, upon whom the....
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....this as an issue. Though SP group has also filed an appeal in C.A. No. 1802 of 2020, the grievance aired therein, as seen from para 3 of the memorandum of appeal, is limited to the failure of NCLAT to grant certain reliefs. The failure of NCLAT to specifically overturn the findings of fact recorded by NCLT, is not assailed in the SP group’s appeal. Therefore, we have no hesitation in holding that the allegations relating to (i) transactions with Siva and Sterling Group of Companies; (ii) Air Asia; (iii) Transactions with Mehli Mistry; (iv) the losses suffered by Tata Motors in Nano car project; and (v) the acquisition of Corus reached finality. 16.9 The findings recorded by NCLAT for the grant of reliefs, revolved primarily around the removal of CPM, the affirmative voting rights, interference by nominee Directors and the conversion of Tata Sons into a private company. In other words, these are the 4 areas in which NCLAT can be taken to have undertaken a scrutiny and reversed the findings of NCLT. Therefore, for answering the first question of law, we need to focus mainly on these issues on which NCLAT expressly overruled NCLT. 1....
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....f the Companies Act, 2013. 16.13 Around this time, as if by coincidence, the Principal Officer of Tata Sons received a letter dated 29.11.2016 from the Deputy Commissioner of Income Tax (Exemptions) seeking certain information under Section 133(6) of the Income Tax Act, 1961 in the case of Tata Education Trust. Tata Sons, through a reply dated 09.12.2016 furnished necessary information along with the requested documents. The Deputy Commissioner of Income Tax also called for some additional information by subsequent letters, and the information so called for, was also furnished. 16.14 Claiming that a mail dated 20.12.2016 issued by the Deputy Commissioner of Income Tax seeking further information under Section 133(6) was copymarked to him, CPM sent a reply to the Income Tax department confirming (i) that the Directors appointed by Tata Trust controlled the decision making processes by virtue of the affirmative voting rights; (ii) that RNT and Soonawala have on many occasions sought prior information and consultation; (iii) that the conduct of the Trustees posed several regulatory risks; and (iv) that the office of RNT, in his capacity as Chairman Emeritus was funded by Tata ....
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.... 20.12.2016, the complainant companies had sought a set of 21 reliefs, one of which was for a direction to the respondents (the company and its directors) not to remove CPM (who was cited as R11 in the original petition) from the directorship of Tata Sons. This was in prayer clause (F) of Paragraph 153 of the main company petition. This prayer was in direct contrast to the reliefs sought in prayer clauses (A) and (B). Prayer clause (A) was for superseding the existing Board of Directors and appointment of an Administrator. Prayer in clause (B) was for appointment of a retired Supreme Court Judge as Non Executive Chairman and for appointment of a new set of independent Directors. 16.19 After the dismissal of the interim application moved for stalling the EGM scheduled to be held on 06.02.2017 and after the passing of the resolution for the removal of CPM in the EGM held on 06.02.2017, the complainant companies moved an application for amendment of the original petition so as to include two additional prayers namely (i) reinstatement of the representative of the complainant companies on the Board of Tata Sons; and (ii) amendment of the Articles of Association to provide for propor....
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....ly preceding the date of removal of CPM. That failed business decisions and the removal of a person from Directorship can never be projected as acts oppressive or prejudicial to the interests of the minorities, is too well settled. In fact it may be concede today by Tata sons that one important decision that the Board took on 16.03.2012 certainly turned out to be a wrong decision of a life time. 16.24 Therefore, the fact that the removal of CPM was only from the Executive Chairmanship and not the Directorship of the company as on the date of filing of the petition and the fact that in law, even the removal from Directorship can never be held to be an oppressive or prejudicial conduct, was sufficient to throw the petition under section 241 out, especially since NCLAT chose not to interfere with the findings of fact on certain business decisions. 16.25 The subsequent conduct on the part of CPM in leaking his mail dated 25102016 to the Press and sending replies to the Income Tax Authorities enclosing 4 box files, even while continuing as a Director, justified his removal even from the Directorship of Tata Sons and other group companies. A person who tries to set his own hous....
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....n carried out perfectly in accordance with law and yet may be part of a larger design to oppress or prejudice the interests of some members. It is only in such cases that the Tribunal can grant a relief under Section 242. The Company Tribunal is not a labour Court or an administrative Tribunal to focus entirely on the manner of removal of a person from Directorship. Therefore, the accolades received by CPM from the Nomination and Remuneration Committee or the Board of Directors on 29.6.2016, cannot advance his case. 16.30 A contention was raised that CPM’s removal was a premeditated act, carried out at the behest of Tata Trusts and RNT and that the removal was not only contrary to Article 118, but also contrary to Article 105(a) read with the second proviso to Section 179(1) and Article 122(b). 16.31 As we have pointed out above, the validity of and justification for the removal of a person can never be the primary focus of a Tribunal under Section 242 unless the same is in furtherance of a conduct oppressive or prejudicial to some of the members. In fact the post of Executive Chairman is not statutorily recognised or regulated, though the post of a Director is. At the cost....
