Tata Consultancy Services Limited v. Cyrus Investments Private Ltd.

Case Summary

*Citation*	Tata Consultancy Services Limited v. Cyrus Investments Private Ltd.
*Keywords*	section 241, 242 244 of Companies Act, 2013, oppression, detrimental, TCS
*Facts*	Cyrus Mistry was redesignated as the Executive Chairman of Tata Sons. Ratan Tata replaced Cyrus Mistry for the position of Executive Chairman. This was done by passing a board resolution to that effect. Thereafter, a petition was filed before the National Company Law Tribunal (Hereinafter referred to as “the NCLT”) under sections 241, 242 read with section 244 of the Companies Act, 2013 (Hereinafter referred to as “The 2013 Act”) by the Shapoorji Pallonji Group (Hereinafter referred to as the “SP Group”), one of the leading conglomerate companies of India in which Cyrus Mistry has controlling interest. The petition filed by the SP Group was rejected by the NCLT as it failed to fulfill the eligibility criteria to file an application for oppression and mismanagement as provided under section 244 of the 2013 Act. SP group filed a waiver application which was also rejected. Then an application was filed before NCLAT against previous order which was accepted and was in favour of the SP group. Thereafter, an appeal was filed by Tata Consultancy Services against the order of the NCLAT.
*Issues*	Whether the NCLAT has the power to reinstate Cyrus Mistry back to the positions he held in Tata Sons and other Tata companies? Whether approval under section 14 of the 2013 Act was required to effect the conversion of Tata Sons into a private company from a public company?
*Contentions*	TCS contention: SP Group never demanded the reinstatement of Cyrus Mistry in their pleadings. Moreover, NCLAT does not have the power of reinstatement. The mere removal of Mr. Mistry does not amount to an act of oppression. NCLAT compromised the majority rule by directing the Tata Group to consult SP Group for all future appointments for the position of the Executive Chairman. Cyrus Contention: A 15 days’ notice was required to be served on Mr. Mistry prior to his removal but the same was not done. His removal from the position of director is a manifestation of lack of probity. Articles of Association, in general, were used by Tata Sons to control the Board and to jeopardize their independent decision-making. Particularly, Article 75 was for the purpose of squeezing out the minority shareholders from the company. The invocation of the “just and equitable” ground cannot be solely based on financial probity. It also encompasses the violation of legal and proprietary rights as a valid reason.
*Law Points*	The Supreme Court (SC) has stayed the decision of NCLAT to restore Cyrus Mistry as Executive Chairman. The SC stated “the fact that the removal of CPM was only from the Executive Chairmanship and not the Directorship of the company as on the date of filing of the petition and the fact that in law, even the removal from Directorship can never be held to be an oppressive or prejudicial conduct was sufficient to throw the petition under Section 241 of Companies Act, 2013 out, especially since NCLAT choose not to interfere with the findings of fact on certain business decisions.” It is significant that Sections 241 and 242 of the Companies Act, 2013 do not specifically confer the power of reinstatement, nor we would add that there is any scope for holding that such a power to reinstate can be implied or inferred from any of the powers specifically conferred. Regarding the third issue, the SC observed that NCLAT was completely wrong in holding as though Tata Sons, in connivance with the Registrar of Companies did something clandestinely, contrary to the procedure established by law. The request made by Tata Sons and the action taken by the Registrar to amend the Certificate of Incorporation were perfectly in order (conversion of private company from public company). All the questions were answered in favor of Tata Sons and all the previous observation against Tata Sons (appellant) are set aside by the SC.
*Judgement*	SC determined that a removal of person from the post of Executive Chairman is not a subject matter under Section 241 of the Companies Act, 2013 unless it is proved that it was oppressive or detrimental.
*Ratio Decidendi & Case Authority*

Full Case Details

JUDGMENT

Lis in the Appeals
1.1 Tata Sons (Private) Limited has come up with two appeals in Civil Appeal Nos.1314 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.

1.2 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.
1.3 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, the 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.
1.4 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.
1.5 In addition to C.A.Nos. 13 and 14 of 2020, Tata Sons have also come up with 2 more
appeals in C.A.Nos. 263 and 264 of 2020. These appeals arise out of an order passed by
NCLAT on 06 012020 in two interlocutory applications filed by the Registrar of Companies,
Mumbai, seeking amendment of the final order passed by NCLAT in the main appeals. The
reason why the Registrar of Companies was constrained to file 2 interlocutory applications in
the disposed of appeals, was that in the final order passed on 18 122019 by NCLAT in the 2
company appeals, there were some remarks against the Registrar of Companies for having
issued an amended certificate of incorporation to Tata Sons by striking off the word “Public”
and inserting the word “Private”. NCLAT dismissed these 2 applications by an order dated
06.01.2020, not merely holding that there were no adverse remarks against the Registrar of
Companies but also giving additional reasons to justify its findings in the disposed of appeals,
in the purported exercise of the power available under section 420 of the Companies Act,

Therefore, Tata Sons have come up with these 2 appeals in C.A.Nos. 263 and 264 of
2020.

1.6 Thus we have on hand, 15 Civil Appeals, 14 of which are on one side, assailing the Order
of NCLAT in entirety. The remaining appeal is filed by the opposite group, seeking more
reliefs than what had been granted by the Tribunal.
1.7 For the purpose of easy appreciation, we shall refer to the appellants in the set of 14 Civil
Appeals as “the Tata Group” or “the Appellants”. We shall refer to the other group as “SP
Group” (Shapoorji Pallonji Group) or “the respondents”. Similarly we shall refer to Tata Sons
Limited (or Tata Sons Private Limited) merely as ‘Tata Sons’, as there is a controversy
regarding the usage of the word “Private” before the word “Limited”.

Background of the Litigation
2.1 On 08.11.1917, Tata Sons was incorporated as a Private Limited Company under the
Companies Act, 1913.
2.2 Two companies by name Cyrus Investments Private Limited and Sterling Investment
Corporation Private Limited, forming part of the SP Group respectively acquired 48
preference shares and 40 equity shares of the paid-up share capital of Tata Sons, from an
existing member by name Mrs. Rodabeh Sawhney. Over the years, the shareholding of SP
Group in Tata Sons has grown to 18.37% of the total paid-up share capital.
2.3 The shareholding pattern of Tata Sons Limited is as follows:
(i) Shares held by two Tata Trusts 65.89%
(ii) Shares held by SP Group 18.37%
(iii) Shares held by operating Companies 12.87%
Total 97.13%
The balance is held by RNT and a few others.
2.4 From 25.06.1980 to 15.12.2004 Shri Pallonji S. Mistry, the father of CPM was a NonExecutive Director on the Board of Tata Sons. On 10.08.2006 CPM was appointed as a NonExecutive Director on the Board.
2.5 By a Resolution of the Board of Directors of Tata Sons dated 16.03.2012, CPM was
appointed as Executive Deputy Chairman for a period of five years from 01.04.2012 to
31.03.2017, subject however to the approval of the shareholders at a General Meeting. The
General Meeting gave its approval on 01.08.2012.

2.6 By a Resolution dated 18.12.2012, the Board of Directors of Tata Sons redesignated CPM
as its Executive Chairman with effect from 29.12.2012, even while designating RNT as
Chairman Emeritus.
2.7 By a Resolution passed on 24.10.2016, the Board of Directors of Tata Sons replaced CPM
with RNT as the interim Non Executive Chairman. It is relevant to note that CPM was
replaced only from the post of Executive Chairman and it was left to his choice to continue or
not, as Non-Executive Director of Tata Sons.
2.8 As a follow up, certain things happened and by separate Resolutions passed at the
meetings of the shareholders of Tata Industries Limited, Tata Consultancy Services Limited
and Tata Teleservices Limited, CPM was removed from Directorship of those companies.
CPM then resigned from the Directorship of a few other operating companies such as the
Indian Hotels Company Limited, Tata Steel Limited, Tata Motors Limited, Tata Chemicals
Limited and Tata Power Company Limited, after coming to know of the impending
resolutions to remove him from Directorship.
2.9 Thereafter, 2 companies by name, Cyrus Investments Private Limited and Sterling
Investment Corporation Private Limited, belonging to the SP Group, in which CPM holds a
controlling interest, filed a company petition in C.P No.82 of 2016 before the National
Company Law Tribunal under Sections 241 and 242 read with 244 of the Companies Act,
2013, on the grounds of unfair prejudice, oppression and mismanagement.
2.10 But these two companies, hereinafter referred to as ‘the complainant companies’,
together had only around 2% of the total issued share capital of Tata Sons. This is far below
the de-minimus qualification prescribed under Section 244(1)(a) to
invoke sections 241 and 242. Therefore, the complainant companies filed a miscellaneous
application under the proviso to Subsection (1) of Section 244 seeking waiver of the
requirement of Section 244(1)(a), which requires at least one hundred members of the
company having a share capital or one tenth of the total number of fixed members or any
member or members holding not less than one-tenth of the issued share capital of the
company alone to be entitled to be the applicant/applicants.
2.11 Along with the application for waiver of the requirement of Section 244(1)(a), the
complainant companies also moved an application for stay of an Extraordinary General
Meeting (“EGM” for short) of Tata Sons, in which a proposal for removing CPM as a
Director of Tata Sons had been moved. The NCLT refused stay, as a consequence of which
the EGM proceeded as scheduled and CPM was removed from the Directorship of Tata Sons,
by a Resolution dated 16.02.2017.
2.12 Subsequently, by an Order dated 06.03.2017, NCLT held the main company petition to
be not maintainable at the instance of persons holding just around 2% of the issued share

capital. This was followed by another order dated 17.4.2017, by which NCLT dismissed the
application for waiver.
2.13 The complainant companies filed appeals before NCLAT against both the Orders dated
06.03.2017 and 17.04.2017. These appeals were allowed on 21.09.2017, granting waiver of
the requirement of Section 244(1)(a) and remanding the matter back to NCLT for disposal on
merits. Tata Group did not challenge this order.
2.14 Thereafter, NCLT heard the company petition on merits and dismissed the same by an
Order dated 09.07.2018. 2.15 Challenging the order of the NCLT, the two complainant
companies filed one appeal. CPM filed another appeal. Both these appeals were allowed by
the Appellate Tribunal by a final Order dated 18.12.2019 granting the following reliefs:
(i) The proceedings of the sixth meeting of the Board of Directors of ‘Tata Sons Limited’ held
on Monday, 24th October, 2016 so far as it relates to removal and other actions taken against
Mr. Cyrus Pallonji Mistry (11th Respondent) is declared illegal and is set aside. In the result,
Mr. Cyrus Pallonji Mistry (11th Respondent) 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.
As a sequel thereto, the person who has been appointed as ‘Executive Chairman’ in place of
Mr. Cyrus Pallonji Mistry (11th Respondent), his consequential appointment is declared
illegal.
(ii) Mr. Ratan N. Tata (2nd Respondent) and the nominee of the ‘Tata Trusts’ shall desist
from taking any decision in advance which requires majority decision of the Board of
Directors or in the Annual General Meeting.
(iii) In view of ‘prejudicial’ and ‘oppressive’ decision taken during last few years, the
Company, its Board of Directors and shareholders which has not exercised its power
under Article 75 since inception, will not exercise its power under Article 75 against
Appellants and other minority member. Such power can be exercised only in exceptional
circumstances and in the interest of the company, but before exercising such power, reasons
should be recorded in writing and intimated to the concerned shareholders whose right will be
affected.
(iv) The decision of the Registrar of Companies changing the Company (‘Tata Sons Limited’)
from ‘Public Company’ to ‘Private Company’ is declared illegal and set aside. The Company
(‘Tata Sons Limited’) shall be recorded as ‘Public Company’. The ‘Registrar of Companies’
will make correction in its record showing the Company (‘Tata Sons Limited’) as ‘Public
Company’.” 2.16 After NCLAT disposed of the appeals by its order dated 18122019, the
Registrar of Companies moved 2 interlocutory applications seeking the deletion of certain
remarks made by NCLAT against them. These applications were dismissed by NCLAT by

order dated 06012020. Therefore, as against the final Order of NCLAT dated 18122019, (i)
Tata Sons Private Limited (ii) RNT (iii) the Trustees of the two Tata Trusts and (iv) three
operating companies of Tata Group have come up with 2 Civil Appeals each (totalling to 12
appeals) and the complainant companies have come up with one Civil Appeal. In addition,
Tata Sons have also come up with 2 more appeals against the order dated 06012020 passed by
NCLAT on the applications of the Registrar of Companies.

