New Delhi: After the rebuff by independent directors of Indian Hotel Company, Tata Sons will have to tread cautiously they it seeks Cyrus Mistry’s ouster from group’s companies, as experts in the industry feel that “it will not be an easy task” procedurally and legally.
Cross section of experts 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 group’s different companies. Yet, they add, going by the statue, a lot would depend on how Mistry decides to play the ball. Nesar Ahmed, A former president of Institute of Companies Secretary of India, says, “If he decides to dig in his heels, then removing him as director would not be an easy job.”
Ahmed, also a corporate consultant, adds that the way Tata’s have conducted in removing Mistry may not be strictly in breach of the law but certainly it was not in conformity with the 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 financial institutions like Life Insurance Corp (LIC) and state-run banks have a sizable stakes in Tata group’s various entities.
Towards this, 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 by the Tata Sons Board. While there is a general agreement that it would not be a cake walk for Tata’s to unload Mistry from the board of the group ‘s companies, well known legal luminary Lalit Bhasin says it depends on the facts of each case.
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, says that the Memorandum of Association is the basic document laying down the procedures, another corporate lawyer, while endorsing the position says, it all depends on the pleasure of the board.
Also, the former vice-president of the Institute of Companies Secretary of India, Vaid says on the basis of the information available, it is not clear whether the chairmen of the Tata group’s companies are the nominees of the Tata Sons or appointed by the respective boards. If it is to be decided by the individual boards, Vaid says that the independent directors would have a decisive say as in the case of Indian Hotels Company, where move to remove Mistry as the Chairman was frustrated by seven independent directors.
In that situation, Vaid says they will have to wait for the next shareholders’ meting 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 Palling Group, having a little more than 18 per cent stake in Tata Sons, will not have any bearing, as the Tata Trusts have majority stakes in Tata Sons.
Ahmed says other options for Tata Sons would be to requisition an extraordinary general meeting of shareholders by taking recourse to Sections 115 of the Companies Act.
Under this section, notice for such a meeting can be given by stakeholders having 1 per cent of the total voting power, or those having shares of Rs Five lakhs. The sacking can be asked for under Section 169 of the Companies Act, which provides removal of the directors.
He says that not only the chairman who is being sought to be replaced has to be given a reasonable notice period, but even the markets 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.
