2021 Supreme(SC) 171

SUPREME COURT OF INDIA
S.A. BOBDE, CJI., A.S. BOPANNA, V. RAMASUBRAMANIAN, JJ.
TATA CONSULTANCY SERVICES LIMITED - APPELLANT
VERSUS
CYRUS INVESTMENTS PVT. LTD. AND ORS. - RESPONDENTS
CIVIL APPEAL NOs.440-441, 13-14, 442-443, 19-20, 444-445, 448-449, 263-264, 1802 of 2020
Decided on : 26-03-2021

IMPORTANT POINTS
(1) Parliament always recognised possibility of a deemed public company again reverting back to status of a private company.
(2) Position in law that a contract of personal services cannot be enforced by Court is a long standing principle of law and cannot be displaced by existence of any implied power.
(3) Proportionate representation by means of a single transferable vote, is not the same as representation on Board for a group of minority shareholders, in proportion to percentage of shareholding they have.
(4) Affirmative voting rights for nominees of institutions which hold majority of shares in companies have always been accepted as a global norm.

Headnote:

(A) Companies Act, 2013 – Sections 241 and 242 – Reinstatement of Executive Chairman of Tata Sons Limited – There may be cases where removal of a Director might have been carried out perfectly in accordance with law and yet may be part of a larger design to oppress or prejudice interests of some members – It is only in such cases that Tribunal can grant a relief under Section 242 – Company Tribunal is not a labour Court or an administrative Tribunal to focus entirely on manner of removal of a person from Directorship – Validity of and justification for removal of a person can never be primary focus of a Tribunal under Section 242 unless same is in furtherance of a conduct oppressive or prejudicial to some of members – Post of Executive Chairman is not statutorily recognised or regulated, though he post of a Director is – CPM was removed only from post of (or designation as) Executive Chairman and not from post of Director till Company Petition was filed – But CPM himself invited trouble, by declaring an all out war, which led to his removal from Directorship – Tata Sons is a principal investment holding Company, of which majority shareholding is with philanthropic Trusts – Majority shareholders are not individuals or corporate entities having deep pockets into which dividends find their way if Company does well and declares dividends – NCLAT should have raised most fundamental question whether it would be equitable to wind up Company and thereby starve to death those charitable Trusts, especially on the basis of uncharitable allegations of oppressive and prejudicial conduct – Finding of NCLAT that facts otherwise justify winding up of Company under just and equitable clause, is completely flawed. (Paras 16.29, 16.31 and 16.54)

(B) Companies Act, 2013 – Sections 241 and 242 – Reinstatement of Executive Chairman of Tata Sons Limited – Removal and reinstatement are two different things – Sections 241 and 242 of Companies Act, 2013 do not specifically confer power of reinstatement – NCLAT appears to have granted relief of reinstatement gratis without any foundation in pleadings, without any prayer and without any basis in law – By doing so, NCLAT has forced upon appellant an Executive Chairman, who now is unable to support his own reinstatement – NCLAT has found dismissal to be illegal and not a nullity – In law, a dismissal even if found to be wrongful and malafide is an effective dismissal and may give rise to a claim in damages – Sections 241 and 242 do not permit Tribunal to read into the Sections, power to make an order for reinstatement which is barred by law vide Section 14 of Specific Relief Act, 1963 with or without amendment in 2018 – Tribunal cannot make an order enforcing a contract which is dependent on personal qualifications such as those mentioned in Section 149(6) of Companies Act, 2013 – Position in law that a contract of personal services cannot be enforced by Court is a long standing principle of law and cannot be displaced by existence of any implied power, though none is shown in present case. (Paras 17.7, 17.15, 17.16, 17.17, 17.19 and 17.20)

(C) Companies Act, 2013 – Sections 241 and 242 – Reinstatement of Executive Chairman of Tata Sons Limited – Sine qua non for invoking Section 241 is that affairs of Company should have been conducted or are being conducted in a manner oppressive or prejudicial to some of members – No single instance even of invocation of Article 75 nor misuse, is averred in main company petition or in application for amendment – Complainant companies did not make a grievance out of Article 75 on the ground that it had been misused in past and that such misuse tantamount to conduct oppressive or prejudicial to interests of some of members – NCLAT could not have and should not have made Article 75 of Articles of Association completely ineffective by passing an order of restraint – A person who willingly became a shareholder and thereby subscribed to Articles of Association and who was a willing and consenting party to amendments carried out to those Articles, cannot later on turn around and challenge those Articles – Same would tantamount to requesting Court to rewrite a contract to which he became a party with eyes wide open. (Paras 18.3, 18.6)

