Slam dunk decision on the part of NCLT in the Cyrus Mistry petition against the House of Tatas is seminal in that it shuts the door in the face of the Pallonji Mistry family, which after the Tata Trusts is the single largest shareholder in the group holding company. One only hopes that Sebi had acted in a swifter manner in this internecine feud which saw shareholder value and wealth erode rapidly.
At the same time, National Company Law Tribunal (NCLT) dismissal of Mistry plea against Tata Sons does not provide a lasting solution to such high profile feuds fought in the open with media participating actively.
Instead, the NCLT order shows how the wheels of justice work in India given that Mistry was thrown out way back on October 24, 2016. The order unfavourable to Mistry and his two companies, Cyrus Investments and Sterling Investment also opens a pandora's box for appeal in NCLT and Supreme Court.
Tata – Mistry fight has effectively established the classic position that majority stakeholders have the last laugh in running a company. And, the NCLT viewed that Mistry did not enjoy their confidence as group chairman or director. The tribunal did not buy Mistry’s argument on legacy issues, oppression of minority shareholders rights or mismanagement charges. Interestingly enough, rejection for proportional representation on group holding company Tata Sons against 18.34 percent stake is yet another blow for Mistry and his family.
In an unusually harsh dressing down, NCLT found fault with Mistry for having divulged “sensitive company information” to Income Tax authorities, press and non-stake holders.
Twists and turns in the slugfest between Ratan Tata and his estranged protégé Cyrus Mistry have thrown up several larger corporate issues. For instance, uniqueness of articles 75, 104, 118 and 121 in Articles of Association (AOA) is seen to have been established.
These articles clearly state that holding preference shares in a company do not qualify for claim to continue as director, chairman or seek changes in management. In effect, minority shareholders like Cyrus Mistry hardly have a say in running a company.
In companies like Infosys, founder-directors NR Narayana Murthy, Kris Gopalakrishnan and Nandan Nilekani prevailed and chief executive officer Vishal Sikka had to quit.
The troika had led the campaign after having flagged governance issues, large severance package accorded to former CFO Rajiv Bansal and doubts on acquisition of Panaya. Sikka, on the other hand, had pointed fingers at founder-directors for interference in day-to-day functioning of Infosys, bad blood and attempting at backdoor management. This is akin to Mistry bracketing Ratan Tata and NA Soonawala, the two veteran Tata Trusts trustees “as super-directors” on Tata Sons.
Yet another such corporate war also raged at Yes Bank marked by a long drawn legal battle. Shagun Kapur Gogia’s claim to a seat on Yes Bank board in place of her father, Ashok Kapur, co-founder of the bank led to a showdown between the promoters families. Only after a protracted legal tussle did Shagun make it to Yes Bank board in 2015 much to the consternation of management led by Rana Kapoor and his family.
Luckily, ownership dispute between Ambani brothers at Reliance group that initially erupted into a full blown war settled more amicably with both sides opting for an out of court settlement.
Most companies going through boardroom battles have different and unique issues. It is here that eminent independent directors can play an objective role to bring about cohesiveness in running large listed companies that are promoter-run family businesses.
Though thousands of companies have been listed on both NSE and BSE, even today, promoters with controlling stakes have the final say. In most cases, independent directors have sided with promoters rather than recognising their own responsibility of acting neutral with basic allegiance to small retail investors. However, two cases in point where promoters don’t really exist but are well managed — L & T and ITC.
Democratising the companies’ boards, diverse and objective is a virtue. Much needs to be done for that to happen on the ground. Cronyism arising out of independent directors dependence on promoters must stop.