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....used in this Article shall mean that the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust shall together decide the nominees. In the case of any difference, the decision of the majority of the Trustees in the aggregate of the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust shall prevail.” 16.34 The sentence in Article 118 reading “the same process shall be followed for the removal of incumbent Chairman” actually goes along with the last limb of the portion immediately preceding this line. It deals with the appointment of a person as Chairman, pursuant to the recommendation of a Selection Committee, subject to Article 121 which requires the affirmative vote of the Directors appointed in terms of Article 104B. 16.35 It is absurd to interpret Article 118 to mean that Selection Committee is to be constituted for the removal of an incumbent Chairman. The necessity for taking recourse to the affirmative voting right under Article 121 is what is meant by the expression “the same process” appearing in the second part of Article 118. 16.36 The argument pitched upon Article 105(a) is also completely unfounded. Article 105(a) deals with the power of the Board to appo....
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....ely enhanced the firepower of the management of Tata Sons, with regard to their claim relating to lack of confidence and trust. 16.40 The decision in Central Bank of India Ltd. vs. Hartford Fire Insurance Co. Ltd. AIR 1965 SC 1288 is relied upon by the S.P. Group to contend that the power of removal of a Director is subservient to the agreed duration of office. But the decision in Central Bank of India arose out of the termination of a fire insurance policy. It had nothing to do with the removal of a Director. But a decision of the King’s Bench in Nelson vs. James Nelson 1914-2 K.B. 770 was relied upon in the said case to assail the termination of the insurance policy. After pointing out that Nelson was a case where the termination assailed was that of the services of the Managing Director and that the contract of his appointment did not provide for 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 ground that it had no relevance to the termination of a policy of insurance. 16.41 The decision in M.I. Builders Pvt. Limited vs. Radhey Shyam Sahu & Others (1999) 6 SCC 464, to the effect tha....
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....vests shall be limited to certain definite objects. The second is that it shall be carried on by certain persons elected in a specified way. And the third is that the business shall be conducted in accordance with certain principles of commercial administration defined in the statute, which provide some guarantee of commercial probity and efficiency. If shareholders find that these conditions or some of them are deliberately and consistently violated and set aside by the action of a member and official of the company who wields an overwhelming voting power, and if the result of that is that, for the extrication of their rights as shareholders, they are deprived of the ordinary facilities which compliance with the Companies Acts would provide them with, then there does arise, in my opinion, a situation in which it may be just and equitable for the Court to wind up the company.” 16.45 If the above tests are applied, the case on hand will not fall anywhere near the just and equitable standard, for the simple reason that it was the very same complaining minority whose representative was not merely given a berth on the Board but was also projected as the successor to the Office of ....
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....use of Lords, “the conceptions of probity, good faith and mutual confidence”. Having said that, Ebrahimi pointed out that the reference to quasi partnerships or “insubstance partnerships” is also confusing for the reason that though the parties may have been partners in their ‘Purvashrama’, they had become comembers of a company accepting new obligations in law. Therefore, “a company, however small, however domestic, is a company and not a partnership or even a quasi partnership”. 16.48 That, “for superimposing an equitable fetter on the exercise of the rights conferred by the Articles of Association, there must be something in the history of the company or the relationship between the shareholders”, is fairly well settled Re Saul D. Harrison and Sons Plc. 1994 BCC 475. 16.49 In Lau v. Chu [2020] 1 WLR 4656, the House of Lords indicated, “that a just and equitable winding up may be ordered where the company’s members have fallen out in two related but distinct situations, which may or may not overlap”. The first of these is labelled as, “functional dead lock”, where the inability of members to cooperate in the management of the company’s af....
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....lled and that the test is not whether an act is lawful or not but whether it is oppressive or not. 16.54 But all these arguments lose sight of the nature of the company that Tata Sons is. As we have indicated elsewhere, 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 entities having deep pockets into which the dividends find their way if the Company does well and declares dividends. The dividends that the Trusts get are to find their way eventually to the fulfilment of charitable purposes. Therefore, NCLAT should have raised the most fundamental question whether it would be equitable to wind up the Company and thereby starve to death those charitable Trusts, especially on the basis of uncharitable allegations of oppressive and prejudicial conduct. Therefore, the finding of NCLAT that the facts otherwise justify the winding up of the Company under the just and equitable clause, is completely flawed. 17. Question of Law No.2 17.1 The second question of law arising for consideration is as to whether the reliefs granted and directions issued by NCL....
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....e Board of Directors of Respondent No. 1, or subcommittee thereof and/or interfering in the affairs of Respondent No. 1; (D) restrain Respondent No. 14 from interfering in the affairs of Respondent No. 1; (E) direct Respondent No. 1 not to issue any securities which results in dilution of the present paidup equity capital held by the Petitioners in Respondent No. 1; (F) direct Respondent No. 1 and/or Respondent Nos. 2 to 10 and 12 to 22 not to remove Respondent No. 11 as a director from the Board of Respondent No.1; (G) restrain Respondent No. 1 and/or Respondent Nos. 2 to 10 and 12 to 22 from making any changes to the Articles of Association of Respondent No. 1 unless such changes have been made with the leave of this Hon’ble Tribunal; (H) order and investigation into the role of the Trustees of the Tata Trusts in the operations of Respondent No. 1 and/or Tata Group companies as also in the functioning of the Board of Directors of Respondent No. 1 and /or Tata Group companies, and prohibit the Trustees from interfering in the affairs of Respondent No. 1 and/or Tata Group companies; (I) appoint an independent auditor to conduct a forensic audit and independent i....
