Tata Sons & Corporate Governance Issues

The National Company Law Appellate Tribunal (NLCAT) has reinstated Cyrus Mistry as the Executive chairman of Tata Sons Ltd. There are several takeaways from the the NCLAT’s order. Firstly, it reveres the order of NCLT reinstating his position. It is significant in the backdrop of a debate on corporate governance. The NCLAT order is a case study which makes contribution to the ignored area of oppression and mismanagement related to minority shareholders. Looking at the veto clauses in Article of Association of Tata Sons, the tribunal concludes that such a clause has put minority interest at risk. Secondly, corporate decisions have been made out of the boardroom , rendering a mere rubber stamp exercise by silencing minority’s voice.

Managing Internal Issues

With the constant interference in the functioning by the majority can thwart the pursuit of a corporate agenda. It raises the question about companies being governed democratically and how are the elected directors expected to stand up to the promoters. It is despite of the change in corporate laws with the Companies act, 2013. Though no external push can a solution, with the NCLAT’s order, once cannot expect the professional standards to rise unless self-restraint is exercised by the members of the board. With the public funds involved it is important for the board to be pragmatic in decision making.

The NCLAT’s order will indeed by litigated, corporate boards should not lose this opportunity to reinvigorate the debate on governance.

Topics: GS-II: Important Aspects of Governance Transparency and Accountability Citizen Charters