NCLAT Order: Cyrus Mistry’s Reinstatement As Tata Sons Chairman May Face Tough Supreme Court Test

Although the National Company Law Appellate Tribunal (NCLAT), in an unexpected turn of events, ordered the reinstatement of Cyrus Mistry as Tata Sons' Executive Chairman, several experts, however, differ on the order and some are of the view that the order may not hold ground in the Supreme Court.

Corporate and legal experts feel that as both the removal of Mistry as the Chairman and appointment of N. Chandrasekaran had the approval of the board and more importantly that of shareholders, the decisions should not be considered illegal.

"The Chairman of the board is appointed and removed by the board itself. And then it is ratified by the shareholders meeting also. Shareholders are supreme," Pavan Kumar Vijay, Founder of Corporate Professionals, said.

"The order may have been given on some procedural aspect, but I don't think it will sustain (if Tata Sons moves Supreme Court)," Vijay told IANS.

The NCLAT on Wednesday ordered the restoration of Cyrus Mistry as the Chairman of Tata Group. The appellate tribunal, however, allowed for suspension of part of the order on reinstatement of Mistry as Executive Chairman of Tata Sons for four weeks, which means the Mistry will have be reinstated as Chairman only after said period.

Tata Group, during this time, can appeal against the order in the Supreme Court. The order also asked Ratan Tata, the Chairman Emeritus, to desist from taking any decision in advance which requires a majority decision of the Board of Directors or the Annual General Meeting.

Tata Sons is likely to move the the top court and the company in a statement has said that it would take "appropriate legal recourse" and is currently analysing the order.

Shriram Subramanian, Founder and MD of InGovern Research Services, however, observed that Wednesday's order is a vindication of Mistry's stand as there was no "compelling reason" for the Tata Sons board to remove him.

"InGovern was of the opinion that there was no compelling reason for the board of Tata Sons to remove him given that the board appraisal had not pointed anything on the non-performance of the Chairman," Subramanian told IANS.

The Tata Sons-Cyrus Mistry saga is likely to be one among those cases whereby the Supreme Court has overturned an NCLAT order, according to experts, as in few instances, top court has ended up reversing the appellate tribunal's order, such as in the landmark Essar Steel judgement which cleared the decks for it takeover by ArcelorMittal.

The Supreme Court, in its November 15 order, allowed the plea of Committee of Creditors of Essar Steel India and set aside the NCLAT order on insolvency proceedings against the steel giant. The NCLAT ruling had emphasised on equal distribution of proceeds between financial and operational creditors.

The bench, headed by Justice Rohinton Nariman, however, observed that the adjudicating authority and tribunals should not interfere in commercial decisions taken by Committee of Creditors, and in fact, at best, ask the CoC to reconsider its decision and balance the interest of all stakeholders.