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....nal can pass such further orders as may be necessary so as to recover from Mr. Venkatraman the loss that has been caused inter alia to the Petitioners; and such findings of the audit should be referred by the Hon’ble Tribunal to the Serious Fraud Investigation Office of the Ministry of Corporate Affairs, Government of India; (M) strike of Articles numbered 86, 104(B), 118, 121 and 121A in their entirety and in so far as Article 124 of the Articles of Association of Respondent No. 1 is concerned, the following portion of the said Article, which is offending and/or repugnant, should be deleted: “… Any committee empowered to decide on matters which otherwise the Board is authorised to decide shall have as its member at least one director appointment pursuant to Article 104B. The Provisions relating to quorum and the manner in which matters will be decided contained I Articles 115 and 121 respectively shall apply mutatis mutandis to the proceedings of the committee. “ from the Articles of Association of Respondent No. 1; and substitute these articles with such articles as the nature and circumstances of this case may require; (N) direct the Respondents (excluding Responde....
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....d to provide for proportionate representation of shareholders on the Board of Directors of Respondent No.1 Under Memo (12-01-2018) Prayer M, which sought the striking of Articles 86, 104(B), 118, 121 and 121A, and striking of a portion of Article 124, is restricted as under: i. The necessity of an affirmative vote of the majority of directors nominated by the Trusts, which are majority of shareholders, be deleted; ii. The Petitioners be entitled to proportionate representation on Board of Directors of Respondent No.1; iii. The Petitioners be entitled to representation on all committees formed by the Board of Directors of Respondent No.1; and iv The Articles of Association be amended accordingly. Prayers A, B and C were not pressed. Prayers F, Q and R, being infructuous were not pressed 17.4 Therefore, after all the confusion created by affidavits, application for amendment and the memo mentioned above, the reliefs that remained to be considered by NCLT were as follows: (1) restrain Respondent No. 14 (N.A. Soonawala) from interfering in the affairs of Respondent No. 1; (Relief clause D) (2) direct Respondent No. 1 ....
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....clare the conversion of Tata Sons into a private company as illegal (Additional Relief sought to be included as clause M1 through Application for amendment) (11) To delete Article 75 (Additional Relief sought to be included as clause M2 through Application for amendment) (12) To reinstate a representative of the petitioners on the Board (Additional Relief sought to be included as clause F1 through Application for amendment) 17.5 Out of the aforesaid reliefs that came to stay till the end, NCLAT granted only certain reliefs, which in simple terms, were as follows: (i) Setting aside the removal of CPM and directing his reinstatement both as Executive Chairman of Tata Sons and as Director of other Tata Companies for the rest of the tenure. (ii) Restraining RNT and the nominees of Tata Trust from taking any advance decision. (iii) Restraining Tata Sons from exercising its power under Article 75 against the complainant companies and other minority members, except in exceptional circumstances and in the interest of the Company and that too after recording reasons and informing the affected parties. (iv) Setting aside the deci....
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....eeting of the shareholders held on 01.08.2012, the appointment of CPM as Executive Deputy Chairman was approved and the General Body left it to the Board to redesignate CPM as Chairman. Accordingly, the Board redesignated CPM as Executive Chairman, with effect from 29.12.2012, by a resolution passed on 18.12.2012. 17.11 The judgment of the NCLAT was passed on 18.12.2019, by which time, a period of nearly 7 years had passed from the date of CPM’s appointment as Executive Chairman. Therefore, we fail to understand : (i) as to how NCLAT could have granted a relief not apparently sought for (though wished for); and (ii) what NCLAT meant by reinstatement “for the rest of the tenure”. That the question of reinstatement 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 Raj Kumar Dey vs. Tarapada Dey 16 (1987) 4 SCC 398 and Mohd. Gazi vs. State of Madhya Pradesh (2000) 4 SCC 342. While so, it is incomprehensible that the NCLAT directed reinstatement, and that too, of a Director of a company, after the expiry of his term of office. Needless to say that such a remedy would not have been granted eve....
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.... the interests of the 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 reinstatement gratis without any foundation in pleadings, without any prayer and without any basis in law. By doing so, the NCLAT has forced upon the appellant an Executive Chairman, who now is unable to support his own reinstatement. 17.16 The NCLAT has found the dismissal to be illegal and not a nullity. In law, a dismissal even if found to be wrongful and malafide is an effective dismissal and may give rise to a claim in damages. In Dr. S.B. Dutt vs. University of Delhi 1959 SCR 1236 this Court held: “The award held that the appellant had been dismissed wrongfully and malafide. Now, it is not consequential to such a finding that the dismissal was of no effect, for a wrongful and malafide dismissal is nonetheless an effective dismissal though it may give rise to a claim in damages. The award, no doubt, also said that the dismissal of the appellant was ultravires but as will be seen later, it did not thereby hold the act of dismissal to be a nullity and, therefore, ....
