The order dated December 18, 2019 of National Company Law Appellate Tribunal (NCLAT) has reinstated ousted Tata Sons Chairman Cyrus Mistry as Chairman while restoring Mistry to the position, the NCLAT held that the appointment of N. Chandrasekaran as Executive Chairman was illegal. The two-Judge bench declared that resolution passed by the Board of Directors of Tata Sons to remove Mistry, from his post and all consequential actions taken by Tata Group companies to remove him as director “illegal’’.

Series of Events:

Cyrus-Mistry-Tata-Sons-Corporate-Governance-1

Procedural Aspects in implementing order of NCLAT:

1. The term of appointment of Cyrus Mistry as an Executive Chairman

Mr. Cyrus Mistry was appointed as Executive-Chairman of Tata Sons Limited from 28th December 2012. In a Board Meeting dated 24th October 2016 Mr. Cyrus Mistry was removed as Executive Chairman’ from the ‘Tata Sons Limited’ because Trust had lost confidence in him for a variety of reasons.

(NCLAT Order Page No. 94-95, Minutes of the Meeting dated 24th October 2016)

The NCLAT has held that appointment of Mr. Cyrus Pallonji Mistry as an Executive Chairman with substantial powers of management, was akin to that of a Managing Director and will be considered as Key Managerial Personnel.

(NCLAT Order page no. 42, paragraph 88)

Mr. Cyrus Pallonji Mistry is restored to his original position as Executive Chairman of ‘Tata Sons Limited’ and consequently as Director of the ‘Tata Companies’ for rest of the tenure.

(NCLAT Order page no. 167, paragraph no. 187(i))

The NCLAT has also said that for better protection of interest of all stakeholders as also safeguarding the interest of minority group, in future at the time of appointment of the Executive Chairman, Independent Director and Directors, the ‘Tata Group’ which is the majority group should consult the minority group i.e., ‘Shapoorji Pallonji Group’ and any person on whom both the groups have trust, be appointed as Executive Chairman or Director, as the case may be, which will be in the interest of the Company and create healthy atmosphere removing the mistrust between the two groups.

(NCLAT Order page no. 165-166, paragraph no. 185)

Procedure to follow:

For reinstating Mr. Mistry as “Executive Chairman”, Tata Sons need to follow procedure mentioned in Section 196, 197 of the Companies Act, 2013 like:

-Calling & Holding Board Meeting and passing the resolution w.r.t. reinstating Mr. Mistry as Executive Chairman,

– Obtaining documents (MBP-1, DIR-2, DIR-8) from Mr. Mistry

– Filing of E-form MGT-14, DIR-12 and MR-1

As per Section 196 (2) of Companies Act, 2013 a person shall not be appointed as Managing Director, Whole-time Director or Manager for a term exceeding five years at a time. Mr. Mistry was originally appointed as Executive Chairman of Tata Sons from 28th December 2012. The original term of appointment of Mr. Mistry was to be ended on 27th December 2017 but considering his removal with effect from 24th October 2016, his re-instated Chairmanship will last only for rest of the tenure i.e. for 1 year 2 months.

2. Directorship in Group Companies:

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