Tata-Mistry row: SC draws analogy between politics and corporate on issue of interference

The Supreme Court Tuesday drew an analogy between politics and the corporate governance to question Shapoorji Pallonji  (SP) Group's allegation of interference by trustees in running the affairs of Tata Sons, saying whether pre-consultation with party colleagues by a Chief Minister before a cabinet meeting amounted to loss of independence. The SP Group alleged that there was interference by the stakeholder trustee directors in the running of the Tata Sons, the act, which is best left for the board of directors. 

“Let us take the case of a Chief Minister who before the cabinet meeting consults some party colleagues on what to do and what not to do. Will you say he has lost his independence,” said a bench comprising Chief Justice S A Bobde and Justices A S Bopanna an V Ramasubramanian. 

The top court was hearing on the fifth day the cross appeals filed by Tata Sons and Cyrus Investments against appellate tribunal NCLAT's order which had restored Cyrus Mistry as the executive chairman of the over USD 100 billion salt-to-software Tata conglomerate. 

Senior advocate C A Sundaram, appearing for the SP group, said the consultation with the party colleagues is the “demand of politics” and the political science is different from the corporate. 

“In the commercial world, money is equivalent to power. Money is a kind of power. If in order to preserve money in a company, somebody seeks assistance from someone outside respected by him or a former chairman, does it amount to loss of independence of board,” the bench asked in a hearing conducted through video-conferencing. 

"Yes it does. In fact in politics, majoritarianism accounts for everything. This is not the case under the Companies Act", Sundaram said. 

"I don''t think this depends on the cabinet. There are cases where even a minority has to be consulted in politics," the bench observed. 

On the issue of interference and pre-consultation with the trustee directors in running the affairs of the Tata Sons, the senior lawyer said, “the role of shareholders cannot be to run the affairs of the company. They can only work for the welfare of the company." 

On the reason behind the feud between Cyrus Mistry and the Tata Sons, Sundaram said the whole thing came to a head because Mistry was going to table a corporate governance document which proposed to regulate the Tata Trusts' say in the Tata Sons so that the nominee directors do not decide everything for the group companies. 

He referred to the order of the National Company Law Appellate Tribunal (NCLAT) in the case and said, "There was interference. Members of the Board whether nominated by majority or otherwise have a responsibility towards the board. When there is interference even by minority shareholders, there is a problem." 

“If you have pre-consultation with the trustees then what is the point of having a board of directors to run the company,” Sundaram said, adding that the independence of the Board is paramount. 

“We agree. What is there to prevent lobbying in the board,” the bench asked. 

“If a section of the board wants consultation with the finance members, can you say that they are not independent,” it asked further. 

The senior lawyer argued that there was a “direction that anything should not be brought in front of the board first”. 

On the issue of oppression, the bench asked as to how the SP group can say that a bad decision amounted to its oppression. 

“Does bad management or bad decision making process result in oppression and mismanagement. Why can''t you have good decisions,” the bench asked, 

"I was not permitted to do so,” the counsel for Mistry replied. 

"We are not seeking the re-appointment of Cyrus Mistry. That has been dealt by the NCLAT for it being an illegal removal. Mistry never said that he wants to become the chairman again,” Sundaram said. 

Earlier, Sundaram had referred to legal provisions and had said, the whole conduct by which Tata Sons was made a private limited company showed that minority shareholders (SP group) was being sidelined. 

"The act of converting the company from public to private was to prejudice me because the protection afforded by virtue of being public was taken away," he had said. 

The court would resume hearing the case on Wednesday.