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....service cannot ordinarily be specifically enforced and a court normally would not give a declaration that the contract subsists and the employee, even after having been removed from service can be deemed to be in service against the will and consent of the employer. This rule, however, is subject to three well recognised exceptions - (i) where a public servant is sought to be removed from service in contravention of the provisions of Article 311 of the Constitution of India; (ii) where a worker is sought to be reinstated on being dismissed under the Industrial Law; and (iii) where a statutory body acts in breach or violation of the mandatory provisions of the statute.” 17.20 The position in law that a contract of personal services cannot be enforced by Court is a long standing principle of law and cannot be displaced by the existence of any implied power, though none is shown in the present case. This is described as the Principle of Legality, Principles of Statutory Interpretation 14th Edition by Justice G.P. Singh at Page 541: “As statutes are not enacted in a vacuum, it is assumed that long standing principles of constitutional law and administrative law are no....
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....liefs granted by the Ld. NCLAT under the various heads of oppression as against certain key reliefs sought by the Appellants, which the Ld. NCLAT has not granted and which the appellants are aggrieved by, are summarized in the tabular form below: Reliefs granted by the Ld. NCLAT Reliefs that ought to have been granted by the Ld. NCLAT in light of the findings rendered and the reliefs sought for Ousting of nominee of the SP Group as Director of Tata Sons R-11 should be reinstated as Executive Chairman and Director, for the rest of his tenure of Tata Sons and as Director of three Tata Group Companies from whose board he was removed. R-11 has himself stated clearly that he had no intent to once again taken charge of Executive Chairman and Director of the Tata Group companies. Given the nature of Tata Sons being that of a two group company and the huge stake that the appellants have in Tata Sons, the relief that ought to have been granted was that the appellants be granted proportionate representation on the Board of Directors of Tata Sons and representation on all committees formed by the Board of Directors of Tata Sons.” 17.22 Thus the relief of reinstatement gr....
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....spensation of justice. But instead of eliminating delay, it has eliminated discipline in pleadings and procedure. 17.28 If it is a Civil Court, the Memo dated 12.1.2018 will be taken to have superseded whatever had been done till then. In such a case, there would have been complete lack of clarity whether the prayer included in Clause M2 survived despite the Memo restricting prayer made in the ClauseM. 17.29 Even if we take it that the memo dated 12012018 restricted the prayer in clause M alone and not clause M2, NCLAT could not have muted Article 75 by holding that it cannot be invoked except in exceptional circumstances. This is for the reason that after all, Article 75 just provides for an exit option to the unwilling partner. Even traditionally, the law in England and in India is to pave the way for a safe and honourable exit, when 2 persons in commercial relationship cannot coexist. 17.30 In this context, it will be useful to take note of the nature of the directions that could be issued by a Tribunal, in matters of this nature, as indicated in Clauses (a) to (m) of Subsection (2) of Section 242. Subsection (2) of Section 242 has been extracted by us e....
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.... an end to the matters complained of and not to put an end to the company itself, forsaking the interests of other stakeholders. It is relevant to point out that once upon a time, the provisions for relief against oppression and mismanagement were construed as weapons in the armoury of the shareholders, which when brandished in terrorem, were more potent than when actually used to strike with. While such a position is certainly not desirable, they cannot today be taken to the other extreme where the tail can wag the dog. 17.35 The Tribunal should always keep in mind the purpose for which remedies are made available under these provisions, before granting relief or issuing directions. It is on the touchstone of the objective behind these provisions that the correctness of the four reliefs granted by the Tribunal should be tested. If so done, it will be clear that NCLAT could not have granted the reliefs of (i) reinstatement of CPM (ii) restriction on the right to invoke Article 75 (iii) restraining RNT and the Nominee Directors from taking decisions in advance and (iv) setting aside the conversion of Tata Sons into a private company. 18. Question 3 18.1 The third question o....
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....constitute a contract among 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 there for nearly a century in one form or the other. As we have pointed out elsewhere, the Company was incorporated in the year 1917 and S.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 on 13.09.2000. The Article in its present form was made only on 13.09.2000 and the amendment was unanimously carried through in the presence of and with the consent of CPM. 18.6 A person who willingly became a shareholder and thereby subscribed to the Articles of Association and who was a willing and consenting party to the amendments carried out to those Articles, cannot later on turn around and challenge those Articles. The same would tantamount to requesting the Court to rewrite a contract to which he became a party with eyes wide open. 18.7 It is not as though CPM or ....
