NCLAT comes down with heavy hand on draconian Article 75

Ratan Tata Indian industrialist

Mumbai,  The NCLAT judgement against the Tata Group comes down with a heavy hand at the prejudicial and oppressive manner in which the majority mindset of Tata Sons operated against the minority (Shapoorji Pallonji Group) and public shareholders of Tata Sons and Tata Group, respectively.

It derides the role played by Tata Trusts, the overwhelming majority shareholders with 66 percent in Tata Sons. It blames its nominated directors from having an affirmative right over majority decision making by exercising the powers conferred under Article 75 under which, without any notice or reason, it can even take over their shares.

The judgement highlights the potential abuse of Article 75 in the Articles of Association of Tata Sons in view of the manner in which the affairs of the company were being conducted as an intrinsically two group company with involvement of both groups working towards a joint effort of mutual benefit to both. Article 75, which was part of AoA, was never viewed by the minority shareholders – in this case, the SP Group, as a possible tool of oppression. In fact, Article 121 was also not viewed in the same manner, but the events which unfolded on October 24, 2016 and subsequently thereof created more than a reasonable apprehension that Article 75 could be sought to use to marginalise and eliminate the minority shareholders from the company.

This is viewed as draconian by the NCLAT for it found that this apprehension was not misplaced or unfounded for it clearly indicated that minority shareholders were unhappy with the affairs of the company and wanted to sell their shares.

The judgement goes onto say: “Article 75 stands coupled with the propensity for misuse would be wholly oppressive to the interests of the minority and would therefore need to be deleted.”

Furthermore, in a slam dunk move which will obviously be contested by Tatas in the Supreme Court, the judgement says that Ratan Tata and the nominee of the Tata Trusts shall desist from taking any decision in advance which requires majority decision of the Board or in the AGM. No power will be exercised under Article 75 and if it is, it will have to be recorded in writing and intimated to the concerned shareholders whose right will be impacted.