Case set up by the complainants in their petition under sections
241 and 242, Companies Act, 2013 and Reliefs sought
3.1 In the company petition as it was originally filed by S.P. Group in December, 2016 before
the NCLT, the complainant companies claimed that the affairs of Tata Sons, are carried out
as though it was a proprietary concern of RNT and that the oppressive conduct of the
respondents was such that it would be just and equitable to wind up Tata Sons, but such
winding up would unfairly prejudice the interest of the petitioners and that therefore the
Tribunal should pass such orders so as to bring to an end, the acts of oppression and
mismanagement.
3.2 The acts of oppression and mismanagement complained against Tata Sons revolved
around (i) alleged abuse of the Articles of Association, particularly Articles 121, 121A, 86,
104B and 118, to enable the trusts and its nominee Directors to exercise control over the
Board of Directors; (ii) alleged illegal removal of CPM as Executive Chairman without any
notice and an all out attempt to remove him from the Directorship of all the operating
companies of the Tata group; (iii) alleged dubious transactions in relation to Tata Teleservices
Limited, alongwith one Mr. C. Sivasankaran; (iv) RNT allegedly treating Tata Sons as a
proprietorship concern with all others acting as puppets, resulting in the Board of Directors
failing the test of fairness and probity (v) acquisition of Corus Group PLC of UK at an
inflated price and then jeopardising the talks for its merger with Thyssen Krupp (vi) Nano car
project becoming a disaster with losses accumulating year after year and the conflict of
interest that RNT had in the supply of Nano gliders to a company where he had stakes; (vii)
providing corporate guarantee to IL & FS Trust Company for the loan sanctioned by Standard
Chartered Bank to Sterling (viii) making Kalimati Investments Ltd, a subsidiary of Tata Steel
to provide an inter corporate bridge loan to Sterling; (ix) the dealings with NTT DoCoMo and
Sterling resulting in an arbitration award for a staggering amount; (x) leaking information to
Siva of Sterling that resulted in Siva issuing legal notices to Tata Teleservices and Tata Sons
(xi) RNT making a personal gain for himself through the sale of a flat owned by a Tata group
company to Mehli Mistry; (xii) companies controlled by Mehli Mistry receiving favours due
to the personal relationship that RNT had with him; and (xiii) fraudulent transactions in the
deal with Air Asia which led to financing of terrorism.
3.3 On the foundation of the above, the complainant companies contended before NCLT: (i)
that the directors of Tata Sons are not carrying out their fiduciary responsibilities for and on
behalf of the shareholders, but have become mere puppets controlled by RNT and the

Trustees of the two Trusts; (ii) that the powers contained in the Articles of Association are
being exercised in a malafide manner prejudicial to the interest of the petitioners and to public
interest; (iii) that various operating decisions are taken either for emotional reasons or for
pampering the ego of RNT; (iv) that attempts are made to shield persons responsible for
fraudulent transactions at Air Asia; (v) that attempts are made to ensure that no legal action is
initiated against Siva who owes Rs. 694 crores; (vi) that Ratan Tata enabled his associates to
unjustly enrich themselves at the cost of Tata Sons; and (vii) that the present directors of Tata
Sons are not promoting the interests of shareholders of Tata Sons and the interests of the
shareholders of various operating companies of the Tata group.
3.4 In the light of the above pleadings and contentions, the petitioners before the NCLT
sought a set of about 21 reliefs, whose abridged version is as follows:
“(A) Supersede the existing Board of Directors of Respondent No. 1 and appoint an
administrator;
(B) In the alternative to prayer (A) above, appoint a retired Supreme Court Judge as the nonexecutive Chairman of the Board of Directors of Respondent No. 1 and appoint such number
of new independent directors;
(C) restrain the socalled “Interim Chairman” i.e Respondent No. 2 from attending any
meeting of the Board of Directors;
(D) restrain Respondent No. 14 from interfering in the affairs of Respondent No. 1;
(E) direct Respondent No. 1 not to issue any securities which results in dilution of the present
paidup equity capital;
(F) direct the Respondents not to remove Respondent No. 11 as a director from the Board of
Respondent No. 1;
(G) restrain the Respondents from making any changes to the Articles of Association of
Respondent No. 1;
(H) order an investigation into the role of the Trustees of the Tata Trusts in the operations of
Respondent No. 1 and/or Tata Group companies and prohibit the Trustees from interfering in
the affairs of Respondent No. 1 and/or Tata Group companies;
(I) appoint an independent auditor to conduct a forensic audit into transactions and dealings
of Respondent No. 1 with particular regard to all transactions with C.Sivasankaran and his
business entities and all transactions involving Mr. Mehli Mistry and his associated entities
and such findings of the audit and investigation should be referred to the Serious Fraud
Investigation Office;
(J) Appoint an inspector (under applicable law) to investigate into the breach of the SEBI
(Prohibition of Insider Trading) Regulations, 2015 and/or refer the findings of such
investigation to the Serious Fraud Investigation Office of the Ministry of Corporate Affairs,
Government of India.

(K) direct Respondent No.2 to pay Respondent No. 1 the amount of unjust enrichment that has
accrued to Respondent No. 2 on account of surrender of the subtenancy of the Bakhtawar
flat;
(L) appoint a forensic auditor to reinvestigate the transactions executed by AirAsia with
entities in India and Singapore and such findings of the audit should be referred by the
Hon’ble Tribunal to the Serious Fraud Investigation Office of the Ministry of Corporate
Affairs, Government of India;
(M) strike of Articles numbered 86, 104(B), 118, 121 and 121A in their entirety and in so far
as Article 124 of the Articles of Association of Respondent No. 1 is concerned, the following
portion of the said Article, which is offending and/or repugnant, should be deleted: “… Any
committee empowered to decide on matters which otherwise the Board is authorised to decide
shall have as its member at least one director appointment pursuant to Article 104B. The
Provisions relating to quorum and the manner in which matters will be decided contained in
Articles 115 and 121 respectively shall apply mutatis mutandis to the proceedings of the
committee. “from the Articles of Association of Respondent No. 1; and substitute these
articles with such articles as the nature and circumstances of this case may require;
(N) direct the Respondents (excluding Respondent Nos. 4, 10 &11) to bring back into
Respondent No. 1, the funds used by Respondent No. 1 for acquiring shares of Tata Motors;
(O) restrain Respondent No. 1 from initiating any new line of business or acquiring any new
business;
(P) restrain the trustees of the Trusts from interfering in the affairs of Respondent No. 1 and
in the various companies;
(Q) restrain the existing Selection Committee from acting any further.
(R) direct that no candidate selected by the Selection Committee constituted pursuant
to Article 118 of the Articles of Association of Respondent No. 1 to be appointed without leave
of this Hon’ble Tribunal;
(S) direct Respondent No. 1 not to demand and/or procure any unpublished price sensitive
information from any listed operating companies within the Tata Group;
(T) grant interim and adinterim reliefs in terms of Prayers (A) to (S) above;
and (U) pass such further orders that this Hon’ble Tribunal may, deem necessary for bringing
an end to the acts of oppression and mismanagement in the running of Respondent No. 1.”

Amendment of pleadings, addition and deletion of reliefs

4.1 The contents of Chapter 3 above, are the pleadings made and the reliefs sought in the
company petition, as it was originally filed on 20.12.2016. But the pleadings and the prayers
underwent certain changes in the course of the proceedings, partly due to subsequent
developments and partly due to change of strategy/better counsel.
4.2 What is important to note here is that some of the changes to the pleadings and the reliefs
sought, were by way of proper applications for amendment and some others were just by way
of additional affidavits. We shall advert to them in this part.
4.3 The company petition filed on 20.12.2016 was taken up on 22.12.2016 and the NCLT
passed an order to the following effect: “It has also been further agreed by all the parties more
specially by the petitioner counsel, or R11 counsel and the counsel on behalf of the answering
respondents that they will not file any interim application or initiate any action or proceedings
over this subject matter pending disposal of this company petition.”
4.4 Soon, the matter got precipitated. Claiming that CPM sent four boxfiles containing
several documents relating to Tata Education Trust, to the Deputy Commissioner of Income
Tax with a view to create trouble, a special notice was issued for convening the EGM of Tata
Sons on 06.02.2017 for considering the proposal for the removal of CPM as a Director of
Tata Sons.
4.5 Therefore, the complainant companies moved a contempt application. The said
application was disposed of by NCLT by an order dated 18.01.2017, permitting the
complainant companies and CPM to file an additional affidavit limiting to the proposal for the
removal of Cyrus Pallonji Mistry from the Board. 4.6 Accordingly, an additional affidavit
was filed on 21.01.2017. However, the NCLT, by an order dated 31.01.2017 rejected the
prayer of S.P. Group for stay of EGM scheduled to be held on 06.02.2017.
4.7 S.P. Group filed an appeal against the order refusing the stay of EGM. The appeal was
disposed of on 03.02.2017, merely permitting the S.P. Group to file a petition for amendment,
in the event of CPM being removed in the EGM. In the EGM held on 06.02.2017, CPM was
removed.
4.8 Therefore, the complainant companies filed an amendment application dated 10.02.2017
seeking addition of two more prayers namely: (i) to direct the respondents to reinstate the
representative of the complainant companies on the Board of Tata Sons; and (ii) to direct the
amendment of Articles of Association of Tata Sons to provide for proportional representation
of shareholders on the Board of Directors of Tata Sons.
4.9 But the petition for contempt, the petition for interim stay of EGM and the application for
amendment to include additional prayers, all turned out to be exercises in futility, with the
NCLT passing two orders, one on 06.03.2017 and another on 17.04.2017. By the first order
dated 06.03.2017, NCLT held the company petition to be not maintainable, on the ground that

the two complainant companies did not hold at least 10% of the issued share capital of Tata
Sons. By the second order dated 17.04.2017, NCLT rejected the application for grant of
waiver filed under the proviso to Subsection (1) of Section 244.
4.10 But the aforesaid orders of NCLT dated 06.03.2017 and 17.04.2017 were reversed by
NCLAT by an order dated 21.09.2017 and the matter was remanded back to NCLT.
4.11 Thereafter, the complainant companies filed one additional affidavit, one application for
amendment, one application for stay and one memo giving up some of the reliefs already
sought. The facts relating to these, can be compressed into a tabular column as follows:

Sl.No.	What was filed	Reliefs sought
1.	Additional affidavit dated 31.10.2017	This additional affidavit sought to challenge the conversion of Tata Sons from being a Public Limited Company into a Private Limited Company.
2.	Application for amendment dated 31.10.2017	By this application, the complainants sought the following prayers: (M1): Set aside the resolution passed by the shareholders of respondent No.1 on September 21, 2017 insofar as it seeks to amend the Articles of Associations and Memorandum of Association of Respondent No.1 for conversion of Respondent No.1 into a private company. (M2): Strike off/Delete Article 75 as the same is a tool in the hands of the majority shareholders to oppress the minority; and; (M3): Pending the final hearing disposal of the Company Petition, the effect and operation of the resolution dated September 21, 2017 be stayed. (F1): Direct Respondent No.1 and/or Respondent No. 2 to 10 and 12 to 22 to reinstate a representative of the Petitioners on the Board of Respondent No.1 (G1): Direct that the Articles of Association of Respondent No.1 be amended to provide for proportionate representation of shareholders on the Board of Directors of Respondent No.1
3.	Application for stay dated 31.10.2017	Through this application, the complainants sought Stay of conversion of Tata Sons into a Private Limited Company
4.	Memo dated 12.01.2018	By this memo, certain reliefs originally sought, were given up, certain reliefs originally prayed for, were not pressed and one particular relief was sought to be restricted. The prayer in the Memo was as follows:¬ a. Prayer M, which sought the striking of Articles 86, 104(B), 118, 121 and 121A, and striking of a portion of Article 124, is restricted as under: i. The necessity of an affirmative vote of the majority of directors nominated by the Trusts, which are majority of shareholders, be deleted; ii. The Petitioners be entitled to proportionate representation on Board of Directors of Respondent No.1; iii. The Petitioners be entitled to representation on committees formed by the Board of Directors of Respondent No.1; and iv. The Articles of Association be amended accordingly. b. Prayers A, B and C were not pressed. c. Prayers F, Q and R, being infructuous were not pressed.

