Tata Consultancy Services Ltd. v. Cyrus Investments Pvt. Ltd.
Supreme Court of India · 26 March 2021 · 3 judges
The Court set aside the NCLAT order reinstating Cyrus Mistry and restraining Tata Sons, holding that no case of oppressive or prejudicial conduct under Sections 241 and 242 of the Companies Act, 2013 was made out.
Facts
Cyrus Pallonji Mistry (CPM), of the Shapoorji Pallonji (SP) Group holding about 18.37% of Tata Sons, was Executive Chairman of Tata Sons from 2012. On 24.10.2016 the Board replaced him as Executive Chairman, and he was later removed as a Director of Tata Sons and of operating companies. Two SP Group companies petitioned the NCLT under Sections 241 and 242 alleging oppression and mismanagement. NCLAT granted a waiver of the shareholding qualification under Section 244, and the NCLT then dismissed the petition on merits. On 18.12.2019 NCLAT allowed the appeals, restored CPM as Executive Chairman and Director, restrained Ratan Tata and the Trust nominees from taking decisions in advance, restricted the use of Article 75 of the Articles, and set aside Tata Sons' conversion into a private company. The Tata Group appealed; the SP Group cross-appealed for more reliefs.
Questions before the Court
- Whether NCLAT correctly found that the affairs of Tata Sons were conducted in an oppressive and prejudicial manner and that the facts justified winding up on the just and equitable ground.
- Whether the reliefs granted, including the reinstatement of CPM, were within the pleadings and the powers under Section 242(2).
- Whether NCLAT could restrain the use of Article 75 without setting it aside, and treat the affirmative voting rights of Trust nominee directors as oppressive.
- Whether the reconversion of Tata Sons into a private company required approval under Section 14 of the 2013 Act or action under Section 43A(4) of the 1956 Act.
What the Court held
- Under Section 241 the Tribunal does not ask whether the removal of a director was valid or justified, but whether it amounted to oppressive or prejudicial conduct. CPM's removal was not shown to be such conduct.
- The just and equitable ground was not made out: there was no quasi partnership between the Tata and SP Groups and no functional deadlock, and NCLAT's finding to the contrary was flawed.
- Relief under Section 242 must bring to an end the matters complained of. NCLAT could not reinstate CPM, for which there was no prayer and whose tenure had expired, nor on the boards of group companies that were not parties.
- Articles of Association are a contract among shareholders. Section 241 covers past and present conduct, not likely future misuse, so Article 75 could not be neutralised. Affirmative voting rights were not oppressive, and there is no right to proportionate board representation.
- From 12.09.2013, whether a company is private is decided by Section 2(68) of the 2013 Act, so Tata Sons' reconversion was valid. The Tata Group's appeals were allowed, the company petition dismissed and the SP Group's cross-appeal dismissed.
Why it matters
The judgment states the limits of the oppression and mismanagement remedy under Sections 241 and 242 of the Companies Act, 2013. It holds that removal of a director is not by itself oppression, that relief must aim at ending the matters complained of rather than providing a remedy worse than the disease, that the remedy does not reach possible future conduct, and that this Court's jurisdiction in an appeal under Section 423 is primarily to answer questions of law.
In the Court's words
Copied from the official judgment; each passage links to its page.
“An important aspect to be noticed is that in a petition under Section 241, the Tribunal cannot ask the question whether the removal of a Director was legally valid and/or justified or not. The question to be asked is whether such a removal tantamount to a conduct oppressive or prejudicial to some members. Even in cases where the Tribunal finds that the removal of a Director was not in accordance with law or was not justified on facts, the Tribunal cannot grant a relief under Section 242 unless the removal was oppressive or prejudicial.”
“In other words the purpose of an order both under the English Law and under the Indian Law, irrespective of whether the regime is one of "oppressive conduct" or "unfairly prejudicial conduct" or a mere "prejudicial conduct", is to bring to an end the matters complained of by providing a solution. The object cannot be to provide a remedy worse than the disease. The object should be to put an end to the matters complained of and not to put an end to the company itself, forsaking the interests of other stakeholders.”
“A person who willingly became a shareholder and thereby subscribed to the Articles of Association and who was a willing and consenting party to the amendments carried out to those Articles, cannot later on turn around and challenge those Articles. The same would tantamount to requesting the Court to rewrite a contract to which he became a party with eyes wide open.”
Provisions interpreted
Related judgments
- Distinguishes Vodafone International Holdings B.V. v. Union of India (2012)“But the decision in Vodafone (supra) arose under a completely different context.” (page 234)
Case and bench
- Parties
- Tata Consultancy Services Limited v. Cyrus Investments Pvt. Ltd.
- Case
- Civil Appeal Nos. 440-441 of 2020
- Decided
- 26 March 2021
- Bench
- S.A. Bobde, CJI, A.S. Bopanna, J., V. Ramasubramanian, J.
- Opinions
- Unanimous. A single judgment of the Court signed by all three Judges; the text does not name an author.
Questions on this case
2 questions in live Law Maker papers mention this case. Practise them with the landmark judgments questions.