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....uestion 4 19.1 The fourth question of law to be considered is whether the characterisation by the Tribunal, of the affirmative voting rights available under Article 121 to the Directors nominated by the Trusts in terms of Article 104B, as oppressive and prejudicial, is justified especially after the challenge to these Articles have been given up expressly and whether the Tribunal could have granted a direction to RNT and the Nominee directors virtually nullifying the effect of these Articles. 19.2 In the Company Petition as it was originally filed, the complainant companies sought a prayer in Paragraph 153(M) to strike down Articles 86, 104B, 118, 121 and 121A in entirety and to strike off one portion of Article 124. These Articles (other than Article 118, which is extracted elsewhere) read as follows: “86. Quorum at General Meetings No quorum at a general meeting of the holders of the Ordinary Shares of the Company shall be constituted unless the members who are personally present are not less than five in number including at least one authorised representative jointly nominated by the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust so long as the T....
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....at should include proposed investments, incurring of debts, debt to equity ratio, debt service coverage ratio, projected cash flow of the Company and any alterations to such annual business plan” (c) The incurring or renewal of any debt or other borrowing by the Company, which debt or borrowing causes the cumulative outstanding debt of the Company, to exceed twice its net worth or which debt/borrowing is incurred/renewed at a time when the cumulative outstanding debt of the Company has already exceeded twice its net worth, if not already approved as part of the annual business plan; (d) any proposed investment by the Company in securities, shares, stocks, bonds, debentures, financial instruments, of any sort or immovable property of a value exceeding Rs. 100 Crores if not already approved as part of the annual business plan; (e) Any increase in the authorized, subscribed, issued or paid up capital of the Company and any issue or allotment of shares by the Company (whether on a rights basis or otherwise) ; (f) Any sale or pledge, mortgage or other encumbrance or creation of any right or interest by the Company of or over its shareholding in any ....
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....cessitated the affirmative voting right of the majority of the Directors nominated by the two Trusts. There was no prayer for restraining RNT and the nominee Directors of the Trusts from taking any decision in advance. 19.5 In fact, even the complainant companies are not happy about the relief so granted by NCLAT. In the Table given in Paragraph 4 of their Memorandum of Appeal in C.A.No.1802 of 2020, the complainant companies themselves seek a modification of the relief so granted. This Table found below Paragraph 4 of the Memorandum of Grounds of appeal in C.A.No.1802 of 2020 reads as follows: Reliefs granted by the Ld. NCLAT Reliefs that ought to have been granted by the Ld. NCLAT in light of the findings rendered and the reliefs sought for Abuse of Articles culminating in the removal of R-11 R-2 and nominee of the Tata Trusts should desist from taking decisions in advance of Board meetings and shareholder meetings of Tata Sons. i. The direction ought not to have been only against the nominee of Tata Trusts and R2 but against the Trustees of the majority shareholders who even though not on the Board of Tata Sons, were interfering with the decision making proce....
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....ticle providing for affirmative voting right. But as per the Table under Paragraph 4 of the Memo of their appeal in C.A.No.1802 of 2020, the complainant companies have now reconciled themselves to the unavoidability of affirmative voting rights but all that they want is that the applicability of affirmative voting right should be restricted to the matters covered by Article 121A. In addition, the complainant companies want a similar affirmative right to be conferred on the nominee Directors of the S.P. Group. 19.10 The swing that the S.P. Group has taken in their position relating to affirmative voting rights is quite funny. To begin with, they sought a prayer for striking off Article 121 in its entirety. Later they restricted their relief, by the Memo dated 12.01.2018, to the deletion of “the necessity of affirmative voting rights”. But now they are fine with the existence of affirmative voting rights for the majority in respect of matters covered by Article 121A, but want a similar right in favour of the nominee directors of the S.P. Group. 19.11 The frequent change of position that S.P. Group has taken and the relief that they now seek, raises a doubt whether it is act....
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.... was the Chairman of Tata Sons for sometime. The mandate of the Committee was to make recommendations on certain issues, one of which was “protecting the interests of stakeholders and investors, including small investors”. This committee’s report crystallised into Companies Bill, 2009, which later became Companies Bill, 2011 and then Companies Act, 2013. 19.14 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 Director who has stayed in India for a total period of not less than 182 days in the previous calendar year. (ii) Every listed Public Company is required to have at least onethird of the total number of Directors as independent Directors. (iii) Some Public Companies are required to have at least two independent Directors. (iv) Every independent Director should give a declaration at the first Board meeting that he meets the criteria of independence. (v) Certain types of Public Companies are required to appoint at least one woman Director. (vi) Every listed company may appoint a small shareholders’ Di....
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....ionship Committee in terms of Section 178(1) are also only on listed public companies. 19.16 Insofar as Tata Sons is concerned, the Articles of Association of the Company continue to contain the prescribed restrictions which make it a private company within the definition of the expression under Section 2(68). Therefore, the provisions discussed above do not apply to Tata Sons. Yet Tata Sons has a Board packed with many people who are ranked outsiders. If the idea was to run Tata Sons purely as a family business, RNT need not have stepped down from the Chairmanship. Today nobody wants to step down from any office, except if afflicted by brain stroke or sun stroke. As we have seen from the pleadings, the Tata Group was founded by Jamsetji Nusserwanji Tata (18391904). It was first established as a private trading firm in 1868 and was later incorporated as a private company on 8.11.1917 under Section 2(13) of the Companies Act, 1913. Later two Trusts were created, one in the year 1919 under the name Sir Ratan Tata Trust and another in 1952 under the name Sir Dorabji Tata Trust. It was only in 1965 that S.P. Group acquired 48 preference shares and 40 equity shares, from a member o....