Response of Tata Sons to the allegations made in the Company Petition
5.1 Tata Sons filed a reply to the company petition contending inter-alia : (i) that CPM, who
was removed from the post of Executive Chairman, after having lost the confidence of 7 out
of 9 Directors, has sought to use the complainant companies to besmirch the reputation of
Tata Group; (ii) that even the decisions to which CPM was a party have been questioned in
the petition; (iii) that Tata Group founded in 1868 is a global enterprise, headquartered in
India, comprising over a hundred operating companies, having presence in more than 100
countries across six continents, collectively employing over 6,60,000 people; (iv) that
the revenue of Tata Group in 201516, was $103.51 billion; (v) that there are 29 publicly listed
companies in the Tata Group with a combined market capitalisation of about $116.41 billion;
(vi) that 65.3% of the issued ordinary share capital of Tata Sons is held by philanthropic trusts
which support education, health, livelihood generation and art and culture; (vii) that it was at
the instance of CPM that RNT was designated as Chairman Emeritus and he was requested to
attend Board Meetings as a special and permanent invitee and continue to guide the Board;
(viii) that Articles 104B and 121 were introduced through a new version of Articles of

Association at the Annual General Meeting of Tata Sons held on 13.09.2000 and Article
121 was subsequently amended by Resolution dated 09.04.2014; (ix) that Shri Pallonji
Shapoorji Mistry, who represented the complainant companies, was present at the General
meeting held on 13.09.2000; (x) that CPM himself was a party to the Resolution passed by
the shareholders on 09.04.2014, introducing Articles 121A and 121B; (xi) that
CPM’s leadership gave rise to certain issues such as insufficient detail and discipline on
capital allocation decisions, slow execution on identified problems, lack of specificity and
follow through in strategic plan and business plan, failure to take meaningful steps to enter
new growth businesses, weak top management team and reluctance to embrace the Articles of
Association that spelt out the governance structure of the company and the rights of Tata
Trusts; (xii) that there was a growing trust deficit between the Board of Directors of Tata Sons
and CPM due to several reasons, such as the conflict of interest in the matter of award of
contracts to S.P. Group of companies and his systematic and planned reduction of the
representation of Tata Sons Directors on the Boards of other major Tata Companies; (xiii) that
even when the Directors of Tata Sons resolved on 24.10.2016 to replace CPM as Executive
Chairman, the Board agreed to his continuance as a Director of Tata Sons; (xiv) that however
CPM addressed a vitriolic mail on 25.10.2016 to the Directors making false allegations; (xv)
that though the mail was marked confidential, it was simultaneously leaked to the press; (xvi)
that CPM also breached his fiduciary and contractual duties by disclosing confidential
information and documents pertaining to Tata Sons to third parties; (xvii) that CPM made
representations to the shareholders of all operating companies, with unsubstantiated and false
allegations, thereby attempting to make the operating companies vulnerable to make
confidential data available for public inspection; (xviii) that the shareholders of Tata
Industries Limited, Tata Consultancy Services and Tata Teleservices Limited passed
Resolutions respectively on 12.12.2016, 13.12.2016 and 14.12.2016 to remove CPM from
Directorship; (xix) that, therefore, CPM resigned from the Directorship of the other
companies also on 19.12.2016, when he faced the prospect of being removed in the
impending meetings; (xx) that the actions and conduct of CPM after 24.10.2016 compelled
Tata Sons to issue a special notice and requisition for his removal from the Directorship of
Tata Sons; (xxi) that the company petition was not about espousing the cause of corporate
governance or seeking remedies for oppression and mismanagement of Tata Sons; (xxii) that
prior to his removal as Executive Chairman, CPM never raised any concerns regarding any
oppression or mismanagement; (xxiii) that many of the acts of oppression complained of by
the complainant companies, have happened long before the date of filing of the company
petition, showing thereby that the company petition was hopelessly barred by delay and
laches.
5.2 On the allegations of oppression and mismanagement, the response of Tata Sons was as
follows: (i) that the complainant companies have cherry picked certain business decisions to
launch a vitriolic attack on the Tata Trusts; (ii) that while the complainant companies have
talked about bad business deals, such as Corus acquisition and Nano Project, they have
deliberately omitted to talk about Tetley acquisition by Tata Global Beverages Limited, the
immensely successful Jaguar Land Rover acquisition by Tata Motors and the phenomenal
success of Tata Consultancy Services; (iii) that Corus acquisition, the Nano Project, contracts

awarded to the business concerns of Mr. Mehli Mistry and the investment by Mr.C.
Sivasankaran have surfaced only after the replacement of Mr. Cyrus Mistry as the Executive
Chairman; (iv) that CPM has been the Director of Tata Sons since the year 2006 and was also
the Executive Chairman from December, 2012 to October, 2016 and was fully aware of how
the decisions relating to these projects were taken when they were taken; (v) that courts
cannot be called upon to sit in judgment over the commercial decisions of the Board of
Directors of companies; and (vi) that even commercial mis judgments of the Board of
Directors cannot be branded as instances of oppression and mismanagement.
5.3 On specific acts of oppression and mismanagement, raised in the company petition, such
as (i) over priced and bleeding acquisition of Corus PLC of UK; (ii) doomed Nano car
project; (iii) loan advanced by Kalimati Investments to Siva; (iv) sale of the residential flat to
Mehli Mistry; (v) unjust enrichment of Mehli Mistry and the companies controlled by him,
due to the personal equation of RNT with him; (vi) aviation industry misadventures; and (vii)
a huge loss due to purchase of shares of Tata Motors, the reply filed by Tata Sons contained
an elaborate and graphic rebuttal. We shall take note of them later, while dealing with the
question whether or not the allegations constitute the ingredients of sections 241 and 242 of
the Act.

The approach of NCLT
XXXXX
The Approach of NCLAT
7.1 While NCLT dealt with every one of the allegations contained in the main company
petition and recorded its findings, NCLAT, curiously, focused attention only on (i) the
removal of CPM (ii) the affirmative voting rights of the Directors nominated by the 2 Trusts
in the decision making process and (iii) the amended certificate of incorporation issued by the
RoC, deleting the word “Public” and making it a private company once again.
XXXXX
Important difference between the approach of NCLT and the approach of NCLAT
8.1 As pointed out at the beginning of chapter 7, NCLT dealt with every one of the allegations
of oppression and mismanagement and recorded reasoned findings. But NCLAT, despite
being a final court of facts, did not deal with the allegations one by one nor did the NCLAT
render any opinion on the correctness or otherwise of the findings recorded by NCLT.
Instead, the NCLAT summarised in one paragraph, namely paragraph 183, its conclusion on
some of the allegations, without any kind of reasoning. This Paragraph 183 reads as follows:

“The facts, as noticed above, including the affirmative voting power of the nominated
Directors of the ‘Tata Trusts’ over majority decision of the Board; actions taken by Mr. Ratan
N. Tata (2nd Respondent), Mr. Nitin Nohria (7th Respondent) and Mr. N.A.Soonawala (14th
Respondent) and others as discussed above; the fact that the Company (‘Tata Sons Limited’)
has suffered loss because of ‘prejudicial’ decisions taken by Board of Directors; the fact that a
number of ‘Tata Companies’ have incurred loss; in spite of decision making power vested
with the Board of Directors with affirmative power of nominated Directors of the ‘Tata
Trusts’; the action in making change from ‘Public Company’ to ‘Private Company’; the
manner in which Mr. Cyrus Pallonji Mistry (11th Respondent) was suddenly and hastily
removed without any reason and in absence of any discussion in the meeting shown in the
Board of Directors held on 24th October, 2016 and his subsequent removal as Director(s) of
different ‘Tata Companies’, coupled with global effect of such removal, as accepted by the
Company in its ‘Press Statement’ form a consecutive chain of events with cumulative effect
justifying us to hold that the Appellants have made out a clear case of ‘prejudicial’ and
‘oppressive’ action by contesting Respondents, including Mr. Ratan N. Tata (2nd
Respondent), Mr. Nitin Nohria (7th Respondent) and Mr. N.A.Soonawala (14th Respondent)
and other, the nominee Directors.
8.2 The allegations relating to (i) over priced and bleeding Corus acquisition (ii) doomed
Nano car project (iii) undue favours to Siva and Sterling (iv) loan by Kalimati to Siva (v) sale
of flat to Mehli Mistry (vi) the unjust enrichment of the companies controlled by Mehli
Mistry (vii) the Aviation industry misadventures (viii) losses due to purchase of the shares of
Tata Motors etc., were not individually dealt with by NCLAT, though NCLT had addressed
each one of these issues and recorded findings in favour of Tata Sons. Therefore, there is no
escape from the conclusion that NCLAT did not expressly overturn the findings of facts
recorded by NCLT, on these allegations. We are constrained to take note of this, even at the
outset, in view of a contention raised by Shri Shyam Divan, learned Senior Counsel for the SP
group, that in an appeal under Section 423 of the Companies Act, 2013, this court will not
normally interfere with a finding of fact reached by NCLAT, unless it is found to be wholly
perverse.

Contentions on behalf of Tata Sons, group companies and Trustees
XXXXXXX
Contentions on behalf of S.P. Group:
XXXXXXXX
11 Contentions on behalf of the Tata Trusts
XXXXXXX

Contentions of Tata Consultancy Services (TCS)
XXXXXXXX
Contentions of others
XXXXXXXX
Questions of law arising for consideration
14.1 Though the learned counsel for the parties have raised innumerable contentions touching
upon every aspect, micro or macro, and which we have faithfully recorded in paragraphs 9 to
13 above, the jurisdiction of this Court under Section 423 of the Companies Act, 2013, is
primarily to answer questions of law arising out of the proceedings before the Tribunal and
Appellate Tribunal.
14.2 Therefore, from the rival contentions, the questions of law that arise are formulated as
follows:
(i) Whether the formation of opinion by the Appellate Tribunal that the company’s affairs
have been or are being conducted in a manner prejudicial and oppressive to some members
and that the facts otherwise justify the winding up of the company on just and equitable
ground, is in tune with the well settled principles and parameters, especially in the light of the
fact that the findings of NCLT on facts were not individually and specifically overturned by
the Appellate Tribunal ?
(ii) Whether the reliefs granted and the directions issued by the Appellate Tribunal, including
the reinstatement of CPM into the Board of Tata Sons and other Tata companies, are in
consonance with the pleadings made, the reliefs sought and the powers available under Subsection (2) of Section 242 ?
(iii) Whether the Appellate Tribunal could have, in law, muted the power of the Company
under Article 75 of the Articles of Association, to demand any member to transfer his
ordinary shares, by simply injuncting the company from exercising such a right without
setting aside the Article?
(iv) Whether the characterisation by the Tribunal, of the affirmative voting rights available
under Article 121 to the Directors nominated by the Trusts in terms of Article 104B, as
oppressive and prejudicial, is justified especially after the challenge to these Articles have
been given up expressly and whether the Tribunal could have granted a direction to RNT and
the Nominee Directors virtually nullifying the effect of these Articles ?

(iv) whether the reconversion of Tata Sons from a public company into a private company,
required the necessary approval under section 14 of the Companies Act, 2013 or at least an
action under section 43A(4) of the Companies Act, 1956 during the period from 2000 (when
Act 53 of 2000 came into force) to 2013 (when the 2013 Act was enacted) as held by
NCLAT?

Legislative History of Oppression, Mismanagement and Unfair Prejudice
15.1 Before we take up the questions of law formulated above for consideration, we think it
would be useful to look at the legislative history of oppression, mismanagement and
prejudice/ unfair prejudice, both in England and India, as colonial vintage continues to haunt
us (fortunately or unfortunately), both in legislative drafting and in judicial decision making
even till date. In England
15.2 The history of legislative action to regulate incorporated companies, in England, is just
176 years old. It begins with the Joint Stock Companies Act, 1844. Until then, the
government created corporations under a Royal Charter or an Act of Parliament with the grant
of a monopoly over a specified territory. The best known example is the British East India
Company, to which Queen Elizabeth I granted the exclusive right to trade with all countries to
the east of the Cape of Good Hope. During this period, Corporations essentially used to act on
the government’s behalf, bringing in revenue from their exploits abroad.
15.3 A chartered company (similar to East India Company), known as the South Sea
Company, was established in 1711 to trade in the Spanish South American colonies. The
South Sea Company’s monopoly rights were supposedly backed by the Treaty of Utrecht,
signed in 1713 as a settlement following the War of Spanish Succession. Investors in the UK
were promised high returns of unimaginable proportions, which led to the shares of the
company being traded by avaricious investors at high premium. By 1717, the South Sea
Company became so wealthy despite having done no real business that it assumed the public
debt of the UK government. This was the first speculative bubble that the country (or perhaps
the world) saw, but by the end of 1720, the bubble had “burst”, leading to bankruptcies and
the passage of The Bubble Act, 1720.
15.4 The UK Bubble Act, 1720 prohibited the establishment of companies without a Royal
Charter and it remained in force until its repeal in 1825. By 1825, Industrial Revolution had
gathered pace, necessitating a legal change. The Bubble Companies Act 1825 lifted the
restrictions, but it did not resolve the problem fully.
15.5 Therefore in 1843, the Parliamentary Committee on Joint Stock Companies, chaired by
William Gladstone made a report, which led to the enactment of the Joint Stock Companies
Act 1844. This Act made it possible for ordinary people to incorporate companies through a
simple registration procedure. However, it did not permit limited liability

15.6 Then came the Limited Liability Act, 1855, which allowed investors to limit their
liability in the event of business failure, to the amount they invested in the company. These
two features a simple registration procedure and limited liability were subsequently codified
in the first modern company law enactment, namely the Joint Stock Companies Act 1856.
The Joint Stock companies Act, 1856 made it possible for any 7 individuals, subscribing to
shares individually, to form a limited liability company. This was subsequently consolidated
with a number of other statutes in the Companies Act 1862, which was described by Francis
Palmer as the Magna Carta of Cooperative enterprises.
15.7 The Companies Act, 1862 consolidated the laws relating to the incorporation, regulation
and winding up of trading companies and other associations. Though this Act did not
provide for any remedies to the minority shareholders in respect of oppression and
mismanagement, Section 79 empowered the Court to wind up a company whenever the Court
was of the opinion that it is just and equitable to wind up the company. This Act also
contained a provision conferring a limited right upon a dissentient member, whenever a sale
or transfer of the business or property of the company took place in the course of winding up
proceedings.
15.8 However, when fraudulent practices in relation to the formation and management of
companies came to the fore, an investigation was ordered by a Committee chaired by Lord
Davey. The Committee submitted a report along with a draft Bill in June, 1895. This Bill
became the Companies Act, 1900. This Act also did not contain any provision relating to
oppression and mismanagement. So was the case with the Companies (Consolidation) Act,

The Act of 1908 was examined by a committee presided over by Lord Wrenbury in
1918 and again by a committee headed by Greene, K.G. in 1926, which led to the Companies
Act, 1929.
15.9 During the second world war, a Company Law Reforms Committee chaired by Lord
Cohen was appointed (in 1943) by the President of the Board of Trade to consider and report
what major amendments are needed to the 1929 Act, particularly “to review the requirements
prescribed in regard to the formation and affairs of companies and the safeguards afforded
for investors and for the public interest”. This Committee’s report dealt specifically with 2
problems, namely (i) the hardship caused to the legal heirs of a deceased shareholder of a
private company in the matter of disposal of the shares, due to the restriction on the
transferability of shares and (ii) the abuse of office by the Directors in siphoning off huge
profits in the form of remuneration, to the detriment of the small shareholders. After
analyzing these 2 issues in paragraphs 58 and 59 as illustrative cases, the Cohen Committee,
recommended that “a step in the right direction would be to enlarge the power of the Court to
make a winding up order by providing that the power shall be exercisable notwithstanding
the existence of an alternative remedy”.

