Supreme Court in the case of Tata Consultancy Services Limited Versus Cyrus Investments Pvt. Ltd.

Case Covered:

Tata Consultancy Services Limited

Versus

Cyrus Investments Pvt. Ltd.

Facts of the Case:

Tata Sons (Private) Limited has come up with two appeals in Civil Appeal Nos.13-­14 of 2020, challenging a final order dated 18­-12-­2019 passed by the National Company Law Appellate Tribunal (“NCLAT” for short) (i) holding as illegal, the proceedings of the sixth meeting of the Board of Directors of TATA Sons Limited held on 24.10.2016 in so far as it relates to the removal of Shri Cyrus Pallonji Mistry (“CPM” for short); (ii) restoring the position of CPM as the Executive Chairman of Tata Sons Limited and consequently as a Director of the Tata Companies for the rest of the tenure; (iii) declaring as illegal the appointment of someone else in the place of CPM as Executive Chairman; (iv) restraining 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.

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.

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, Tata Teleservices Limited, and Tata Industries Limited have come up with separate appeals in Civil Appeal Nos.440­441 of 2020, 442­443 of 2020 and 448­449 of 2020. The grievance of RNT, as well as the Trustees of the two Trusts, is as regards the injunctive order of the Appellate Tribunal restraining them from taking any decision. The grievance of the three operating companies which have filed 6 Civil Appeals is that CPM has been directed to be reinstated as Director of these companies by the impugned Order, for the rest of the tenure.

The original complainants before the National Company Law Tribunal (“NCLT” for short), who initiated the proceedings under Sections 241 and 242 of the Companies Act, 2013 namely (i) Cyrus Investments Private Limited (ii) Sterling Investment Corporation Private Limited, have come up with a cross-appeal in Civil Appeal No.1802 of 2020. Their grievance is that in addition to the reliefs already granted, the NCLAT ought to have also granted a direction to provide them proportionate representation on the Board of Directors of Tata Sons Limited and in all Committees formed by the Board of Directors. They have one more grievance namely that the Appellate Tribunal ought to have deleted the requirement of an affirmative Vote in the hands of select Directors under Article 121 or at least ought to have restricted the affirmative vote to matters covered by Article 121A.

Observations:

Thus in fine, all the questions of law are liable to be answered in favour of the appellants­Tata group and the appeals filed by the Tata Group are liable to be allowed and the appeal filed by S.P. Group is liable to be dismissed. But before we do that we should also deal with the application moved by S.P. Group before us during the pendency of these proceedings, praying for the alternative relief of directing Tata Sons and others to cause a separation of ownership interests of the S.P. Group in Tata sons through a scheme of reduction of capital by extinguishing the shares held by the S.P. Group in lieu of fair compensation effected through a transfer of proportionate shares of the underlying listed companies, with the balance value of unlisted companies and intangibles including brand value being settled in cash.

Interestingly, such an application was filed after Tata Group moved an application for restraining S.P. Group from raising money by pledging shares and this court passed an order of status quo on 22.09.2020. For the first time, S.P. Group seems to have realized the futility of the litigation and the nature of the order that the Tribunal can pass under Section 242. This is reflected in Paragraph 62 of the application, where S.P. Group has stated that they are seeking such an alternative remedy as a means to put an end to the matters complained of.

As a matter of fact, S.P. Group should have sought such relief from the Tribunal even at the beginning. As we have pointed out elsewhere a divorce without acrimony is what is encouraged both in England and in India under the statutory regime.

But in an appeal under Section 423 of the Companies Act, 2013, this Court is concerned with questions of law arising out of the order of NCLAT. Therefore, we will not decide on this prayer. It should be pointed out at this stage that Article 75 of the Articles of Association is nothing but a provision for an exit option (though one may think of it as an expulsion option). After attacking Article 75 before NCLT, the S.P. Group cannot ask this Court to go into the question of fixation of fair value compensation for exercising an exit option. What is pleaded in Paragraph 72 of the application for separation of ownership interests, requires adjudication on facts, of various items. The valuation of the shares of S.P. Group depends upon the value of the stake of Tata Sons in listed equities, unlisted equities, immovable assets, etc., and also perhaps the funds raised by SP group on the security/pledge of these shares. Therefore, at this stage and in this Court, we cannot adjudicate on the fair compensation. We will leave it to the parties to take the Article 75 route or any other legally available route in this regard.

The Decision of the Hon’ble Court:

As the result, all the appeals except C.A. No.1802 of 2020 are allowed and the order of NCLAT dated 18.12.2019 is set aside. The Company Petition C.P. No. 82 of 2016 filed before NCLT by the two companies belonging to the S.P. Group shall stand dismissed. The appeal C.A. No.1802 of 2020 filed by Cyrus Investments Pvt. Ltd., and Sterling Investments Corporation Pvt. Ltd. is dismissed. There will be no order as to costs.

All IAs including the one for causing separation of ownership interests of the S.P. Group in Tata Sons namely IA No.111387 of 2020 is dismissed.

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