(D) Companies Act, 2013 – Section 166(2) – Affirmative voting rights – Affirmative voting rights for nominees of institutions which hold majority of shares in companies have always been accepted as a global norm – Affirmative voting rights conferred by Article 121 of Articles of Association, confers only a limited right upon Directors appointed by Trusts under Article 104B – Article 121 speaks only about manner in which matters before any meeting of Board shall be decided – A shareholder or a group of shareholders who constitute majority, can always seek to be in driving seat by reserving affirmative voting rights – So long as these special rights are incorporated in Articles of Association and so long as they are not in contravention of any of provisions of Act, same cannot be attacked on these grounds – What is ordained under Section 166(2) is a combination of private interest and public interest – But what is required of a Director nominated by a charitable Trust is pure, unadulterated public interest – There is nothing abhorring about validity of affirmative voting rights – A person nominated by a charitable Trust, to be a Director in a company in which Trust holds shares, also holds a fiduciary relationship with Trust and fiduciary duty towards nameless, faceless beneficiaries of those Trusts – History of evolution of corporate world shows that it has moved from (i) familial to (ii) contractual and managerial to (iii) a regime of social accountability and responsibility – Challenge to affirmative voting rights and allegations revolving around pre-consultation and pre-clearance by Trusts of all items in agenda and RNT’s indirect or direct influence or grip over Board are all liable to be rejected. (Paras 19.24, 19.25, 19.29, 19.30 and 19.37)

(E) Companies Act, 2013 – Section 163 – Principle of Proportionate Representation – Right to claim proportionate representation is not available even to a minority shareholder statutorily, both under 1956 Act and under 2013 Act – There is no statutory compulsion to incorporate such a provision – Proportionate representation by means of a single transferable vote, is not the same as representation on Board for a group of minority shareholders, in proportion to percentage of shareholding they have – It is a system where voters exercise their franchise by ranking several candidates of their choice, with first preference, second preference etc. – It is only an enabling provision and it is upto company to make a provision for the same in their Articles, if they so choose. (Paras 19.43 and 19.49)

(F) Companies Act, 2013 – Section 14 – Reconversion of Tata Sons from a public company into a private company – Parliament always recognised possibility of a deemed public company again reverting back to status of a private company – NCLAT was completely wrong in holding as though Tata Sons, in connivance with Registrar of companies did something clandestinely, contrary to the procedure established by law – Request made by Tata Sons and action taken by Registrar of Companies to amend Certificate of Incorporation were perfectly in order. (Paras 20.39 and 20.40)

Facts of the case:

Core issues to be considered are, whether formation of opinion by Appellate Tribunal that company’s affairs have been or are being conducted in a manner prejudicial and oppressive to some members and that facts otherwise justify winding up of company on just and equitable ground, is in tune with well settled principles and parameters, especially in light of fact that findings of NCLT on facts were not individually and specifically overturned by Appellate Tribunal ? And, Whether reliefs granted and directions issued by Appellate Tribunal, including reinstatement of CPM into Board of Tata Sons and other Tata companies, are in consonance with pleadings made, reliefs sought and powers available under Sub-section (2) of Section 242? –

Findings of Court:

Article 75 of the Articles of Association is nothing but a provision for an exit option (though one may think of it as an expulsion option). After attacking Article 75 before NCLT, S.P. Group cannot ask this Court to go into question of fixation of fair value compensation for exercising an exit option. What is pleaded in Paragraph 72 of the application for separation of ownership interests, require an adjudication on facts, of various items. The valuation of the shares of S.P. Group depends upon the value of the stake of Tata Sons in listed equities, unlisted equities, immovable assets etc., and also perhaps the funds raised by SP group on the security/pledge of these shares. Therefore, at this stage and in this Court, we cannot adjudicate on the fair compensation. Court will leave it to the parties to take the Article 75 route or any other legally available route in this regard.

Result : All Appeals except one allowed. Order of NCLAT set aside.