15.10 Ultimately, in para 153 of the report, a recommendation was made to amend the
provision relating to winding up, by adding the following:
There be a new section under which, on a shareholder’s petition, the Court, if satisfied that a
minority of the shareholders is being oppressed and that a winding up order would not do
justice to the minority, should be empowered, instead of making a winding up order, to make
such other order, including an order for the purchase by the majority of the shares of the
minority at a price to be fixed by the Court, as to the Court may seem just
15.11 Lord Cohen committee report led to the enactment of the Companies Act, 1948, in
which a provision was incorporated in section 210. The heading given to the Section was,
“Alternative Remedy to Winding up in Cases of Oppression”.
XXX
15.12 But the word “oppressive” appearing in section 210 of the 1948 Act, was construed by
the House of Lords in Scottish Cooperative Wholesale Society vs. Meyer, 1959 A.C.324 to
mean “burdensome, harsh and wrongful”. The expression “wrongful” gave rise to some
uncertainty as to whether it required actual illegality or invasion of legal rights. Moreover, the
provision invited 2 criticisms namely (i) that the requirement to establish grounds which
justified winding up under the just and equitable clause was itself harsh and (ii) that section
210 would not apply to an isolated act, but applied only to a course of conduct.
15.13 Therefore, the Jenkins Committee of 1962 recommended use of the term “unfairly
prejudicial”. Parliament adopted it in Section 75 of the Companies Act, 1980. Later,
this section 75 of the 1980 Act became, with an amendment, Section 459 of the Companies
Act, 1985. Sections 459 to 461 of the Companies Act, 1985 were included in Part XVII,
under the caption “Protection of Company’s Members against Unfair Prejudice”. Sections
459 to 461 read as follows:
XXXX
15.14 The Companies Act, 1985 was repealed by the Companies Act, 2006, which had the
dubious distinction of being the longest Act in British parliamentary history, with
1300 sections and 16 schedules. (until it was overtaken by the Corporation Tax Act, 2009).
Part 30 of the Act contains 3 provisions in sections 994 to 996 (apart from others), grouped
under the heading “Protection of Members against Unfair Prejudice”. Paragraph 1265 of the
Explanatory Notes to the 2006 Act, confirms that Sections 994-998 restate sections
459, 460 and 461 of the 1985 Act.
Legislative history in India
15.16 In India, the earliest legislation made for the ‘Regulation of Registered Joint Stock
Companies’ was Act No. XLIII of 1850. This Act provided for the registration of every un-

incorporated company of partners, associated under a deed containing a provision that the
shares in the stock or business of the said company, are transferable without the consent of all
the partners. It will be fascinating for those interested in history, to know that under this 1850
Act, the Supreme Courts of Judicature at Calcutta, Madras and Bombay were conferred not
only with the power of registration of such companies but also with a power to enforce the
performance by the directors of any of their duties under the Act or the deed of partnership.
These courts also had a consequential power to punish a person for contempt, if there was any
disobedience of the order of the court. The concepts such as minority, majority, oppression,
mismanagement etc., were alien to this Act of 1850.
15.17 Then came Act No.XIX of 1857 which provided for the incorporation and regulation of
joint stock companies and other associations either with or without limited liability of the
members thereof. The primary object of the Act was to enable the members of the joint stock
companies and other associations to limit their liability for the debts and engagements relating
to those companies and associations. It was under this Act that for the first time the
prescription that 7 or more persons associated for any lawful purpose may form themselves
into an incorporated company with or without limited liability by subscribing their names to a
Memorandum of Association, was introduced. By this very same Act the prohibition for 20 or
more persons to carry on any partnership in trade or business having gain as its object, unless
they are registered as a company, was also introduced. But even in this Act the concepts such
as oppression and mismanagement etc., were not dealt with (perhaps due to the fact that East
India Company alone was granted such a privilege).
15.18 Thereafter, a full-fledged enactment known as The Indian Companies’ Act, 1866 was
passed with a view to consolidate and amend the laws relating to the incorporation, regulation
and winding up of trading companies and other associations. Even this Act, did not provide
for any remedy in the case of oppression and mismanagement, though provisions were made
for winding up including voluntary winding up.
15.19 The above Act No. X of 1866 was repealed by The Indian Companies Act No. VI of

This Act also did not contain provisions for an individual or group of
shareholders/members to seek redressal against oppression, mismanagement or any unfair
prejudicial treatment.
15.20 Then came The Indian Companies Act, 1913 (Act No.VII of 1913) which repealed the
1882 Act and the amendments made thereof. Interestingly, this 1913 Act also repealed one
particular provision in the Indian Arbitration Act, 1899. Though in the original enactment of
1913, there was no provision relating to oppression and mismanagement, the Amendment
Act 52 of 1951 inserted Section 153C to The Indian Companies Act, 1913. This Section
153C reads as follows : “153C. Power of court to act when company acts in a prejudicial
manner or oppresses any part of its members.- XXXXXX

15.21 After the country attained independence, a Company Law Committee was appointed by
the Government of India for the revision of the Companies Act with particular reference to
Indian trade and industry. The Committee submitted its report in March 1952. After
circulating the Report to all State Governments, Chambers of Commerce, Trade Associations
and other bodies and after examining the inputs received, the Companies Act, 1956 (Act no.1
of 1956) was passed. This Act included a full Chapter in Chapter VI of Part VI, containing
elaborate provisions for the prevention of oppression and mismanagement. This Chapter was
divided into two parts, with Part A dealing with the powers of the Court/Tribunal and Part B
dealing with the powers of the Central Government. Sections 397, 398 and 402 of the Act are
of significance and, hence, they are extracted as follows:
XXXXXXX
15.22 After the economy of the country opened up and the national and international
economic environment changed, the Government decided to replace the 1956 Act with a new
one. Accordingly, the Companies Bill, 2009 was introduced in the Lok Sabha. But this bill
was withdrawn and the Companies Bill, 2011 was introduced. This eventually became
the Companies Act 2013. Among the many changes brought about by this Companies
Act 2013, those relating to protection of minority shareholders is what is relevant for our
purpose. In fact, paragraph 5(ix) of the Statement of Objects and Reasons for the Companies
Act, 2013 deals with the issue of protection of minority shareholders. It reads as follows:
“5. (ix) Protection for Minority Shareholders:
(a) Exit option to shareholders in case of dissent to change in object for which public issue
was made.
(b) Specific disclosure regarding effect of merger on creditors, key managerial personnel,
promoters and nonpromoter shareholders is being provided. The Tribunal is being empowered
to provide for exit offer to dissenting shareholders in case of compromise or arrangement.
(c) The Board may have a director representing small shareholders who may be elected in
such manner as may be prescribed by rules.”
15.23 Chapter XVI of the 2013 Act containing Sections 241 to 246 deals exclusively with
“Prevention of Oppression and Mismanagement.”
Sections 241 and 242 are of relevance for our purpose and hence it is extracted as follows:
XXXXXXXX
15.24 Thus the English legislative history of the provisions relating to oppression,
mismanagement and prejudice, show 3 milestones, namely (i) the introduction in the year
1862, of the ‘just and equitable clause’ for winding up and the conferment of a limited

right on the dissentient member, whenever a transfer or sale took place in the course of
winding up proceedings, (ii) the provision of an alternative remedy to winding up, in case
of oppression of minority, in the year 1948 and (iii) the shift from oppression to the ‘unfair
prejudice’ quotient in 1980/1985. The journey, in other words, was from “winding up on
just and equitable cause” to “oppression” to “unfair prejudice”.
15.25 But in so far as India is concerned, what was incorporated in section 210 of the English
Companies Act, 1948, inspired the insertion of section 153C of the Indian Companies Act,
1913, by way of an amendment in 1951. Then came sections 397 and 398 of the 1956 Act,
with certain modifications. An overhaul of these provisions resulted in Sections
241 and 242 of the 2013 Indian Act, on the model of (and not exact reproduction of)
sections 459 to 461 of the English Companies Act, 1985 and sections 994 to 996 of the
English Act of 2006.
15.26 The change of language and the consequential change of parameters for an inquiry
relating to oppression and mismanagement from 1951 to 1956 and from 1956 to 2013 and
thereafter can be best understood, if the anatomy of the statutory provisions are dissected and
presented in a table :

1913 Act (After the Amendment Act 52 of 1951)	1956 Act (with the amendment made under Act 53 of 1963)	2013 Act
(1) Company’s affairs are being conducted in a manner (a) Prejudicial to the company’ interest; or (b) Oppressive to some part of the members; and (2) Winding up will unfairly and materially prejudice the interests of the company’s or any part of its members (3) The object should be to bring to an end, the matters complained of.	(1) Company’s affairs are being conducted in a manner (a) Prejudicial to public interest; or (b) Oppressive to any member or members; or (c) Prejudicial to the interests of the company; and (2) Winding up will unfairly prejudice such member or members	(1) Company’s affairs have been or are being conducted in a manner– (a) Prejudicial to any member or members; (b) Prejudicial to public interest; or (c) Prejudicial to the interests of the company; or (d) Oppressive to any member or members. (2) Winding up will unfairly prejudice such member or members

15.27 From the table given above, it could be seen that the changes brought about in India
in course of time, were material. These changes can be summarised as follows:

(i) While the conduct of the company’s affairs in a manner that warrant interference, should
be “present and continuing”, under the 1913 Act and 1956 Act, as seen from the usage of the
words “are being”, the conduct could even be “past or present and continuous” under the
2013 Act as seen from the usage of the words “have been or are being” (But the conduct
cannot be of a distant past);
(ii) Prejudice to public interest and prejudice to the interests of any member or members were
not among the parameters prescribed in the 1913 Act, but under the 1956 Act prejudice to
public interest was included both under the provision relating to oppression and also under the
provision relating to mismanagement. Prejudice to the interest of the company was included
only in the provision relating to mismanagement. But under the 2013 Act conduct prejudicial
to any member or prejudicial to public interest or prejudicial to the interest of the company
are all added along with oppression;
(iii) Under the 1913 Act, the Court should be satisfied that winding up under the just and
equitable clause will not only unfairly prejudice but “also materially prejudice” the interests
of the company or any part of its members. But in the 1956 Act and 2013 Act, the words “and
materially” do not follow the word “unfairly”. Moreover, under the 1956 Act and 2013 Act
all that is required to be seen is whether the winding up will unfairly prejudice “such member
or members” indicating thereby that the focus was on complaining/affected members.
15.29 There are a few notable features of the shift that happened in England. They are (i)
from a “conduct oppressive to some part of the members” the focus has shifted to “conduct
unfairly prejudicial to the interests of the members generally or of some part of its members”:
(ii) conduct prejudicial to public interest or prejudicial to the company’s interest, does not
form part of the scheme of English Law; (iii) any actual or proposed act or omission, can also
be challenged under English Law on the ground that it would turn out to be prejudicial; (iv)
the question of the Court forming an opinion that the facts would otherwise require an order
for winding up on just and equitable ground but that the same will unfairly prejudice the
complaining members, does not arise under the English Law any more.
15.30 But despite the huge shift in England, there appears to be a common thread running in
all the enactments, both in India and England. In all the 3 Indian enactments, namely the 1913
Act, 1956 Act and the 2013 Act, the Court is ordained, generally to pass such orders “with a
view to bringing to an end the matters complained of”. This sentence is found in Section
153C(4) of the 1913 Act. It is found in Section 397(2) as well as 398(2) of the 1956 Act and it
is also found in Section 242 (1) of the 2013 Act. This is also the common thread that runs
through the statutory prescriptions contained in the English Acts of 1948, 1985 and 2006.
Therefore, at the stage of granting relief in an application under these provisions, the final
question that the Court should ask itself is as to whether the order to be passed will bring to an
end the matters complained of. Having thus seen the development of law, let us now take up
the questions of law one after another.

