Shriram Subramanium, Founder & MD, InGovern , tells ET Now that this was a marquee case where a very significant minority shareholder in the largest holding company was aggrieved and whether the courts went just by the names or by fundamental principles needs to be seen.

Edited excerpts:
How do you see this story unfolding? NCLT has given a complete clean chit to Tata Sons, they have said Mistry openly went against board and directors. The judgment found no merit in legacy issues raised by Mistry and did not agree that Ratan Tatas conduct was prejudicial to the company; did not agree that Ratan Tata acted as a shadow director. So, it has been advantage Tata Sons if you look at the details of the announcement. Your take?

Definitely, it is a setback to Cyrus Mistrys case in the short term. NCLT has viewed each of the allegations in detail and some of these related to the business of operating companies. NCLT has ruled that they have to defer to the business decisions and they would not like to interfere.

One has to observe or differentiate between oppression and mismanagement which are two different things and unfortunately our Companies Act which has evolved over a period of time has yet to segregate between oppression of minority shareholders and mismanagement of the business itself. When minority shareholders make this allegation as Cyrus Mistry said, I guess the courts would find it very difficult to differentiate between oppression and mismanagement because some of these issues like converting the public limited company to a private limited company which happened after Cyrus was removed from the board can be viewed as oppression. But the operating decision is mismanagement and the court rightly said that it is up to each of the operating company. One has to differentiate amongst all these issues and each one has to be dealt in a different manner.

We probably have not heard the last of this and it will go all the way till the Supreme Court.

What do you make of the aspect that the NCLT has not found anything wrong with the manner in which the board of directors sacked Cyrus Mistry?

No, definitely the board is within its rights to remove Cyrus Mistry on any day but the manner in which it was done is another issue. There has to be a 15-day notice to table any agenda item at the Tata Sons board, which I guess was not provided. The fact is that even a few month earlier, the board of directors had done a performance evaluation and found nothing amiss.

Within a couple of months, you are saying that his performance does not merit justice and he is removed. That is what other investors could view as injustice to Cyrus Mistry. But whether the directors or the board has the rights to remove the executive chairman, yes, they are well within their rights to do so.

What message does this verdict send to India Inc? The representative of the single largest shareholder in Indias biggest conglomerate had waged a publicly fought bitter war against Indias oldest conglomerate and Tata Sons as well as the board of directors plus Ratan Tata as well. Today he stands defeated, but of course, he can appeal at a higher forum.

This a marquee case in the sense that a very significant minority shareholder in largest holding company is aggrieved and from that perspective, whether the courts went just by the names or by fundamental principles needs to be seen.

The external manifestations of some of these investigations or the actual behaviour last month was Tata Motors produced one Nano car in June 2018. That gives credence to some of the allegations which are made. And two, how does the relationship between the holding companies and the operating companies also gets defined?

Many business groups in India have these structures and thats why SEBI came out with a set of guideline last year. Actually, a set of individuals are being allowed privileged information. This is a something which corporate India will undergo where a promoter can exert influence through not just the holding company while not being on the board. Increasingly that will get challenged or that will get much more evolved because as promoter families move out of management and boards, they will continue to exert influence and that influence may not be directly visible and that is where corporate law has to undergo some more refinement to arrive at some solutions.

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