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Indian Economy

Tata - Mistry Judgement

  • 31 Mar 2021
  • 3 min read

Why in News

Recently, the Supreme Court overturned the National Company Law Appellate Tribunal (NCLAT) decision and upheld Tata Group’s decision to remove Cyrus Pallonji Mistry as the Executive Chairman and Director of Tata Sons.

Key Points

  • Supreme Court Observations:
    • Minority shareholders or their representatives are not automatically entitled to a seat on the private company’s board like a small shareholder’s representative.
    • The provisions contained in the Companies Act 2013 only protects the rights of small shareholders of listed companies by asking such companies to have on their board at least one director elected by such small shareholders.
    • Since the Mistry family and the Shapoorji Pallonji (SP) Group are not small shareholders, but minority shareholders, there is no statutory provision which gives them the “right to claim proportionate representation,” on the board of Tata Sons.
    • Private companies, which have minority shareholders, are free to make an enabling provision but are under no statutory obligation to give minority shareholder seats on the board.

Minority Shareholders

  • They are the equity holders of a firm who do not enjoy the voting power of the firm by virtue of his or her below 50% ownership of the firm’s equity capital.

Small Shareholders

  • According to the Companies Act, small shareholders is a shareholder or group of shareholders who hold shares of nominal value of not more than Rs. 20,000.

The Companies Act 2013

  • It is an Indian company law which regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company.
  • Significance of the Judgement:
    • Though the judgment does not directly impact the right of minority shareholders, such shareholders will have to ensure that they have a contract with the majority shareholders or the promoters of the company to ensure they have adequate representation on the board.

National Company Law Appellate Tribunal

  • It was constituted under Section 410 of the Companies Act, 2013 for hearing appeals against the orders of National Company Law Tribunal (NCLT).
  • NCLAT is also the Appellate Tribunal for hearing appeals against the orders passed by NCLT(s) under the Insolvency and Bankruptcy Code, 2016 (IBC).
    • NCLAT also hears appeals against the orders passed by Insolvency and Bankruptcy Board of India.
  • NCLAT is also the Appellate Tribunal to hear and dispose of appeals against any direction issued or decision made or order passed by the Competition Commission of India (CCI).

Source: IE

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