Comprehension
An unpleasant tussle ensured between the TATA Sons and Cyrus Pallonji Mistry (“CPM”) in October 2016, when Mistry, who was the sixth chairman of Tata Sons, was ousted from the position of Executive Chairman of Tata Sons Limited. CPM took over as the chairman in 2012 after Ratan Tata announced his retirement. Tata Group patriarch Ratan Tata had personally asked Cyrus Mistry to resign as chairman of Tata Sons as the board had lost faith in him, but his refusal led to the removal via majority vote. Cyrus Investments Private limited and Sterling Investment Corporation Private Limited belonged to the Shapoorji Palloni Group in which CPM held a controlling interest (about 2% of the issued share capital of Tata Sons). Seven out of the nine directors of Tata Sons voted for CPM’s replacement after Farida Khambata abstained and Mistry was declared ineligible to vote as he was an interested director. Mistry challenged his removal, accusing the board of mismanagement and of oppressing minority shareholders. however, the National Company Law Tribunal (NCLT) rejected his petition. After this Mistry challenged his removal in National Company Law Appellate Tribunal (NCLAT). In 2018, NCLAT order restored Mistry as the group’s executive chairman. Tata Sons challenged that NCLAT order in Supreme Court. CPM also challenged the order for few more relief. Supreme Court stayed NCLAT’s order reinstating Cyrus Mistry as the executive chairman of Tata Sons and restoring his directorships in the holding company as well as three group companies, with a preliminary observation that the first impression of the order was “not good” and that the tribunal ‘could’ not have given consequential relief that had not been sought in the first place. Ultimately, the Supreme Court decided the case in favour of Tata Sons. One of the issues decided by Supreme Court was that “whether the case was fit to be qualified as a situation of ‘Oppression and Mismanagement’ under Section 241 of the Companies Act, 2013?”. On this issue, the Supreme Court observed that “unless the removal of a person as a chairman of a company is oppressive or mismanaged or done in a prejudicial manner damaging the interests of the company, its members or the public at large, the NCLT cannot interfere with the removal of a person as a Chairman of a Company in a petition under Section 241 of the Companies Act, 2013.” This case highlighted the point that “an executive chairman does not have sovereign authority over the company. In corporate democracy, decision making always remains with the Board as long as they enjoy the pleasure of the shareholders. Likewise, an executive chairman will continue as long as he/she enjoys the pleasure of the Board. An assumption by the executive chairman that he/she would have a free hand in running the affairs of the company is incongruous to corporate governance and corporate democracy. The Tribunal held that the concept of ‘free hand rule’ is antithesis to collective responsibility and collective decision making”.
[Based on Tata Consultancy Services Ltd. v. Cyrus Investment Pvt. Ltd., 2021 SCC 122].
[Based on Tata Consultancy Services Ltd. v. Cyrus Investment Pvt. Ltd., 2021 SCC 122].
Question: 1
The parties in this case approached the Supreme Court of India under which of the following provision
The parties in this case approached the Supreme Court of India under which of the following provision
Updated On: Nov 7, 2024
- Appeal under section 423 of the Companies Act, 2013
- A Class Action Suit under Section 245 of the Companies Act, 2013.
- Special Leave Petition (SLP) under Article 136 of the Constitution of India
- Appeal under section 421 of the Companies Act, 2013.
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The Correct Option is A
Solution and Explanation
The appeal under Section 423 of the Companies Act, 2013, allows parties to appeal
to a higher authority, including the Supreme Court. This provision applies in the context of
corporate legal proceedings.
The correct option is (A): Appeal under section 423 of the Companies Act, 2013
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Question: 2
Rule of ‘supremacy of majority’ in governing the affairs of a company has been settled in a very old leading case of Foss v. Harbottle (1843) 2 Hare 461. In India, which case diluted the majority rule and held that interest of the company was above the interest of its shareholders either majority or minority?
Rule of ‘supremacy of majority’ in governing the affairs of a company has been settled in a very old leading case of Foss v. Harbottle (1843) 2 Hare 461. In India, which case diluted the majority rule and held that interest of the company was above the interest of its shareholders either majority or minority?