16 Question No. 1:
16.1 The first question of law arising for consideration is whether the formation of opinion by
the Appellate Tribunal that the company’s affairs have been or are being conducted in a
manner prejudicial and oppressive to some members and that the facts otherwise justify the
winding up of the company on just and equitable ground, is in tune with the well settled
principles and parameters, especially in the light of the fact that the findings of NCLT on facts
were not individually and specifically overturned by the Appellate Tribunal ?
16.2 An analysis of the provisions of Section 241(1)(a) read with clauses (a) and (b) of Subsection (1) of Section 242 shows that a relief under these provisions can be granted only if the
Tribunal is of the opinion – “(1) that the company’s affairs have been or are being conducted
in a manner –
(a) Prejudicial to any member or members or
(b) Prejudicial to public interest or
(c) Prejudicial to the interests of the company or
(d) Oppressive to any member or members and (2) that though the facts would justify the
making of a winding up order on the basis of just and equitable clause, such a winding up
would unfairly prejudice such member or members.
16.3 Keeping in mind the above statutory prescription, if we go back to the pleadings, it will
be seen that the complainant companies forming part of the S.P. Group pitched their claim in
their original petition on the ground:
(i) that the affairs of Tata Sons are being carried as though it was the proprietary concern of
RNT; and
(ii) that though the oppressive conduct of the respondents was such that it would be just and
equitable to wind up Tata Sons under Section 241, but such winding up would unfairly
prejudice the interests of the complainants.
16.4 The specific allegations on which the complainant companies (of the S.P. Group) sought
relief are as follows:
(i) The abuse of a few Articles of Association and the control exercised by the Tata Trust and
its nominee Directors over the Board of Directors of Tata Sons;
(ii) The removal of CPM as Executive Chairman;

xxxxxxx
16.6 None of the above findings, except the one relating to the removal of CPM was
specifically and individually overturned by NCLAT. In addition NCLAT focused on the
conversion of Tata Sons from a public company to a private company.
16.8 NCLAT, being an Appellate Tribunal, conferred with the power under sub-Section (4)
of Section 421 to confirm, modify or set aside the order of NCLT, can be taken to be a final
court of fact. An appeal from the Order of the NCLAT to this Court under Section 423 is only
on a question of law. Considering the nature of the jurisdiction conferred upon NCLAT, it is
clear that the findings of the NCLT, not specifically modified or set aside by NCLAT should
be taken to have reached finality, unless the parties aggrieved by such non-interference by
NCLAT have approached this Court, raising this as an issue. Though SP group has also filed
an appeal in C.A. No. 1802 of 2020, the grievance aired therein, as seen from para 3 of the
memorandum of appeal, is limited to the failure of NCLAT to grant certain reliefs. The failure
of NCLAT to specifically overturn the findings of fact recorded by NCLT, is not assailed in
the SP group’s appeal. Therefore, we have no hesitation in holding that the allegations
relating to
(i) transactions with Siva and Sterling Group of Companies;
(ii) Air Asia;
(iii) Transactions with Mehli Mistry;
(iv) the losses suffered by Tata Motors in Nano car project;
and
(v) the acquisition of Corus
reached finality.
16.9 The findings recorded by NCLAT for the grant of reliefs, revolved primarily
around the removal of CPM, the affirmative voting rights, interference by nominee Directors
and the conversion of Tata Sons into a private company. In other words, these are the 4 areas
in which NCLAT can be taken to have undertaken a scrutiny and reversed the findings of
NCLT. Therefore, for answering the first question of law, we need to focus mainly on these
issues on which NCLAT expressly overruled NCLT.
16.10 Out of these 4 specific issues on which NCLAT overruled NCLT, 3 issues will also be
covered in our discussion on questions of law 4 and 5.. Therefore, we shall take up in this
chapter, the question (i) whether the removal of CPM could have been the basis for the
allegation that the company’s affairs have been or are being conducted in a manner oppressive

or prejudicial to the interests of some of the members and (ii) whether the findings recorded
by NCLAT about the existence of just and equitable clause is in accordance with the well
established principles of law.
Removal of CPM
16.11 CPM was first removed only from the post of Executive Chairman of Tata Sons, but
not from the Directorship, by the resolution of the Board dated 24.10.2016. On the very next
day namely 25.10.2016, CPM wrote a mail alleging total lack of corporate governance and
failure on the part of the directors to discharge their fiduciary duties. He also called all the
Trust nominee directors as postmen. Though the mail was labelled as ‘confidential’, a copy of
the mail landed up with the media creating a “sensation”. NCLT recorded a finding that CPM
who owes a duty to explain this leakage of confidential mail, could not provide a satisfactory
answer and that therefore, by virtue of section 106 of the Evidence Act, the leakage has to be
traced to CPM. NCLAT did not overrule this finding.
16.12 The mail compelled Tata sons to issue a Press Statement on 10.11.2016. This was
followed by the removal of CPM from the Directorship of Tata Industries Limited, Tata
Consultancy Services Limited and Tata Teleservices Limited, all of which happened during
the period from December 12 to December 14, 2016. Seeing clearly the course of destiny
(which was actually set in motion by none other than himself), CPM resigned from other
operating companies of Tatas such as The Indian Hotels Company Limited, Tata Steel
Limited, Tata Motors Limited, Tata Chemicals Limited and Tata Power Limited, on
19.12.2016, on the eve of the Extraordinary General Meetings of those companies, convened
for considering resolutions for his removal. On the very next day namely, 20.12.2016 the
complainant companies, of which CPM is the pivot, filed a petition C.P.No.82 of 2016 before
NCLT, Mumbai, under Sections 241 and 242 read with Section 244 of the Companies Act,
2013.
16.13 Around this time, as if by coincidence, the Principal Officer of Tata Sons received a
letter dated 29.11.2016 from the Deputy Commissioner of Income Tax (Exemptions) seeking
certain information under Section 133(6) of the Income Tax Act, 1961 in the case of Tata
Education Trust. Tata Sons, through a reply dated 09.12.2016 furnished necessary
information along with the requested documents. The Deputy Commissioner of Income Tax
also called for some additional information by subsequent letters, and the information so
called for, was also furnished. 16.14 Claiming that a mail dated 20.12.2016 issued by the
Deputy Commissioner of Income Tax seeking further information under Section 133(6) was
copymarked to him, CPM sent a reply to the Income Tax department confirming (i) that the
Directors appointed by Tata Trust controlled the decision making processes by virtue of the
affirmative voting rights; (ii) that RNT and Soonawala have on many occasions sought prior
information and consultation; (iii) that the conduct of the Trustees posed several regulatory
risks; and (iv) that the office of RNT, in his capacity as Chairman Emeritus was funded by
Tata Sons, including the cost of his overseas travel by private jet. To this letter to the Deputy

Commissioner of Income Tax was enclosed certain files purportedly containing the
information sought.
16.15 Upon coming to know of CPM’s letter to the Deputy Commissioner of Income Tax,
Tata Sons lodged a protest through a letter dated 26.12.2016. It was followed by a legal notice
issued by Tata Sons to CPM on 27.12.2016 pointing out that he was guilty of breach of
confidentiality and that he had passed on confidential and sensitive information contained in 4
box files, without any authority. CPM sent a legal reply dated 05.01.2017 claiming that he
had a statutory obligation to cooperate with Income Tax authorities. As if to display his
courage of conviction, CPM sent another letter dated 12.01.2017 to the Deputy Commissioner
of Income Tax sending one more file and assuring the authorities that he would continue to
check the records and submit any additional data/information as and when available.
16.16 In the light of whatever transpired as narrated above, a “Special Notice and
Requisition” was moved on 03.01.2017 convening an EGM of Tata Sons for considering the
removal of CPM as Director of Tata sons. It must be remembered at this stage that by the
Resolution of the Board of Tata Sons dated 24.10.2016, CPM was merely removed from the
post of Executive Chairman, but he continued to be a member of the Board as a Non
Executive Director even after 24.10.2016. It must also be remembered that it was during his
continuance as the member of the Board that CPM exchanged correspondence/legal notice
with Tata Sons and also passed on information along with certain files, to the Income Tax
authorities claiming to be a very “law abiding citizen”.
16.17 Since the EGM of Tata sons was scheduled to be held on 06.02.2017, for considering
the resolution for CPM’s removal from the Directorship, the Companies (S.P. Group) which
filed the complaint before the NCLT moved an interim application before NCLT for a stay of
the EGM. NCLT declined stay and the appeal against the refusal to grant stay was also
dismissed by NCLAT. Therefore, the EGM proceeded as scheduled on 06.02.2017 and CPM
was removed from the Directorship of Tata Sons. In his place Mr. N. Chandrasekharan, was
appointed as Executive Chairman. 16.18 In the Company Petition as it was originally filed on
20.12.2016, the complainant companies had sought a set of 21 reliefs, one of which was for a
direction to the respondents (the company and its directors) not to remove CPM (who was
cited as R 11 in the original petition) from the directorship of Tata Sons. This was in prayer
clause (F) of Paragraph 153 of the main company petition. This prayer was in direct contrast
to the reliefs sought in prayer clauses (A) and (B). Prayer clause (A) was for superseding the
existing Board of Directors and appointment of an Administrator. Prayer in clause (B) was for
appointment of a retired Supreme Court Judge as Non Executive Chairman and for
appointment of a new set of independent Directors.
16.19 After the dismissal of the interim application moved for stalling the EGM scheduled to
be held on 06.02.2017 and after the passing of the resolution for the removal of CPM in the
EGM held on 06.02.2017, the complainant companies moved an application for amendment
of the original petition so as to include two additional prayers namely (i) reinstatement of the

representative of the complainant companies on the Board of Tata Sons; and (ii) amendment
of the Articles of Association to provide for proportional representation.
16.20. However, eventually the prayers made in clauses (A), (B) and (C) were not pressed.
Prayers in clauses (F), (Q) & (R) were also not pressed on the ground that they had become
infructuous. In Paragraph 3.4 above we have extracted the reliefs as originally sought in the
main company petition and in the table in Paragraph 4.11 we have indicated the prayers
additionally made and the reliefs either given up or sought to be modified.
16.21 In fact the real reason why the complainant companies thought fit, quite tactfully, not to
press for the reinstatement of CPM is that the mere termination of Directorship cannot be
projected as something that would trigger the just and equitable clause for winding up or to
grant relief under Sections 241 and 242. A useful reference can be made in this regard to the
decision of this Court in Hanuman Prasad Bagri & Ors. vs. Bagress Cereals Pvt. Ltd.,
(2001) 4 SCC 420.
16.22 It must be remembered : (i) that a provision for inclusion of a representative of small
shareholders in the Board of Directors, is of a recent origin under Section 151 of the
Companies Act, 2013 and it is applicable only to a listed company; (ii) that Tata sons is not a
listed Company; (iii) that the Articles of Association of Tata sons, to which the complainant
companies, CPM and his father had subscribed, do not provide for any representation; (iv)
that despite there being no statutory or contractual obligation, Tata Sons inducted CPM’s
father as a director on the board in the year 1980 and continued him for a period of almost 25
years; (v) that CPM himself was inducted, again without reference to any statutory or
contractual obligation, as a Director on the Board in August, 2006; and (vi) that within 6
years of such induction, CPM was identified as a successor to RNT and was appointed as
Executive Deputy Chairman and elevated to the position of Executive Chairman. 16.23 It is
an irony that the very same person who represents shareholders owning just 18.37% of the
total paid up share capital and yet identified as the successor to the empire, has chosen to
accuse the very same Board, of conduct, oppressive and unfairly prejudicial to the interests of
the minorities. In support of such allegation, the complainant companies have pointed out
certain business decisions taken during the period of more than 10 years immediately
preceding the date of removal of CPM. That failed business decisions and the removal of a
person from Directorship can never be projected as acts oppressive or prejudicial to the
interests of the minorities, is too well settled. In fact it may be concede today by Tata sons
that one important decision that the Board took on 16.03.2012 certainly turned out to be a
wrong decision of a life time.
16.24 Therefore, the fact that the removal of CPM was only from the Executive Chairmanship
and not the Directorship of the company as on the date of filing of the petition and the fact
that in law, even the removal from Directorship can never be held to be an oppressive or
prejudicial conduct, was sufficient to throw the petition under section 241 out, especially
since NCLAT chose not to interfere with the findings of fact on certain business decisions.

