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TATA CONSULTANCY SERVICES LTD. V. CYRUS INVESTMENTS PRIVATE LTD., (2021) 9 SCC 449.

TATA CONSULTANCY SERVICES LTD. V. CYRUS INVESTMENTS PRIVATE LTD., (2021) 9 SCC 449.

 

FACTS

  • Tata Consultancy Services (TCS) was established on April 1, 1968, as a branch of Tata Sons. It is a global Indian information technology (IT) services and consulting firm located in Mumbai, Maharashtra. TCS has offices in 46 countries across the world.
  • Cyrus Investments Private Limited is a non-government company that was founded on March 7, 1923. It works as an investment advisor. It's an unlisted private company that's categorised as a "company limited by shares." Cyrus Mistry is an Indian entrepreneur. He was the Chairman of the massive Tata Group business from 2012 until 2016. Cyrus Investments Private Limited is one of his companies, and he is one of the directors.
  • Cyrus Mistry was removed from his position as Executive Chairman of Tata Sons Limited on October 24, 2016, because the company's Majority Shareholders and Board of Directors lost faith in him as Chairman.
  • N Chandrashekaran, the former TCS Chief Executive Officer and Managing Director, is named Chairman of Tata Sons Limited.
  • Cyrus Mistry was terminated from the board of directors of Tata Sons by a vote of the shareholders at a general meeting.
  • Following that, Cyrus Mistry lodged a complaint with the National Company Law Tribunal (NCLT) in Mumbai, alleging persecution of minority shareholder rights and operational mismanagement by Tata Sons under Sections 241, 242 and 244 of the Companies Act, 2013.

Before NCLT

  • The complainant companies of SP Group had contended oppression and mismanagement on the grounds of abuse of Article of Association of the Company, illegal removal of Cyrus from the position of Executive Chairman, Ratan Tata treating the company as proprietorship while other directors acting as puppets, dubious transactions, and disastrous projects of the Company.
  • The NCLT also did not find any merit in the contention that the re-conversion of Tata Sons from Public to Private falls for consideration. With this, the NCLT ruled in the favour of Tata Sons Ltd.

Before NCLAT (National Company Law Appellate Tribunal )                         

  • The NCLAT reversed the order of NCLT. It observed that there was nothing on record to suggest that the Board at any time expressed displeasure about the performance of Cyrus.
  • It also observed that Ratan Tata was determined to remove Cyrus even prior to the meeting of the board and the majority shareholders of the Tata Trust knew that there was a requirement of advance notice before the removal of Cyrus, and if all major decisions are taken in advance by the Tata Trust, the independence of the board becomes irrelevant.

 

Questions of Law before the Supreme Court of India

  • Whether the company’s affairs have been conducted in a manner prejudicial and oppressive to some members?
  • Whether the winding up of the company on just and equitable grounds is in tune with the well-settled principles and parameters?
  • Whether the order of reinstatement of Cyrus into the Board of Tata companies was justified?
  • Whether the setting aside of Article 75 of the Article of Association on the grounds of oppression and prejudice justified?
  • Whether affirmative voting rights available to the majority Directors appointed by the Tata Trust oppressive and prejudicial?
    Whether the re-conversion of Tata Sons from public to private company required the procedures to be followed under Section 14 of the Companies Act, 2013?

 

HELD
The Supreme Court decided all the issues in favour of the Respondents and reversed the judgement of NCLAT.

  • The Court also found the removal of Cyrus Mistry from the Board as justified due to his actions of breaching fiduciary relationship with the company and held his removal not to be a case of prejudice and oppression.
  • The Court then observed that the Companies Act, 2013 only provides the right to proportionate representation to small shareholders of listed companies, not to minority shareholders like SP Group.
  • The Court also held that SP Group does not have right to proportionate representation even contractually, owing to the Article of Association of the Company.
  • Although Cyrus Mistry had a somewhat weak legal case and a somewhat stronger sympathetic case against the Tata Group, this judgement, likely to become a landmark precedent, has negative impact on minority shareholders as they will now have to ensure that they have the right to proportionate representation contractually as they do not have such statutory right.