In a recent development that found its way to the limelight, the Supreme Court came to a decision that challenged one made previously by the National Company Law Appellate Tribunal (NCLAT). The decision was connected to the Tata Group’s controversial move to oust Cyrus Pallonji Mistry from his roles as the Executive Chairman and Director of Tata Sons. The Supreme Court decided in favor of Tata Group and let the removal stand.
Observations Made by the Supreme Court
Central to the court’s decision were some key observations related to shareholder rights. According to the court, minority shareholders or their representatives do not possess an automatic right to secure a seat on the board of a private company. It was further clarified that protections outlined in the Companies Act 2013 are exclusively meant to safeguard the rights of small shareholders of listed companies. These safeguards include a requirement for such companies to retain at least one director nominated by the small shareholders.
With regards to the Mistry family and Shapoorji Pallonji (SP) Group, they aren’t classified as small shareholders, rather, they fall under the category of minority shareholders. Therefore, there is no legal provision that grants them the “right to claim proportionate representation,” on Tata Sons’ board. It’s also worth noting that while private companies with minority shareholders have the liberty to make enabling provisions, they are not under any legal obligation to give seats on the board to minority shareholders.
Minority Shareholders Vs Small Shareholders
Minority shareholders are those equity holders in a company who do not have a majority (>50%) stake in the company’s equity capital. This is distinct from small shareholders, who, according to the Companies Act, hold shares of nominal value of not more than Rs. 20,000.
Understanding the Companies Act 2013
The Companies Act 2013 is an Indian law that regulates various aspects related to companies. It oversees the incorporation of a company, the duties of a company, and its directors, and the dissolution of a company.
The Judgement’s Significance
Although the judgement does not have a direct impact on the rights of minority shareholders, it does imply that such shareholders will need to broker a contract with the majority shareholders or the company promoters. This is essential if they aim to secure adequate representation on the board.
National Company Law Appellate Tribunal (NCLAT)
The NCLAT was established as per Section 410 of the Companies Act, 2013. Its primary role is to entertain appeals against decisions made by the National Company Law Tribunal (NCLT). The tribunal also hears appeals against orders passed under the Insolvency and Bankruptcy Code, 2016 (IBC), orders passed by the Insolvency and Bankruptcy Board of India, and any direction issued or decision made or order passed by the Competition Commission of India (CCI).
This information came from IE, a reputable source of news in India.