16.25 The subsequent conduct on the part of CPM in sending replies to the Income Tax
Authorities enclosing 4 box files, even while continuing as a Director, justified his removal
even from the Directorship of Tata Sons and other group companies. It is perhaps this
realisation that made the complainant companies give up their original prayer for restraining
the company from removing CPM and singing a different tune seeking proportionate
representation on the Board.
16.26 For assailing the decision to remove CPM from the Chairmanship of Tata Sons, it is
contended (i) that Tata Group performed exceedingly well under his stewardship; (ii) that the
Nomination and Remuneration Committee for the Financial Year 201516 endorsed his
performance and even recommended a pay hike and performance linked bonus; and (iii) that
the Board unanimously approved these recommendations on 29.6.2016 just four months
before his unceremonious removal.
16.27 First of all, the above contention is in direct conflict with the entire foundation on
which the whole case of the complainant companies was erected. If CPM and the members of
the Nomination and Remuneration Committee as well as the entire Board were on the same
page till 29.6.2016 that the company was doing well under the stewardship of CPM, then
there can be no allegation that the company’s affairs were conducted in a manner oppressive
or prejudicial to the interest of anyone, namely the company or the minority, at least until
29.6.2016. On the contrary if the company’s affairs have been conducted in a manner
oppressive or prejudicial, even before 29.6.2016, the other members of the Board and CPM
could not have formed themselves into a mutual admiration society to laud CPM’s
performance and CPM acknowledging that the company was doing well when he was in the
driver’s seat.
16.28 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.
16.29 There may be cases where the removal of a Director might have been carried out
perfectly in accordance with law and yet may be part of a larger design to oppress or
prejudice the interests of some members. It is only in such cases that the Tribunal can grant a
relief under Section 242. The Company Tribunal is not a labour Court or an administrative
Tribunal to focus entirely on the manner of removal of a person from Directorship. Therefore,
the accolades received by CPM from the Nomination and Remuneration Committee or the
Board of Directors on 29.6.2016, cannot advance his case.
16.30 A contention was raised that CPM’s removal was a pre meditated act, carried out at the
behest of Tata Trusts and RNT and that the removal was not only contrary to Article 118, but

also contrary to Article 105(a) read with the second proviso to Section 179(1) and Article
122(b).
16.31 As we have pointed out above, the validity of and justification for the removal of a
person can never be the primary focus of a Tribunal under Section 242 unless the same is in
furtherance of a conduct oppressive or prejudicial to some of the members. In fact the post of
Executive Chairman is not statutorily recognised or regulated, though the post of a Director is.
At the cost of repetition it should be pointed out that CPM was removed only from the post of
(or designation as) Executive Chairman and not from the post of Director till the Company
Petition was filed.
16.32 It is true that as per the evidence available on record he was requested before the Board
meeting, to step down from the post of Executive Chairman. That does not tantamount to the
act being premeditated. The induction of new members on 8.8.2016 into the Board and the
Board securing a legal opinion prior to the Board meeting, cannot make the act a premeditated
one. There is a thin line of demarcation between a well conceived plan and a pre meditated
one and the line can many times be blurred.
16.42 In any event the removal of a person from the post of Executive Chairman cannot be
termed as oppressive or prejudicial. The original cause of action for the complainant
companies to approach NCLT was the removal of CPM from the post of Executive Chairman.
Though the complainant companies padded up their actual grievance with various historical
facts to make a deceptive appearance, the causa proxima for the complaint was the removal of
CPM from the office of Executive Chairman. His removal from Directorship happened
subsequent to the filing of the original complaint and that too for valid and justifiable reasons
and hence NCLAT could not have laboured so much on the removal of CPM, for granting
relief under Sections 241 and 242.
Invocation of just and equitable clause
16.43 Interestingly, NCLAT has recorded a finding, though not based upon any factual
foundation, that the facts otherwise justify the making of a winding up order on just and
equitable ground. But as held by the Privy Council in Loch v. John Blackwood, [1924] AC
783 , “there must lie a justifiable lack of confidence in the conduct and management of the
company’s affairs, at the foundation of applications for winding up.” More importantly, “the
lack of confidence must spring not from dissatisfaction at being outvoted on the business
affairs or on what is called the domestic policy of the company”. But, “wherever the lack of
confidence is rested on a lack of probity in the conduct of the company’s affairs, then the
former is justified by the latter.”
16.44 A passage from the opinion of Lord President of the Court of Session (Lord Clyde) in
Baird v. Lees, (1924) SC 83 Scottish Supreme Court quoted in Loch (supra), reads as
follows: “A shareholder puts his money into a company on certain conditions. The first of

them is that the business in which he invests shall be limited to certain definite objects. The
second is that it shall be carried on by certain persons elected in a specified way. And the
third is that the business shall be conducted in accordance with certain principles of
commercial administration defined in the statute, which provide some guarantee of
commercial probity and efficiency. If shareholders find that these conditions or some of them
are deliberately and consistently violated and set aside by the action of a member and official
of the company who wields an overwhelming voting power, and if the result of that is that, for
the extrication of their rights as shareholders, they are deprived of the ordinary facilities
which compliance with the Companies Acts would provide them with, then there does arise,
in my opinion, a situation in which it may be just and equitable for the Court to wind up the
company.”
16.45 If the above tests are applied, the case on hand will not fall anywhere near the just and
equitable standard, for the simple reason that it was the very same complaining minority
whose representative was not merely given a berth on the Board but was also projected as the
successor to the Office of Chairman.
16.46 In Ebrahimi v. Westbourne Galleries Ltd., [1972] 2 WLR 1289 decided by House of
Lords, one of the Directors who was voted out of office by the other two Directors (father-son
duo) petitioned for an order under Section 210 of the English Companies Act, 1948. The very
relief sought by the ousted director was for a direction to the other two persons to purchase
his shares in the Company or to sell their shares to him on such terms as the Court should
think fit. Alternatively, he prayed for winding up. The Court of the first instance held that a
case for winding up had been made out, as the majority was guilty of abuse of power and a
breach of good faith which the partners owed to each other not to exclude one of them from
all participation in the business. The court of Appeal reversed it by applying the tests of (i)
bonafide exercise of power in the interest of the company; and (ii) whether a reasonable man
could think that the removal was in the interest of the Company. While reversing the decision
of the Court of Appeal, the House of Lords held, that “the formula ‘bonafide interest of the
company’ should not become little more than an alibi for a refusal to consider the merits of
the case.” Holding that, “equity always does enable the Court to subject the exercise of legal
rights to equitable considerations namely considerations that is of a personal character”,
the House of Lords added some caution in the following words: “The superimposition of
equitable considerations requires something more, which typically may include one, or
probably more, of the following elements: (i) an association formed or continued on the basis
of a personal relationship, involving mutual confidence – this element will often be found
where a preexisting partnership has been converted into a limited company; (ii) an
agreement, or understanding, that all, or some (for there may be “sleeping” members), of the
shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer
of the members’ interest in the company – so that if confidence is lost, or one member is
removed from management, he cannot take out his stake and go elsewhere.”
16.47 But it must be remembered that the origin of just and equitable clause is to be traced to
the Law of Partnership which has developed, according to the House of Lords, “the

conceptions of probity, good faith and mutual confidence”. Having said that, Ebrahimi
pointed out that the reference to quasi partnerships or “insubstance partnerships” is also
confusing for the reason that though the parties may have been partners in their
‘Purvashrama’, they had become co-members of a company accepting new obligations in
law. Therefore, “a company, however small, however domestic, is a company and not a
partnership or even a quasi partnership”.
16.48 That, “for superimposing an equitable fetter on the exercise of the rights conferred by
the Articles of Association, there must be something in the history of the company or the
relationship between the shareholders”, is fairly well settled [Re Saul D. Harrison and Sons
Plc. 1994 BCC 475].
16.49 In Lau v. Chu, [2020] 1 WLR 4656 the House of Lords indicated, “that a just and
equitable winding up may be ordered where the company’s members have fallen out in two
related but distinct situations, which may or may not overlap”. The first of these is labelled as,
“functional dead lock”, where the inability of members to cooperate in the management of the
company’s affairs leads to an inability of the company to function at Board or shareholder
level. The House of Lords pointed out that functional dead lock of a paralysing kind was first
clearly recognised as a ground for just and equitable winding up In Re Sailing Ship
Kentmere Co., [1897] WN 58. The second of these is where a company is a corporate quasi
partnership and an irretrievable breakdown in trust and confidence between the participating
members has taken place. In the first type of these cases, where there is a complete functional
dead lock, winding up may be ordered regardless whether the company is a quasi partnership
or not. But in the second type of cases, a breakdown of trust and confidence is enough even if
there is not a complete functional dead lock.
16.50 Therefore, for invoking the just and equitable standard, the underlying principle is that
the Court should be satisfied either that the partners cannot carry on together or that one of
them cannot certainly carry on with the other [footnote appended: The advantage that the
English courts have is that irretrievable breakdown of relationship is recognised as a ground
for separation both in a matrimonial relationship and in commercial relationship, while it is
not so in India.].
16.51 In the case in hand there was never and there could never have been a relationship in
the nature of quasi partnership between the Tata Group and S.P. Group. S.P. Group boarded
the train halfway through the journey of Tata Sons. Functional dead lock is not even pleaded
nor proved.
16.52 Coming to the Indian cases, this court held in Rajahmundry Electric Supply Corpn.
Ltd. v. Nageshwara Rao, (1955) 2 SCR 1066 that for the invocation of just and equitable
clause, there must be a justifiable lack of confidence on the conduct of the directors, as held.
A mere lack of confidence between the majority shareholders and minority shareholders
would not be sufficient, as pointed out in S.P. Jain v. Kalinga Tubes Ltd., AIR 1965 SC

1535 The advantage that the English courts have is that irretrievable breakdown of
relationship is recognised as a ground for separation both in a matrimonial relationship and in
commercial relationship, while it is not so in India.
16.53 It was contended repeatedly that lack of probity in the conduct of the directors is a
sufficient cause to invoke just and equitable clause. Drawing our attention to the landmark
decision in Needle Industries (India) Ltd. and Ors. v. Needle Industries Newey (India) Ltd.
and ors., (1981) 3 SCC 333 it was contended that even the profitability of the company has
no bearing if just and equitable standard is fulfilled and that the test is not whether an act is
lawful or not but whether it is oppressive or not.
16.54 But all these arguments lose sight of the nature of the company that Tata Sons is. As we
have indicated elsewhere, Tata Sons is a principal investment holding Company, of which the
majority shareholding is with philanthropic Trusts. The majority shareholders are not
individuals or corporate entities having deep pockets into which the dividends find their way
if the Company does well and declares dividends. The dividends that the Trusts get are to find
their way eventually to the fulfilment of charitable purposes. Therefore, NCLAT should have
raised the most fundamental question whether it would be equitable to wind up the Company
and thereby starve to death those charitable Trusts, especially on the basis of uncharitable
allegations of oppressive and prejudicial conduct. Therefore, the finding of NCLAT that the
facts otherwise justify the winding up of the Company under the just and equitable clause, is
completely flawed.

Question of Law No.2
17.1 The second question of law arising for consideration is as to whether the reliefs granted
and directions issued by NCLAT including the reinstatement of CPM into the Board of Tata
Sons and other Tata Companies are in consonance with (i) the pleadings made, (ii) the reliefs
sought and (iii) the powers available under Sub-Section (2) of Section 242.
17.2 As we have indicated in Para 3.4 above, the complainant companies originally sought a
set of 21 reliefs listed in para 153 (A) to (U). Subsequently, the complainant companies
sought the addition of two more prayers, through an application for amendment filed on
10.2.2017. The additional reliefs sought to be included were for: (i) reinstatement of a
representative of the complainant companies on the Board of Tata Sons and (ii) Amendment
of the Articles of Association so as to provide for proportional representation on the Board.
17.3 Thereafter the complainant companies sought a few more prayers through an application
for amendment dated 31.10.2017. However, by a Memo dated 12.01.2018 the complainant
companies gave up certain prayers, sought a modification of some other prayers and recorded
that they were not pressing certain reliefs.

17.6 Thus NCLAT granted to the complainant companies (and indirectly to CPM) four reliefs
namely:
(i) reinstatement of CPM;
(ii) declaring Tata Sons as a Public Limited Company;
(iii) restraining the nominee Directors and RNT from taking any decision in advance and
(iv) restraining the invocation of Article 75 except in exceptional circumstances.
We shall now see whether NCLAT could have granted any of these reliefs.
Reinstatement of CPM
17.7 Removal and reinstatement are two different things. We have dealt with the issue of
removal of CPM, while answering question of law No.1, in the context of whether it was part
of a scheme of oppressive and prejudicial conduct. Now we shall deal with the issue of
reinstatement in the context of the contours of section 242(2) and the nature of the orders that
could be passed.
17.8 As we have seen already, the original motive of the complainant companies, was to
restrain Tata Sons from removing CPM as Director. Subsequently, there was a climb down
and the complainant companies sought what they termed as “reinstatement” of a
representative of the complainant companies. Thereafter, it was modulated into a cry for
proportionate representation on the Board.
17.9 In this background it was repeatedly argued both before the NCLAT and before this
Court that the objective of the litigation was not to have CPM reinstated, but only to set things
right in the State of Denmark (of which CPM himself was the Premier for 4 years). But
interestingly, NCLAT understood what the complainant companies and CPM actually
wanted, though they attempted to camouflage their intentions with legal niceties. Therefore,
despite there being no prayer for reinstatement of CPM either as a Director or as an Executive
Chairman of Tata Sons, NCLAT directed the restoration of CPM as Executive Chairman of
Tata Sons and as Director of Tata Companies for the rest of the tenure.
17.10 While granting much more than what the complainant companies and CPM themselves
thought as legally feasible, NCLAT failed to notice one important thing. The appointment of
CPM as Executive Deputy Chairman of Tata Sons, was to be for a period of 5 years from
01.04.2012 to 31.03.2017, subject to the approval of the shareholders. In the Meeting of the
shareholders held on 01.08.2012, the appointment of CPM as Executive Deputy Chairman
was approved and the General Body left it to the Board to redesignate CPM as Chairman.

