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Mistry’s ouster from Tata companies not easy: Experts

by | May 25, 2021

TataBy Parmod Kumar,

New Delhi, (IANS) : After the rebuff by the independent directors of Indian Hotels Company Limited (IHCL), Tata Sons will have to tread cautiously if it seeks Cyrus Mistry’s ouster from the group’s companies as experts in the industry feel “it will not be an easy task” procedurally and legally.

A cross-section of experts with whom IANS spoke to, including lawyers dealing with corporate matters, say nothing can be said definitely as they are not privy to the memorandum and the articles of association of the group’s different companies.

Yet, they add, going by the statute, a lot would depend on how Mistry decides to play ball. Nesar Ahmed, A former president of Institute of Company Secretaries of India, said: “If he decides to dig in his heels, then removing him as director would not be an easy job.”

Ahmed, also a corporate consultant, added that the way the Tatas have conducted themselves in removing Mistry may not be strictly in breach of the law but certainly it was not in conformity with the transparent and ethos-based corporate governance that they have been espousing all along.

However, there is also a view that a lot would depend on which side the government would lean, as Life Insurance Corp (LIC) and state-run banks have sizeable stakes in the Tata group’s various entities.

In this regard, they also point towards the meetings that Ratan Tata, now back as the interim chairman, had with Prime Minister Narendra Modi and Finance Minister Arun Jaitley soon after the removal of Mistry as Chairman by the Tata Sons board.

While there is a general agreement that it would not be a cakewalk for the Tatas to unload Mistry from the board of group companies, well known legal luminary Lalit Bhasin said it depends on the facts of each case, and of each company.

This view is also shared by Harish Vaid, Vice President for Corporate Affairs at Jaypee Group.

While Amitabh Chaturvedi, a lawyer dealing with corporate matters, said that the Memorandum of Association is the basic document laying down the procedures, another corporate lawyer — while endorsing the position — said that it all depends on the pleasure of the board.

Also, a former vice-president of the Institute of Company Secretaries of India, Vaid said on the basis of available information, it is not clear whether the chairmen of Tata group companies are the nominees of the Tata Sons or appointed by their respective boards.

If it is to be decided by the individual boards, Vaid said that independent directors would have a decisive say as in the case of IHCL, where the move to remove Mistry as Chairman was frustrated by seven independent directors.

In that situation, Vaid said they will have to wait for the next shareholders’ meeting where the directors are appointed. It is at such a meeting that the Tata’s can exercise their indirect control and remove Mistry.

In this situation, the Shapoorji Pallonji Group, with a little more than 18 per cent stake in Tata Sons, will not have any bearing, as the Tata Trusts have majority stake in Tata Sons.

Ahmed said other options for Tata Sons would be to requisition an extraordinary general meeting of shareholders by taking recourse to Section 115 of the Companies Act.

Under this section, notice for such a meeting can be given by stakeholders with 1 per cent of the total voting power, or those with shares of Rs Five lakh and above. The sacking can be asked for under Section 169 of the Companies Act, which provides for the removal of directors.

Ahmed said that not only the chairman, being sought to be replaced, has to be given reasonable notice period, but even the market regulator and the exchanges where the shares are listed have to be informed about it. The rules of the corporate governance have to be observed.

(Parmod Kumar can be reached at saneel2010@gmail.com)

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