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Mistry’s removal from Tata Sons termed illegal by Shapoorji Pallonji

On Monday, Tata Group announced ouster of Cyrus Mistry from the post of Chairman of Tata Sons Limited with immediate effect. Ratan Tata has assumed the role of interim Chairman till the time a new Chairman is elected.

While Tata has stated that this decision was taken in the interest of stability of the Group and has written to the Prime Minister Narendra Modi informing him about these changes, trouble could lie ahead for Tata Sons Limited as Mistry is said to challenge this decision at the Mumbai High Court.

Cyrus Mistry of the Shapoorji Pallonji Group has been removed as Chairman of Tata Sons nearly four years after he assumed office in 2012. Mistry is the son of Pallonji, who commands an 18% stake in Tata Sons both directly and via trusts. This makes him the single largest individual shareholder of the Group. His contention is that Mistry was not served a mandatory 15 day notice while the group gave no reasons for the immediate removal of Mistry even as reports indicate that the board was not happy with various decisions taken by him with regard to nonprofit businesses.

Tata Group on their part, state that the ouster of Mistry with a majority of board members voting against him is not illegal as the Chairman is voted by the board.

Under Section 173 of Company’s Act, a 7 day notice should be given, however, this notice period is waived if at least one independent director is present in the board meeting or if the decision is ratified by a majority of directors. However, even as this sudden decision to replace Mistry has come as a shock to India Inc., the legality or illegality of the ouster will depend on terms of agreement between Tata Sons Limited, its shareholders and Mistry.

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