Accordingly, the Board re designated CPM as Executive Chairman, with effect from
29.12.2012, by a resolution passed on 18.12.2012.
17.11 The judgment of the NCLAT was passed on 18.12.2019, by which time, a period of
nearly 7 years had passed from the date of CPM’s appointment as Executive Chairman.
Therefore, we fail to understand : (i) as to how NCLAT could have granted a relief not
apparently sought for (though wished for); and (ii) what NCLAT meant by reinstatement “for
the rest of the tenure”. That the question of reinstatement will not arise after the tenure of
office had run its course, is a settled position. In this regard, we may refer to the decisions
in Raj Kumar Dey vs. Tarapada Dey, (1987) 4 SCC 398 and Mohd. Gazi vs. State of
Madhya Pradesh, (2000) 4 SCC 342. While so, it is incomprehensible that the NCLAT
directed reinstatement, and that too, of a Director of a company, after the expiry of his term of
office. Needless to say that such a remedy would not have been granted even by a labour
court/service Tribunal in matters coming within their jurisdiction.
17.12 In fact NCLAT has gone to the extent of reinstating CPM not only on the Board of Tata
Sons, but also on the Board of Tata group companies, without they being parties, without
there being any complaint against those companies under section 241 and without there being
any prayer against them. These companies have followed the procedure prescribed by Statute
and the Articles and they have validly passed resolutions for his removal. For instance, TCS
granted an opportunity to CPM and held a general meeting in which 93.11% of the
shareholders, including public institutions who hold 57.46% of shares supported the
resolution. In any case CPM’s tenure itself was to come to an end on 16.06.2017 but NCLAT
passed the impugned order reinstating him “for the rest of the tenure”. In respect of other
companies which had convened the EGM for considering the resolution for his removal, CPM
submitted resignations. But now by virtue of the impugned order, CPM will have to be
reinstated even on the Board of companies from which he has resigned. This is why even the
complainant companies have found it extremely difficult to support the order.
17.13 As an aside, we should record here, the words of gratitude (if any) expressed by CPM
himself in the meeting of the Board of Tata Sons on 18.12.2012, immediately after the
resolution appointing him as Executive Chairman was carried through unanimously. This is
what CPM said in the Board Meeting dated 18.12.2012: “Mr. Mistry responded by saying that
– “the past one year has been a great learning experience under the direct guidance of Mr.
Ratan Tata. The TATA Group is founded on strict values. We will face all the ups and down,
whatever may lie in our path. We are ready to face all the challenges that will come our way.
The Board recognises the stellar contribution of Mr. Ratan Tata and wishes, to designate him
Chairman Emeritus. We shall continue to seek his guidance on significant matters.”
17.14 It is interesting to note that at the time of his appointment in December 2012, what
CPM saw and acknowledged, was a “great learning experience he had under the direct
guidance of RNT”, but at the time of departure in October 2016, what he saw was only a
conduct for over 10 years, that was oppressive and prejudicial to the interests of the company

and of the minority. NCLAT failed to take note of this, while granting reliefs neither sought
for nor feasible in law.
17.15 NCLAT appears to have granted the relief of reinstatement gratis without any
foundation in pleadings, without any prayer and without any basis in law. By doing so, the
NCLAT has forced upon the appellant an Executive Chairman, who now is unable to support
his own reinstatement.
17.16 The NCLAT has found the dismissal to be illegal and not a nullity. In law, a dismissal
even if found to be wrongful and malafide is an effective dismissal and may give rise to a
claim in damages. In Dr. S.B. Dutt vs. University of Delhi, 1959 SCR 1236 this Court held:
“The award held that the appellant had been dismissed wrongfully and malafide. Now, it is
not consequential to such a finding that the dismissal was of no effect, for a wrongful and
malafide dismissal is nonetheless an effective dismissal though it may give rise to a claim in
damages. The award, no doubt, also said that the dismissal of the appellant was ultravires but
as will be seen later, it did not thereby hold the act of dismissal to be a nullity and, therefore,
of no effect.”
17.17 It is significant that Sections 241 and 242 of the Companies Act, 2013 do not
specifically confer the power of reinstatement, nor we would add that there is any scope for
holding that such a power to reinstate can be implied or inferred from any of the powers
specifically conferred.
17.18 The following words at the end of subsection (1) of 242 “the Tribunal may, with a view
to bringing to an end the matters complained of, make such order as it thinks fit” cannot be
interpreted as conferring on the Tribunal any implied power of directing reinstatement of a
director or other officer of the company who has been removed from such office. These words
can only be interpreted to mean as conferring the power to make such order as the Tribunal
thinks fit, where the power to make such an order is not specifically conferred but is found
necessary to remove any doubts and give effect to an order for which the power is specifically
conferred. For instance, subsection (2) of Section 242 confers the power to make an order
directing several actions. The words by which subsection (1) of Section 242 ends, supra can
be held to mean the power to make such orders to bring an end, matters for which directions
are given under subsection (2) of Section 242.
17.19 The architecture of Sections 241 and 242 does not permit the Tribunal to read into the
Sections, a power to make an order (for reinstatement) which is barred by law vide Section
14 of the Specific Relief Act, 1963 with or without the amendment in 2018. Tribunal cannot
make an order enforcing a contract which is dependent on personal qualifications such as
those mentioned in Section 149(6) of the Companies Act, 2013.

Question 4
19.1 The fourth question of law to be considered is whether the characterisation by the
Tribunal, of the affirmative voting rights available under Article 121 to the Directors
nominated by the Trusts in terms of Article 104B, as oppressive and prejudicial, is justified
especially after the challenge to these Articles have been given up expressly and whether the
Tribunal could have granted a direction to RNT and the Nominee directors virtually nullifying
the effect of these Articles.
19.2 In the Company Petition as it was originally filed, the complainant companies sought a
prayer in Paragraph 153(M) to strike down Articles 86, 104B, 118, 121 and 121A in entirety
and to strike off one portion of Article 124. These Articles (other than Article 118, which is
extracted elsewhere) read as follows: “86. Quorum at General Meetings No quorum at a
general meeting of the holders of the Ordinary Shares of the Company shall be constituted
unless the members who are personally present are not less than five in number including at
least one authorised representative jointly nominated by the Sir Dorabji Tata Trust and the Sir
Ratan Tata Trust so long as the Tata Trusts hold in aggregate at least 40% of the paid-up
Ordinary share capital, for the time being, of the Company.
xxxxx
General Provisions A. Number of Directors …………
B. Nomination of Directors So long as the Tata Trusts own and hold in the aggregate at least
40% of the paid up Ordinary share capital, for the time being, of the company, the Sir Dorabji
Tata Trust and Sir Ratan Tata Trust, acting jointly, shall have the right to nominate one third
of the prevailing number of Directors on the Board and in like manner to remove any such
person so appointed and in place of the person so removed, appoint another person as
Director.
The Directors so nominated by the Sir Dorabji Tata Trust and Sir Ratan Tata Trust shall be
appointed as Directors of the Company.
XXXXX
Matters How Decided.
Matters before any meeting of the Board which are required to be decided by a majority of the
directors shall require *the affirmative vote of a majority of the Directors appointed pursuant

to Article 104B present at the meeting and in the case of an equality of vote’s the Chairman
shall have a casting vote.” **121A. The following matters shall be resolved upon by the
Board of Directors:
XXXXX
19.3 But through a Memo dated 12.01.2018, the complainant companies restricted the relief
prayed in Paragraph 153(M) to the extent as follows:
(i) the necessity of affirmative voting of the majority of the Directors nominated by the
Trusts, which are majority of shareholders be deleted;
(ii) the petitioners be entitled to proportionate representation on the Board of Directors of
Respondent No.1;
(iii) the petitioners be entitled to a representation on all committees formed by the Board of
Directors of Respondent No.1; and
(iv) the Articles of Association be amended accordingly. 19.4 Therefore, what was actually
sought by the complainant companies was the deletion of the Article that necessitated the
affirmative voting right of the majority of the Directors nominated by the two Trusts. There
was no prayer for restraining RNT and the nominee Directors of the Trusts from taking any
decision in advance.
19.5 In fact, even the complainant companies are not happy about the relief so granted by
NCLAT. In the Table given in Paragraph 4 of their Memorandum of Appeal in C.A.No.1802
of 2020, the complainant companies themselves seek a modification of the relief so granted.
XXXXXX
19.6 But for the fact that the complainant companies have also come up with an appeal, we
would have simply set aside the order of restraint passed by NCLAT against RNT and
nominee Directors, on the ground that there was no such prayer. Now that S.P. Group has
come up with an appeal seeking an amplification or modulation of the relief so granted, we
shall deal with the challenge to the affirmative voting rights.
Affirmative voting rights
19.7 Under Article 104B, Sir Dorabjee Tata Trust and Sir Ratan Tata Trust, acting jointly,
shall have a right to nominate 1/3rd of the prevailing number of Directors on the Board, so
long as the Trusts own and hold, in the aggregate, at least 40% of the paid up share
capital. Article 121 provides that the matters which require to be decided by a majority of the

Directors, shall require the affirmative vote of the majority of Directors appointed
under Article 104B.
19.8 Article 121A contains the list of matters to be resolved by the Board of Directors. One of
the items included therein is “any matter affecting the share holding of the Tata Trusts in the
Company…” 19.9 As seen from the Table under Paragraph 4 of the Memorandum of appeal
filed by the S.P. Group in C.A.No.1802 of 2020, they are not seeking, even now, the
scrapping of the affirmative voting rights. Interestingly, S.P. Group, through their Memo
dated 12.01.2018 wanted the deletion of the Article providing for affirmative voting right. But
as per the Table under Paragraph 4 of the Memo of their appeal in C.A.No.1802 of 2020, the
complainant companies have now reconciled themselves to the unavoidability of affirmative
voting rights but all that they want is that the applicability of affirmative voting right should
be restricted to the matters covered by Article 121A. In addition, the complainant companies
want a similar affirmative right to be conferred on the nominee Directors of the S.P. Group.
19.10 The swing that the S.P. Group has taken in their position relating to affirmative voting
rights is quite funny. To begin with, they sought a prayer for striking off Article 121 in its
entirety. Later they restricted their relief, by the Memo dated 12.01.2018, to the deletion of
“the necessity of affirmative voting rights”. But now they are fine with the existence of
affirmative voting rights for the majority in respect of matters covered by Article 121A, but
want a similar right in favour of the nominee directors of the S.P. Group. 19.11 The frequent
change of position that S.P. Group has taken and the relief that they now seek, raises a doubt
whether it is actually a fight on principles. If affirmative voting rights are bad in principle, we
do not know how they may become good, if conferred on S.P. Group also.
19.12 Drawing our attention to Sections 135, 149, 151, 161 166 and 177 of the Companies
Act, 2013, it was argued on behalf of SP group that there is a sea change in the law, after the
advent of the 2013 Act and that today a paradigm shift has taken place from ‘corporate
majority/democracy’ to ‘corporate governance’ and that every action of the Board has to pass
the test of fairness. It is further contended that Directors have a fiduciary responsibility with
the highest level of duty and that the same cannot be outsourced. According to the SP group,
the Directors, once appointed, owe their allegiance only to the company and not to their
nominators.
19.13 At first blush, these arguments, almost bordering on romantic idealism, appear very
attractive. But on a deeper scrutiny, they are bound to get grounded. If we have a look at the
history of evolution of corporate enterprises, it can be seen that there are 3 time periods
through which development of corporate entities have passed. In the first period, large
corporate houses were established by individuals with their own funds and those individuals
and their families controlled both ownership and management of these enterprises. In the
second time period, when professionalism became the ‘Taraka mantra’, families which
promoted enterprises, retained ownership, but appointed professional managers to run the
show. Thus ownership got divested from management. In the third time period, social

participation increased by leaps and bounds through public issues and listing. This increased
the social accountability and social responsibility of corporate entities. Every time a historical
shift/change took place, the legal regime had to undergo a change, albeit at snail’s pace.
19.14 As a matter of fact, the Companies Act, 1956 suffered 24 amendments. Major
amendments were made first in 1988 and then in 2002, respectively on the basis of the
recommendations of the Sachar Committee and the Report of the Eradi Committee. On
August 4, 2004, the Ministry of Company Affairs, published a Concept Paper on Company
Law on its website, after which, the Government constituted an Expert Committee under the
Chairmanship of Dr. J.J. Irani20. The mandate of the Committee was to make
recommendations on certain issues, one of which was “protecting the interests of stakeholders
and investors, including small investors”. This committee’s report crystallised into 20
Incidentally J.J. Irani was the Chairman of Tata Sons for sometime Companies Bill, 2009,
which later became Companies Bill, 2011 and then Companies Act, 2013.
19.14 It is true that the 2013 Act brought a lot of drastic changes. Some of the salient features
of the 2013 Act are:
(i) Every company is required to have at least one Director who has stayed in India for a total
period of not less than 182 days in the previous calendar year.
(ii) Every listed Public Company is required to have at least onethird of the total number of
Directors as independent Directors.
(iii) Some Public Companies are required to have at least two independent Directors.
(iv) Every independent Director should give a declaration at the first Board meeting that he
meets the criteria of independence.
(v) Certain types of Public Companies are required to appoint at least one woman Director.
(vi) Every listed company may appoint a small shareholders’ Director, to be elected by the
small shareholders.
(vii) The report of the Board of Directors should include a Director’s Responsibility
Statement, covering certain aspects relating to accounting standards, accounting policies and
maintenance of accounting records.
(viii) Directors of a company are obliged to perform certain duties, such as duty to act in good
faith, duty to exercise reasonable care, skill diligence and independent Judgment etc.
(ix) A detailed Code of conduct for independent Directors is stipulated in Schedule IV. This
includes guidelines for professional conduct, roles and functions and duties.
(x) The resignation or removal of independent Directors should be in accordance with the
procedure prescribed.