Updated On: Nov 7, 2024
- Rajahmundry Electric Supply Corporation Ltd. v. A. Nageshwara Rao
- Bagree Cereals v. Hanuman Prasad Bagri.
Shanti Prasad Jain v. Kalinga Tubes Ltd
Needle Industries (India) Ltd. v. Needle Industries Newey (India)
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The Correct Option is D
Solution and Explanation
The Needle Industries case established that the com- pany’s interest supersedes shareholder interests, protecting minority shareholders’ rights.
The correct option is (D): Needle Industries (India) Ltd. v. Needle Industries Newey (India)
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Question: 3
While recommending “Separation of the Roles of Non-executive Chairperson and Managing Director/ CEO”, the Kotak Mahindra Committee quoted the following text: “given the importance and the particular nature of the chairmen’s role, it should in principle be separate from that of the chief executive. If the two roles are combined in one person, it represents a considerable concentration of power”. This quote refers to which of the following Committee Report?
While recommending “Separation of the Roles of Non-executive Chairperson and Managing Director/ CEO”, the Kotak Mahindra Committee quoted the following text: “given the importance and the particular nature of the chairmen’s role, it should in principle be separate from that of the chief executive. If the two roles are combined in one person, it represents a considerable concentration of power”. This quote refers to which of the following Committee Report?
Updated On: Nov 7, 2024
- Cohen Committee Report
- Cadbury Committee Report
- Hampel Committee Report
- Narayana Murthy Committee Report
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The Correct Option is B
Solution and Explanation
The Cadbury Committee Report is well-known for advocating the separation of
roles between Chairperson and CEO to prevent excessive concentration of power, promoting
stronger corporate governance.
The correct option is (B): Cadbury Committee Report
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Question: 4
Which of the following statement is true regarding share qualification requirement under section 244 for applying for relief from oppression/ mismanagement under section 241 of the Companies Act, 2013 (in the case of a company having a share capital)?
Which of the following statement is true regarding share qualification requirement under section 244 for applying for relief from oppression/ mismanagement under section 241 of the Companies Act, 2013 (in the case of a company having a share capital)?
Updated On: Nov 7, 2024
- Members not less than 100 members of the company or 10% of the total number of its members, whichever is less or any member or members holding not less than 10% of the issued share capital of the company
- Members not less than 100 members of the company and 10% of the total number of its members or members holding not less than 10% of the issued share capital of the company
- Not less than 20% of the total number of its members
- Members not less than 50 members of the company and 5% of the total number of its members or members holding not less than 5% of the issued share capital of the company.
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The Correct Option is A
Solution and Explanation
Under section 244 of the Companies Act, 2013, the qualification requirement al-
lows members holding at least 10% of the issued share capital to seek relief from oppres-
sion/mismanagement.
The correct option is (A): Members not less than 100 members of the company or 10% of the total number of its members, whichever is less or any member or members holding not less than 10% of the issued share capital of the company
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Question: 5
Statement I- Power to grant relief from oppression/mismanagement which were vested by section 402 of the 1956 Act in High Court have now been transferred to the National Company Law Tribunal by section 242 of the 2013 Act.
Statement II - Section 242 does not empower National Company Law Appellate Tribunal to grant relief by way of prevention of apprehended mismanagement of the company due to material change which has taken place in its management or control.
Statement I- Power to grant relief from oppression/mismanagement which were vested by section 402 of the 1956 Act in High Court have now been transferred to the National Company Law Tribunal by section 242 of the 2013 Act.
Statement II - Section 242 does not empower National Company Law Appellate Tribunal to grant relief by way of prevention of apprehended mismanagement of the company due to material change which has taken place in its management or control.
Statement II - Section 242 does not empower National Company Law Appellate Tribunal to grant relief by way of prevention of apprehended mismanagement of the company due to material change which has taken place in its management or control.
Updated On: Nov 7, 2024
- Statement I is untrue
- Statement II is untrue
- Both Statements I and II are untrue
- Both Statements I and II are true
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The Correct Option is C
Solution and Explanation
Statement I is correct. However, Statement II is incorrect as Section 242 does allow
NCLT to grant relief for apprehended mismanagement, making option (B) correct.
The correct option is (C): Both Statements I and II are untrue
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