Tata Sons : NCLAT Judgement

Published: December 25, 2019

The NCLAT reinstated Cyrus Mistry as the executive chairman of Tata Sons, which broncos forward the issue of Tata Sons sudden attempt of conversion from a public limited to a private limited company. The second is Article 75 of the company’s Article of Association. It is important to look at these aspects which can have possible impacts on future businesses.

The first is Tata Sons attempt to change its status to a private company. There has been an attempt to do some creative interpretation, which has been done earlier in the case of setting up its aviation business. In 2013, it was the placement of a comma which rescued the AirAsia-Tata Joint venture. It was the FIPB which took cognisance that allowed investment in not just capital of Indian companies but also scheduled and non-scheduled air transport companies. In the recent scenario, the timing of the conversion was done hurriedly as an appeal had been filed before the NCLAT.

The hurriedness meant that instead of following Section of 14 of Companies Act, 2013 which provides provision of conversion of a company (public to private & vice-versa) ,Tata Sons relied on a 2013 circular assuming it allowed a company to change its status with direct permission from the Registrar of Companies (RoC). However, it has not been highlighted that the circular was issued during transition from the Companies act of 1956 to 2013 and was done to proper administration. This interpretation by Tata Sons has been overruled by the NCLAT, thus restoring the company’s public status. A higher standard of corporate governance is present in public companies as to a private company, that is why the Tata Group was in a hurry to change the company’s status.

Another reason which is brought to light is Article 75 of the company’s AoA. It allows the company to ask a shareholder to sell its shares. With invoking such a provision, it can ask any shareholder to sell its shares. This is where its status as a public or private company becomes important. Such a provision is not valid for a public company that a private company can do under the law. In the future, it is the interoperation of Article 75 by the Supreme Court, which can affect how the articles of association are drafted.

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