(xi) Independent Directors are required to hold at least one meeting in a year without the
attendance of non independent Directors and members of management and they are entitled in
this meeting to review the performance of nonindependent Directors and the Board as a
whole. They can even review the performance of the Chairperson of the Company and assess
the quality, quantity and timeliness of flow of information between the management and the
Board.
(xii) The Board of Directors of certain companies are required to have certain Committees
such as (1) Audit Committee; (2) Nomination and Remuneration Committee and (3)
Stakeholders Relationship Committee.
(xiii) A separate section on Corporate Governance is to be included in the Annual Reports of
certain companies, with a detailed compliance Report on Corporate Governance.
(xiv) After the advent of the Companies Act, 2013, SEBI Regulations were also amended,
inserting Clause 49 in the Listing Agreement, to enforce compliance with Corporate
Governance standards.
19.15 But it must be remembered that the shift under the Companies Act, 2013 is focused on
listed and unlisted public companies. The requirement under Section 149(4) to have at least
one-third of the total number of Directors as independent Directors applies only to every
listed public company. The requirement under Section 151 to have one Director elected by
small shareholders is also applicable only to listed companies. The requirement to constitute
an Audit Committee in terms of Section 177(1), a Nomination and Remuneration Committee
and the Stakeholders Relationship Committee in terms of Section 178(1) are also only on
listed public companies.
19.16 Insofar as Tata Sons is concerned, the Articles of Association of the Company continue
to contain the prescribed restrictions which make it a private company within the definition of
the expression under Section 2(68). Therefore, the provisions discussed above do not apply to
Tata Sons. Yet Tata Sons has a Board packed with many people who are ranked outsiders. If
the idea was to run Tata Sons purely as a family business, RNT need not have stepped down
from the Chairmanship. Today nobody wants to step down from any office, except if afflicted
by brain stroke or sun stroke. As we have seen from the pleadings, the Tata Group was
founded by Jamsetji Nusserwanji Tata (1839-1904). It was first established as a private
trading firm in 1868 and was later incorporated as a private company on 8.11.1917
under Section 2(13) of the Companies Act, 1913. Later two Trusts were created, one in the
year 1919 under the name Sir Ratan Tata Trust and another in 1952 under the name Sir
Dorabji Tata Trust. It was only in 1965 that S.P. Group acquired 48 preference shares and 40
equity shares, from a member of Tata Sons named Mrs. Rodabeh Sawhney. Shri Pallonji
Mistry, the father of CPM was inducted as a NonExecutive Director on 25.06.1980, though
the Articles of Association did not confer any right of Directorship upon the S.P Group. He
stepped down from this position in December, 2004. Thereafter, CPM was appointed as Non-

Executive Director on 10.08.2006. Ever since the establishment of the Tata Group in 1868,
there have only been six persons who became the Chairmen of the Group. While five of them
namely Jamshedji Tata, Sir Dorab Tata, Nowroji Saklatwala, JRD Tata and Ratan Tata
belonged to the same family, the sixth person namely CPM was inducted as Executive
Chairman by Resolution dated 18.12.2012 with effect from 29.12.2012. Before the said
appointment, CPM was identified by a Selection Committee which comprised of the
nominees of the two Tata Trusts. This Selection Committee identified CPM as a successor to
RNT as Chairman and appointed him first as Executive Deputy Chairman for a period of five
years form 1.04.2012 till 31.03.2017, subject to the approval of the General Body. The
General meeting of the shareholders, held on 1.8.2012 approved the appointment of CPM as
Executive Deputy Chairman and also left it to the Board to redesignate him as Chairman. This
is how the Board, in its meeting dated 18.12.2012 redesignated CPM as Executive Chairman.
19.17 If the argument relating to corporate governance is carefully scrutinized in the context
of the fact: (i) that a large industrial house whose origin and creation was familial, was willing
to handover the mantle of heading the entire empire to a person like CPM (a rank outsider to
the family); and (ii) that the identification of CPM as the successor to RNT was done by the
very same nominees of the two Tata Trusts (who is now accused of interference), then it will
be clear that Tata Group was guided by the principle of Corporate Governance (even without
a statutory compulsion) and not by tight-fisted control of the management of the affairs of the
Group.
19.18 The provisions of sections 135, 149, 151, 166 and 177 around which the argument
relating to corporate governance is fantasised, cannot advance the case of the SP
group. Section 135 deals with corporate social responsibility, which in any case is more
pronounced in this company due to the fact that charitable trusts hold majority of the
shares. Section 149 deals with the requirement to have Directors, section 151 provides for
appointment of a Director elected by small shareholders, section 166 enumerates the duties of
directors and section 177 and 178 speak of some committees. Some of these provisions such
as sections 151, 177 and 178 apply only to listed public companies. Yet, Tata Sons
have complied with sections 177 and 178 by constituting necessary committees.
19.19 It was contended that a Director of a Company is to act in good faith in order to
promote the objects of the Company for the benefit of all the stakeholders and that he is in a
fiduciary capacity visavis the company. The affirmative voting rights, according to
S.P.Group, disabled the nominee Directors from acting independently in the best interests of
the company and its stakeholders and that once appointed, the loyalty of the nominee
Directors should be to the Company and not solely to the Trusts which nominated him. It was
further contended that under Articles 121, 121A and 122, Tata Sons was to be a Board
managed Company and that the protective rights conferred under Article 121 were intended to
take care of the interests of the Tata Trust, in case they became a minority.

19.20 According to the S.P. Group, the pre-consultation/pre-clearance requirement disabled
the Directors from effectively discharging their fiduciary duties under Section 166, violated
the Secretarial Standards required to be adhered to under Section 118(10) and rendered
nugatory, the scheme of Section 149 which requires 1/3rd of the members of the Board to be
independent Directors.
19.21 But all the above contentions are completely devoid of any substance, for they tend to
overlook one basic fact namely that Tata Sons is not a company engaged either in any
manufacturing activity or in any trading activity. As per the pleadings, on which there is no
dispute, Tata Sons is a Principal Investment Holding Company and is a promoter of Tata
Companies. Tata Sons holds a controlling interest in all the operating companies of the Tata
Group. Other than being the Principal Investment Holding Company, Tata Sons, by itself is
not engaged in any direct business activity.
19.22 As we have indicated in the beginning, around 66% of the equity share capital of Tata
Sons is held by philanthropic Trusts, including Sir Dorabji Tata Trust and Sir Rata Tata Trust.
It is claimed that these charitable Trusts support education, health, livelihood generation and
Art & Culture.
19.23 If we take these two important factors into consideration namely: (i) that Tata Sons is
only a Principal Investment Holding Company; and (ii) that the majority shareholders of Tata
Sons are only philanthropic charitable Trusts, it will be clear that the Directors nominated by
the Trusts are not like any other Directors who get appointed in a General Meeting of the
Company in terms of Section 152(2) of the Act. In fact it is a paradox to claim that by virtue
of Subsections (2) and (3) of Section 166, every Director of a Company is duty bound to act
in good faith in order to promote the objects of the company for the benefits of its members
and in the best interests of all the stakeholders as well as environment and a duty to exercise
independent judgment, and yet mandate the appointment of independent Directors
under Section 149(4). If all Directors are required under Section 166(3) to exercise
independent Judgment, we do not know why there is a separate provision in Section
149(4) for every listed Public Company to have at least 1/3rd of the total number of Directors
as independent Directors. We do not also know whether the prescription in Section 149(4) is a
tacit acknowledgment that all the Directors appointed in a General meeting under Section
152(2) may not be independent in practice, though they may be required to be so in theory.
19.24 A person nominated by a charitable Trust, to be a Director in a company in which the
Trust holds shares, also holds a fiduciary relationship with the Trust and fiduciary duty
towards the nameless, faceless beneficiaries of those Trusts. As we have pointed out
elsewhere, the history of evolution of the corporate world shows that it has moved from the (i)
familial to (ii) contractual and managerial to (iii) a regime of social accountability and
responsibility. This is why Section 166(2) also talks about the duty of a Director to protect
environment, in addition to his duties to (i) promote the objects of the company for the benefit
of its members as a whole; and (ii) act in the best interests of the company, its employees, the

shareholders and the community. It is common knowledge that some of the industries which
take good care of its shareholders and employees also run polluting industries. Therefore there
is always a conflict, a tug of war between competing interests and statutes cannot resolve
these conflicts effectively. 19.25 Affirmative voting rights for the nominees of institutions
which hold majority of shares in companies have always been accepted as a global norm. As a
matter of fact the affirmative voting rights conferred by Article 121 of the Articles of
Association, confers only a limited right upon the Directors appointed by the Trusts
under Article 104B. Article 121 speaks only about the manner in which matters before any
meeting of the Board shall be decided. If it is a General Meeting of Tata Sons, the
representatives of the two Trusts will actually have a greater say as the Trusts have 66% of
shares in Tata Sons. Therefore, if we apply Section 152(2) strictly, the Trusts which own 66%
of the paid up capital of Tata Sons will be entitled to pack the Board with their own men as
Directors. But under Article 104B, only a minimum guarantee is provided to the two Trusts,
by ensuring that the Trusts will have at least 1/3 rd of the Directors, as nominated by them so
long as they hold 40% in the aggregate of the paid up share capital.
19.26 Section 43 of the Companies Act (which is equivalent of Section 86 of the 1956 Act),
recognises two types of share capital of a company limited by shares. They are (i) equity
share capital; and
(ii) preference share capital. Again equity share capital can be of two kinds namely, (i) those
with voting rights; and (ii) those with differential rights as to dividend, voting or otherwise in
accordance with such rules as may be prescribed.
19.27 Section 47(1)(b) of the 2013 Act (equivalent to Section 87(1)(b) of the 1956 Act),
declares that the rights of a member of a company limited by shares, shall be in proportion to
his share in the paid up equity share capital of the company. This right is subject to the
provisions of Section 43, Section 50(2) and Section 188(1) of the 2013 Act. The restrictions
under Sections 43, 50(2) and 188(1) respectively are, (i) shares with differential voting rights;
(ii) disentitlement to voting rights, of a member who has not paid the unpaid share capital;
and (iii) the disentitlement of a member to vote on a resolution for the approval of any
contract entered into by the company with a related party.
19.28 Under Section 10(1) of the Companies Act, 2013, the Articles of Association bind the
company and the members thereof to the same extent as if they respectively had been signed
by the company and by each member. However, this is subject to the provisions of the Act.
19.29 Article 94 of the Articles of Association of Tata Sons is in tune with Section 47(1)(b),
as it says that upon a poll, the voting rights of every member, whether present in person or by
proxy shall be in proportion to his share of the paid up capital of the company. Therefore, a
shareholder or a group of shareholders who constitute majority, can always seek to be in the
driving seat by reserving affirmative voting rights. So long as these special rights are

incorporated in the Articles of Association and so long as they are not in contravention of any
of the provisions of the Act, the same cannot be attacked on these grounds.
19.30 Coming to the argument revolving around the duty of a Director, it is necessary that we
balance the duty of a Director, under Section 166(2) to act in the best interests of the
company, its employees, the shareholders, the community and the protection of environment,
with the duties of a Director nominated by an Institution including a public charitable trust.
They have fiduciary duty towards 2 companies, one of which is the shareholder which
nominated them and the other, is the company to whose Board they are nominated. If this is
understood, there will be no confusion about the validity of the affirmative voting rights.
What is ordained under Section 166(2) is a combination of private interest and public interest.
But what is required of a Director nominated by a charitable Trust is pure, unadulterated
public interest. Therefore, there is nothing abhorring about the validity of the affirmative
voting rights.

Conclusion
21.1 Thus in fine, all the questions of law are liable to be answered in favour of the appellants
Tata 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.
21.2 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.
21.3 As a matter of fact, S.P. Group should have sought such a 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. 21.4 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 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, require an
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. 21.5 In 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, are dismissed.

Tata Consultancy Services Limited v. Cyrus Investments Private Ltd.

Tabassum Jahan

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