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....ares. Section 149 deals with the requirement to have Directors, section 151 provides for appointment of a Director elected by small shareholders, section 166 enumerates the duties of directors and section 177 and 178 speak of some committees. Some of these provisions such as sections 151, 177 and 178 apply only to listed public companies. Yet, Tata Sons have complied with sections 177 and 178 by constituting necessary committees. 19.19 It was contended that a Director of a Company is to act in good faith in order to promote the objects of the Company for the benefit of all the stakeholders and that he is in a fiduciary capacity visavis the company. The affirmative voting rights, according to S.P.Group, disabled the nominee Directors from acting independently in the best interests of the company and its stakeholders and that once appointed, the loyalty of the nominee Directors should be to the Company and not solely to the Trusts which nominated him. It was further contended that under Articles 121, 121A and 122, Tata Sons was to be a Board managed Company and that the protective rights conferred under Article 121 were intended to take care of the interests of the Tata Trust,....
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....irectors as independent Directors. We do not also know whether the prescription in Section 149(4) is a tacit acknowledgment that all the Directors appointed in a General meeting under Section 152(2) may not be independent in practice, though they may be required to be so in theory. 19.24 A person nominated by a charitable Trust, to be a Director in a company in which the Trust holds shares, also holds a fiduciary relationship 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 moved from the (i) familial to (ii) contractual and managerial to (iii) a regime of social accountability and responsibility. This is why Section 166(2) also talks about the duty of a Director to protect environment, in addition to his duties to (i) promote the objects of the company for the benefit of its members as a whole; and (ii) act in the best interests of the company, its employees, the shareholders and the community. It is common knowledge that some of the industries which take good care of its shareholders and employees also run polluting industries. Ther....
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.... of Association bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member. However, this is subject to the provisions of the Act. 19.29 Article 94 of the Articles of Association of Tata Sons is in tune with Section 47(1)(b), as it says that upon a poll, the voting rights of every member, whether present in person or by proxy shall be in proportion to his share of the paid up capital of the company. Therefore, a shareholder or a group of shareholders who constitute majority, can always seek to be in the driving seat by reserving affirmative voting rights. So long as these special rights are incorporated in the Articles of Association and so long as they are not in contravention of any of the provisions of the Act, the same cannot be attacked on these grounds. 19.30 Coming to the argument revolving around the duty of a Director, it is necessary that we balance the duty of a Director, under Section 166(2) to act in the best interests of the company, its employees, the shareholders, the community and the protection of environment, with the duties of a Director nominated by an Institution including a publi....
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....ment, it will be clear that success and profit making are at the core of business enterprises. Therefore, the best interest of the majority shareholders need not necessarily be in conflict with the interest of the minority or best interest of the members of the company as a whole, unless there is siphoning of or diversion. Such a question does not arise when the majority shareholders happen to be charitable Trusts engaged in philanthropic activities. It is good to wish that the creation gets liberated from the creator, so long as the creator does not have any control or ability to manipulate. In the corporate world, democracy cannot be seen as an ugly expression, after using the very same democratic process for the appointment of directors. 19.35 Much ado was made about preconsultation and pre clearance by the Trustees, even before the Board took a call. But it was actually about nothing. Whenever an institution happens to be a shareholder and a notice of a meeting either of the Board or of the General body is issued, it is but normal for the institution to have an idea about the stand to be taken by them in the forthcoming meeting. 19.36 Objections were raised about RNT ....
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....other than a public company which has become such by virtue of section 43A shall have at least three directors: (Provided that a public company having, (a) a paid-up capital of five crore rupees or more; (b) one thousand or more small shareholders, may have a director elected by such small shareholders in the manner as may be prescribed. Explanation. – For the purpose of this subsection “small shareholders” means a shareholder holding shares of nominal value of twenty thousand rupees or less in a public company to which this section applies. Section 151. Appointment of director elected by small shareholders. A listed company may have one director elected by such small shareholders in such manner and with such terms and conditions as may be prescribed. Explanation.-For the purposes of this section “small shareholders” means a shareholder holding shares of nominal value of not more than twenty thousand rupees or such other sum as may be prescribed. 19.40 The important features to be noticed in the 1956 Act and the 2013 Act are : (i) that Section 252 of the 1956 Act was applicable to every public company but not to a public company which h....
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.... exist today, are binding upon 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 or contractually or otherwise to demand proportionate representation on the Board, S.P. Group has come up with a very novel idea, namely the claim of existence of a quasipartnership between the Tata group and SP group. It is contended by S.P. Group that there existed a personal relationship between those in management of the S.P. Group and those in management of Tata Sons for over several decades and that the relationship was one of trust and mutual confidence. According to S.P. Group, they acted as the guardian of the Tata Group when the Tata Trust had no voting rights. Therefore, it is claimed that there is a right and a legitimate expectation to have a representation on the Board of Tata Sons. 19.46 But we do not think that there ever existed a relationship in the nature of quasi partnership. As we have pointed out elsewhere, the company was incorporated in the year 1917 and S.P. Group became a shareholder in 1965, namely after 50 years. A berth on the Board of Tata Sons was granted only in the year 1980 to CPM’s father.....
