The National Company Law Appellate Tribunal (NCLAT) recently made a landmark decision declaring the removal of Cyrus Pallonji Mistry from the position of Executive Chairman of Tata Sons in 2016 was illegal. This ruling overruled a previous order by the Mumbai bench of the National Company Law Tribunal (NCLT), which had supported Mistry’s removal.
Illegal Conversion of Tata Sons Limited
Adding to the Tribunal’s surprising decision, NCLAT declared the transformation of ‘Tata Sons Limited’ from a ‘Public Company’ to a ‘Private Company’ as illegal. The Registrar of Companies’ decision to change the company’s status was seen as ‘prejudicial’ and ‘oppressive’ to minority shareholders. In simpler terms, this meant that it undermined their rights and interests.
Empowering Minority Shareholders
This ruling by the NCLAT is not only significant in terms of corporate governance but is also a major step towards empowering minority shareholders. It acts as a reminder for Independent Directors about their responsibility to consider and address the concerns of minority shareholders. As per the Code for Independent Directors in the Companies Act, 2013, ensuring the interests of minority shareholders is one of their main duties. In the aftermath of this decision, Independent Directors are expected to handle minority shareholders’ objections more seriously.
About NCLAT and NCLT
NCLAT, constituted under Section 410 of the Companies Act, 2013, is mandated to hear appeals against the orders of the NCLT. NCLT, a quasi-judicial body, adjudicates issues related to companies. Furthermore, it serves as the appellate tribunal for orders passed under Section 61 of the Insolvency and Bankruptcy Code (IBC), 2016, by the NCLT(s) and orders passed by the Insolvency and Bankruptcy Board of India (IBBI) under Sections 202 and 211 of the IBC. If a person is dissatisfied with an NCLAT order, they can appeal to the Supreme Court.
Key Definitions
| Term | Definition |
|---|---|
| Minority shareholders | Equity holders in a firm who do not have voting power due to their ownership being below 50% of the firm’s equity capital. |
| Independent Director | A non-executive director of a company who aids in improving corporate credibility and governance standards. An independent director has no relation to the company that could influence their judgment. |
Public and Private Companies
Under the Companies Act, 2013, a company can be formed for any lawful purpose by a certain number of people depending on the type of company. To form a public company, there must be seven or more persons, for a private company the requirement is two or more persons (up to 200), and for a One Person Company, there is a requirement of just one person. The specific type of company is denoted by a suffix, with ‘Limited’ indicating a public limited company, and ‘Private Limited’ indicating a private limited company.
Registrars of Companies (ROC)
The Registrars of Companies (ROC) are appointed under Section 609 of the Companies Act. Their primary duty is to register companies and Limited Liability Partnerships (LLPs) formed in their respective states and Union Territories. They also ensure that these entities comply with the statutory requirements of the Act.