Companies

Tata case: Supreme Court judgment erodes standards of corporate governance, says SP Group

Rajesh Kurup Mumbai | Updated on April 28, 2021

Cyrus Mistry

In its review petition, the group has alleged contradictions in the judgment, rejections and non-consideration of facts

The Shapoorji Pallonji Group (SP Group), which filed a review petition before the Supreme Court in the Tata case, has alleged that observations in the judgment erode the standards of corporate governance and are riddled with errors.

There were contradictions in the judgment, rejections and non-consideration of facts, and it ignored the doctrine of merger, leading to miscarriage of justice, SP Group said in its review petition filed last week.

The core of the reasoning in the judgment is that Tata Sons is sui-generis (Latin term for unique entity) as its majority shareholders are public charities that deploy dividends for charitable causes. Consequently, ordinary company law principles, including lack of probity on the part of directors that would otherwise render them amenable to a check and balance under Sections 241-242, cannot apply.

“The judgment has virtually accorded judicial sanctity to the argument of the Tatas, that charity outside the boardroom, justifies the lack of probity inside it and has lowered the standards of governance of a large and important group like the Tatas. This recurring theme, ex-facie erroneous in law, writ large on the face of the judgment, has not only led to a miscarriage of justice but has serious implications – not only to the outcome in the present case but on the rights of minority shareholders under the Companies Act 2013,” SP Group said in its review petition.

In its petition, SP Group “respectfully submitted” that the interpretation of certain sections and rights of minority shareholders under 2013 Act were being considered for the first time by the court. Apart from a voluminous data of over 10,000 pages, the case was also heard in a compressed timeframe. This has resulted in several patent errors of fact and law, and failure to consider key submissions made by the parties.

Prevention of oppression

The judgment failed to consider Section 241(1)(b), a provision of the Prevention of Oppression and Mismanagement statute of the Companies Act 2013, which was the heart of the dispute between the parties. The judgment ignored the National Company Law Appellate Tribunal’s (NCLAT’s) findings and wrongly declared that the justification for Cyrus Mistry’s removal cannot be considered under Section 241.

The ruling also contains “unfortunate remarks” about Cyrus Mistry “setting his own house on fire” in connection with an email dated October 25, 2016 (alleged leaking of mail to media), without noticing that NCLAT had overturned the NCLT’s finding and expunged the remarks.

These errors, apart from leading to a miscarriage of justice in the case, also has wider ramifications for implementation of the statutory safeguards enshrined in the Companies Act 2013,” it said, adding the law permits “patent errors” be rectified through a review petition.

 

Also Read: SP Group files review petition before Supreme Court

Published on April 27, 2021

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