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....he voters exercise their franchise by ranking several candidates of their choice, with first preference, second preference etc. Moreover, it is only an enabling provision and it is upto the company to make a provision for the same in their Articles, if they so choose. There is no statutory compulsion to incorporate such a provision. 19.50 Therefore, the fourth question of law is also to be answered in favour of the Tata group and the claim in the cross appeal relating to affirmative voting rights and proportionate representation are liable to be rejected. 20. Question No.5 20.1 The 5th question of law formulated for consideration is as to whether the reconversion of Tata Sons from a public company into a private company, required the necessary approval under section 14 of the Companies Act, 2013 or at least an action under section 43A(4) of the Companies Act, 1956 during the period from 2000 (when Act 53 of 2000 came into force) to 2013 (when the 2013 Act was enacted) as held by NCLAT ? 20.2 As we have pointed out elsewhere, Tata Sons was actually incorporated as a Private Limited Company, but was deemed to have become a Public Limited Company, with effect from 01.0....
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....the 5th question of law revolving around Section 43A of the 1956 Act as amended by Act 53 of 2000, and the Companies Act, 2013 has arisen for consideration. 20.9 A look at Section 43A would show that it was actually inserted under Companies (Amendment) Act 65 of 1960 with effect from 28.12.1960. This Section underwent two amendments, one under Act 41 of 1974 with effect from 01.02.1975 and another under Act 31 of 1988 with effect from 15.06.1988. Finally, by Act 53 of 2000, Section 43A was made inapplicable with effect from 13.12.2000. 20.10 Section 43A, as inserted by Act 65 of 1960, together with the amendments made under Act 41 of 1974, Act 31 of 1988 and Act 53 of 2000, is reproduced as follows: “43A. Private Company to become a public company in certain cases. (1) Save as otherwise provided in this section, where not less than twentyfive per cent of the paidup share capital of a private company having a share capital is held by one or more bodies corporate, the private company shall, (a) on and from the date on which the aforesaid percentage is first held by such body or bodies corporate, or (b) where the aforesaid percenta....
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....e private company shall, irrespective of its paidup share capital, become, on and from the expiry of a period of three months from the last day of the relevant period during which the private company had the said average annual turnover, a public company by virtue of this subsection: Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of subsection (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven. (1B) Where not less than twentyfive per cent of the paidup 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 whichthe aforesaid percentage is first held by it after the commencement of the Companies (Amendment) Act, 1974, or (b) where the aforesaid percentage has been first so held before the commencement of the Companies (Amendment) Act, 1974 on and from the expiry of the period of three months from the date of such commencement, unless within that period the aforesaid percentag....
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....ompany. (3) Subsection (3) of section 23 shall apply to achange of name under subsection (2) as it applies to a change of name under section 21. (4) A private company which has become a publiccompany by virtue of this section shall continue to be a public company until it has, with the approval of the Central Government and in accordance with the provisions of this Act, again become a private company. (5) If a company makes default in complying withsubsection (2), the company and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues. (6) & (7) omitted by Act 31 of 1988 (8) Every private company having a share capital shall, in addition to the certificate referred to in subsection (2) of section 161, file with the Registrar along with the annual return a second certificate signed by both the signatories of the return, stating either (a) that since the date of the annual general meeting with reference to which the last return was submitted, or in the case of a first return, since the date of the incorporation of....
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....on and after the commencement of the Companies (Amendment) Act, 2000.” 20.11 In its inception, Section 43A contained only one stipulation namely that a private company in which not less than 25% of the paid up share capital was held by one or more bodies corporate, shall become a public company. But by Act 41 of 1974, two additional stipulations were included. They are (i) that a private company whose average turnover during the relevant period is not less than an amount prescribed, shall become 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 up share capital of a public company, shall become a public company. 20.12 By Act 31 of 1988, the benchmark of the average annual turnover that would determine the applicability of Section 43A was prescribed as not less than Rs. 1 crore. In addition, Act 31 of 1988 also made a private company which accepts deposits from the public, other than its members or directors, to be a public company. 20.13 Two important prescriptions, which continued without any change, from the date of insertion of Section 43A, namely 28.12.1960, till the coming into force o....
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....any by virtue of Section 43A, but which has later become a private company after the commencement of Act 53 of 2000, to have necessary changes effected. The procedure prescribed by subsection (2A) for such reconversion (or Ghar Wapsi) is as follows: (i) The company shall inform the Registrar that the company has again become a private company; and (ii) The Registrar shall thereupon substitute the word “Private Company” for the word “Public Company” upon the register and also make necessary alterations in the Certificate of Incorporation and its Memorandum of Association.” 20.19 But Act 53 of 2000 did not stop with section 43A. It also amended section 3(1)(iii) by inserting an additional subclause, namely “(d)” along with subclauses (a), (b) and (c). Under this subclause (d) of clause (iii) of subsection (1) of section 3, the articles of association of a private company should also contain a prohibition on any invitation or acceptance of deposits from persons other than its members, directors or their relatives. Section 3(1)(iii) after amendment under Act 53 of 2000 read as follows: “3 (1) In this Act, unless the context otherw....
