Big setback for Tatas in fight with Cyrus Mistry! RTI revelation rocks India Inc

Mumbai: The abrupt sacking of Cyrus Mistry as the chairman and director, respectively, of Tata Sons and its crown jewel TCS violated provisions of the Companies Act, RBI rules and more importantly, Tatas' own articles of association, RoC, Mumbai said in an RTI reply.

The right to information (RTI) reply, given by Uday Khomane, the assistant registrar of companies (RoC), Mumbai on October 3, is in response to a RTI request filed by the investment arms of the Shapoorji Pallonji Group on August 31.

The reply said the way Mistry was removed from the chairmanship of Tats Sons and also as the director of Tata Consultancy Services (TCS), violated the relevant legal provisions under the Companies Act, 2013; the Reserve Bank rules governing NBFCs; and more importantly the rule 118 of the articles of association (AoA) of Tata Sons, the parent of the diversified Tata group, which is registered as an NBFC with the monetary authority.

A Tata Sons spokesman refused to offer detailed comments on the questions sent by PTI, saying, "We do not wish to comment on the matter as the matter is sub-judice."

PTI has seen a copy of the RTI reply which is based on the assessment of the documents furnished by the Tatas in the aftermath of the boardroom coup on October 24, 2016 dismissing Mistry as the group chairman.

The report offers an internal view of the RoC, which interestingly is totally opposite of the view taken by the National Company Law Tribunal (NCLT), Mumbai earlier this year while dismissing the petition filed by Mistry challenging his dismissal from the group.

In a boardroom coup, Mistry was sacked as the chairman of Tata Sons on October 24, 2016, two months short of four years in the corner room of the Bombay House, the global headquarters of the 150-old conglomerate that nets over 65 per cent of its income from outside the country.

Mistry, whose family is the single largest non-Tata shareholder with 18.4 per cent stake in Tata Sons, was nudged to take over the reins of the USD 103-billion group as the second non-Tata chairman, after Nowroji Saklatwala(1934-38), in December 2012, after group patriarch Ratan Tata retired.

Mistry was removed as TCS director with 93.11 per cent votes at the EGM held on December 13, 2016, as per its company secretaries Parikh & Associates which cited section 169(2) of the Companies Act 2013 read with section 115 and 100 (2)(a) for his removal.

But TCS did not send out the complete representation of Mistry to all shareholders, which violates section 169 (4)(b) of the Companies Act, noted the RoC reply.

The RTI reply is based on the queries posed by SP Kumar, western regional director, RoC, Mumbai which has found that Tata Sons violated rule 118 of its articles of its AoA, when it removed Mistry.

The report, exclusively available with PTI, states that "article 118 of the AoA of Tata Sons prescribes that its chairman can be removed in the same process as specified for his appointment i.E. By the selection committee consisting of four persons and based on such recommendation of the removal committee only the board is empowered to remove its chairman".

It goes on to add that Tata Sons "being an NBFC duly registered with RBI, any management change requires prior approval of the RBI", which was also not complied with. The reply also cited several irregularities pertaining to the December 13, 2016 EGM convened by TCS to remove Mistry as a director from its board.

TCS had adopted a letter written by the company secretary and chief operating officer of Tata Sons on November 9, 2016 as a special resolution notice to sack Mistry.

The reply noted that this letter from Tata Sons was sent to TCS without any proof of a board resolution authorising the issuance of such a letter. The report also states that "it appears prima facie that there was no proper 'special notice' received" by TCS.

The RoC also said that the TCS' company secretary thereafter "on his own" forwarded the purported special notice from Tata Sons dated November 9, 2016 to Mistry.

"The letter dated November 11, 2016 written by the VP & CS of TCS is against the provisions of section 169(3) of the Companies Act of 2013 as the power to send such a letter is vested with the board of the company," noted the RoC report.

The RoC further noted that "since there was no TCS board meeting between November 9 and 11, 2016, and in the absence of any board resolution authorising the actions of the TCS' company secretary, such a letter and the resulting actions would be void ab-initio".

Additionally, TCS had also failed to send out the complete shareholder representation of Mistry to all shareholders, "in violation of section 169(4)(b) of the Companies Act", and hence "the consequential resolution of EGM dated December 13, 2016 for the removal of Mistry would also be void".

The RoC, Mumbai in a letter dated January 25, 2017 had written to the regional director of the corporate affairs ministry highlighting these concerns.

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"As the verification of the relevant documents further finds that the company has violated the provisions of the Companies Act, and rules there under, I am referring the matter to the regional director to verify the findings in terms of rule 11(2) of the Companies (registration offices and fees) rules of 2014," the letter read.

In the reply, SP Kumar, RoC Mumbai, in a letter dated February 17, 2017, stated, "RoC having come to the conclusion that transactions are void [Annexure C point (1) to (4)] has to express in unequivocal words whether the e-form is to be rejected or e-form or document as the case may be, as invalid in the electronic record in terms of rule 10(4) of Companies (Registration Offices and Fees) Rules, 2014."

However, it is unclear what further action the ministry took on these observations, it noted. Mistry and his elder brother Shapoor Mistry, through their investment companies, are the single largest non-Tata shareholder in Tata Sons with 18.4 percent stake.

The group's investment companies are currently waging a legal battle against Tata Sons in the National Company Law Appellate Tribunal alleging oppression of the minority shareholders and mismanagement at Tata Sons. The tribunal began hearing the case Wednesday in New Delhi.