C A Sundaram counsel for the two Mistry firms, said that the Companies Act as a “new regime for the first time distinguishes between class of members and seeks to protect those classes.” He said as a result an eligibility requirement of minimum 10% shareholding in the Company before a member can drag it to court for acts of alleged mismanagement or oppression, has to interpreted in a “harmonious manner” as rights of a “class of shareholders.”
But Tata Sons’ counsel A M Singhvi said the issue has been decided earlier by courts and added that Sundaram’s arguments of “artificial creation of classes would amount to completely rewriting the law” and lead to “absurd results”. Both were making submissions on preliminary issue of maintainability of the Mistry camp’s plea before Mumbai bench of National Company Law Tribunal (NCLT). The tribunal had declined to stay a special meeting of the Tata Sons’ shareholders on February 6, and with no relief from the appellate tribunal in Delhi too, Mistry was removed as director that day. He had been a Tata Sons director since 2006. Last October the $103 billion corporate behemoth had ousted him as its chairman, paving way for the legal battle.
The National Company Law Appellate Tribunal (NCLAT) had directed the Mumbai tribunal to first decide the maintainability and a waiver issue before going into merits of the case. On Monday, Singhvi and Sundaram at first wrangled over whether the Tribunal must first pass orders on maintainability and then on a waiver to the 10% shareholding condition– as permissible in law and sought by Mistry firms—in case it negated the eligibility. Mistry’s counsel Janak Dwarkadas said a common order could be passed, which is what the tribunal headed by judicial member Prasad Kumar will now do.
On maintainability Ravi Kadam one of Tata counsel said section 244 was a “prior requirement”. Another Tata counsel Sarkar also said that the provisions under Section 241of the Companies Act for minority member to seek redressal was “an alternative to winding up,” and questioning whether the petitioner has that kind of “financial strength” sought dismissal of the petitions filed by the Mistry camp.
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The Mistry camp said that Cyrus Investment and Sterling Investment Corporation were minority shareholders with 18 % equity in Tata Sons and its rights to be represented on the board were being oppressed. Tata Sons said the shareholding was only 2.17 % after factoring in preference shares. Sundaram said, “the cause of action for a remedy to “any class” of members to undo oppression is provided under section 241 of Companies Act, a later section cannot deny that remedy merely because it is silent on the term “class” of members,” said Sundaram, “Earlier interpretation by courts of the old Companies Act must be discarded. A fresh interpretation has to subserve the remedy and curb the mischief,” he argued. But Singhvi said, “their (Mistry firms’) interpretation is meant to only subserve their interest and put the cart before the horse.”
“In case the question of maintainability and/or waiver on merit is decided in favour of the appellants, it is always open to the tribunal to pass appropriate order restoring the original position of Mistry as it was at time of filing the company petition,” said the appellate tribunal bench of Justice S J Mukhopadhaya and member Balwinder Singh in their order on February 3.
The appellate tribunal had also clarified that Mistry can challenge his removal as Director, which he has by amending his original petition filed last December. The NCLT indicated on Monday that it would allow the amendment.The arguments will continue on Tuesday