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....e case of a company limited by guarantee, thearticles shall state the number of members with which the company is to be registered. (3) In the case of a private company having a sharecapital, the articles shall contain provisions relating to the matters specified in subclauses (a), (b) and (c) of clause (iii) of subsection (1) of section 3; and in the case of any other private company, the articles shall contain provisions relating to the matters specified in the said subclauses (b) and (c).” 20.22 No corresponding amendment was made to Section 27 (3), by Act 53 of 2000, so as to make it in tune with the amended section 3(1)(iii). The result was that on and from 13122000 (the date of coming into force of Act 53 of 2000), section 3(1)(iii) contained 4 requirements for a private company, but section 27(3) referred only to 3 requirements. The incongruity can be stated thus. To fall within the definition of a private company, 4 stipulations contained in section 3(1)(iii) were to be satisfied. But under section 27(3), it is enough if the Articles of Association of a private company contained only 3 prescriptions. 20.23 Be that as it may, the consequence of the....
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....n that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and (iii) prohibits any invitation to the public to subscribe for any securities of the company; 20.26 But Companies Act, 2013, created one confusion. Different provisions of the Companies Act, 2013, came into force on different dates (driving people crazy). Section 2(68) which defines a private company, came into force on 12092013 vide S.O. 2754 (E) dated 12092013. This notification issued under section 1(3) of the 2013 Act, fixed 12092013 as the appointed date for the coming into force of section 2(68). 20.27 But on 12092013, the date appointed for the coming into force of section 2(68) of the Companies Act, 2013, the old Act, namely the Companies Act, 1956 had not been repealed. The provisions for repeal are contained in Section 465 of The Companies Act, 2013. Section 465(1) repeals the 1956 Act, subject to certain stipulations mentioned in the provisos there under. Subsection (2) of Section 465 of the Companies Act, 2013 provides a list of matters which will stand saved despite the repeal of the 1956 Act. Subse....
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.... to be a deemed to be public company from 13122000 till 11092013 by virtue of section 3(1)(iii) of the 1956 Act as amended by Act 53 of 2000 with effect from 13122000; and (iv) was that of a private company with effect from 12092013 within the meaning of section 2(68) of the 2013 Act. 20.33 Interestingly, it is not disputed by anyone that today Tata Sons satisfy the parameters of section 2(68) of the 2013 Act. The dispute raised by the S.P. Group and accepted by NCLAT is only with regard to the procedure followed for reconversion. NCLAT was of the opinion that Tata Sons ought to have followed the procedure prescribed in Section 14(1)(b) read with Subsections (2) and (3) of Section 14 of the Companies Act, 2013 for getting an amended certificate of incorporation. NCLAT was surprised (quite surprisingly) that Tata Sons remained silent for more than 13 years from 2000 to 2013 without taking steps for reconversion in terms of Section 43A(4) of the 1956 Act. While on the one hand, NCLAT took note of the “lethargy” on the part of Tata Sons in taking action for reconversion, NCLAT, on the other hand also took adverse notice of the speed with which they sw....
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....n and after the commencement of the Act. Therefore, it is clear that Subsection (4) ceased to exist on and from 13.12.2000 and hence the question of Tata Sons seeking the approval of the Central Government under Subsection (4) during the period 20002013 did not arise. 20.38 The only provision that survived after 13.12.2000 was Subsection (2A) of Section 43A. It survived till 30012019 until the whole of the 1956 Act was repealed. There are two aspects to Subsection (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 the prescription of certain formalities to remove the remnants of the past. What was omitted to be done by Tata Sons from 2000 to 2013 was only the second aspect of Subsection (2A), for which Section 465 of the 2013 Act did not stand as an impediment. Section 43A(2A) continued to be in force till 30012019 and hence the procedure adopted by Tata Sons and the RoC in July/August 2018 when section 43A(2A) was still available, was perfectly in order. 20.39 As rightly held by this court in Darius Rutton Kavasmaneck vs. Gharda Chemicals Ltd (2015) 14 SCC 277 [see the editor....
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....ejudicial to the interests of the minority shareholders and the company as well as independent directors. 20.42 But we are not impressed with the above contentions. Once the company had become a deemed public company with effect from 121975, the privileges of a private company stood withdrawn and the company was entitled in law to allow renunciation of shares under rights issue. In any case, the validity of what was done in 1995 was not in question. That they accepted deposits from public till September 2002, is the reason why they were not reconverted as a private company at that time. Once a new definition of the expression “private company” came into force with effect from 12092013 under section 2(68) of the 2013 Act, the only test to be applied is to find out if the company fits into the scheme under the new Act or not. We need not go to the circulars issued by the department or the RBI when statutory provisions show the path with clarity. The description of the company in the forms filed under Rule 10, reflected the true position that prevailed then and they would not act as estoppel when the company was entitled to take advantage of the law. That the ability of....