The big fight between Corporate Samurais Ratan Tata and Cyrus Mistry has opened up a debate on various legal aspects. Some experts opine that since Shapoorji Pallonji, the construction company owned by Mistry’s family, has an 18 per cent stake in Tata Sons, making it the second largest shareholder in the company, it should file an action against Tata Group for oppression of a minority shareholder and mismanagement under Section 241 of the Companies Act.
Reports inter alia also refer to compliances with respect to directory provision Section 101 of the Companies Act, 2013, which lays down rules for notices of meetings as well as the mandatory Section 102 pertaining to statement to be annexed to the notice.
To claim relief from court, Mistry will need to show some grave infirmity in the compliances with respect to termination inter alia in relation to the Articles of Association. Else, the Board has an unfettered right for removal and there is very limited scope to approach the courts, even if there is some procedural irregularity. It is the prerogative of the Board to decide who shall be the Chairman. Moreover, if Tatas make out a case for loss of confidence as some of the media reports state, then Mistry will need to defend and distinguish judgements of Supreme Court such as Air India Corporation, Bombay vs. V A Rebellow & Anr. 1972 AIR 1343, Karnataka SRTC vs. MGVittal Rao (2012 ) 1 SCC 442 , which have categorically held that once the employer has lost confidence in the employee and the bona fide loss of confidence is affirmed, the order of punishment must be considered to be immune from challenge, for the reason that discharging the office of trust and confidence requires absolute integrity. A bona fide loss of confidence is thus generally not interfered with by the courts.
Till date a lot have been written about procedural compliances. The discussion, however, is incomplete without pondering upon judicial pronouncements relating to termination laws. Under the Indian law, a contract of personal service cannot ordinarily be specifically enforced.
The Supreme Court has clearly held that a court normally would not give a declaration that the contract after termination subsists and that the employee even after having been removed from service, shall be deemed to be in service against the will and consent of the employer. The relief available in law in case of a termination of contract of service is damages, which too needs to be substantiated by cogent evidence. This rule is subject to three exceptions: (i) Where a public servant is sought to be removed from service in contravention of the provisions of Art. 311; (ii) where a worker after dismissal is sought to be reinstated under
Industrial Law; and (iii) where a statutory body acts in breach or violation of the mandatory provisions of the Act. Reference in this regard be made to the three-judge Bench decision of the Supreme Court in the matters of Executive Committee of Vaish Degree College, Shamli and Others vs. Lakshmi Narain and Ors. 1976 AIR 888; Nandganj Sihori Sugar Co. Ltd., Rae Bareli & Anr vs. Badri Nath Dixit & Ors 1991 AIR 1525; Integrated Rural Development Agency vs. Ram Pyare Pandey 1995 Suppl (2) SCC 495, apart from several other pronouncements.
In a nutshell, in the absence of any statutory requirement, courts do not usually interfere with the affairs of a company in a case where the act complained of is within the realm of the company’s powers under its articles and memorandum and are in consonance with the statutory provisions and terms of contract. The interference is generally very limited, in case of some procedural irregularity also.
The writer is an Advocate, Supreme Court of India
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