Cyrus Pallonji Mistry Vs. Tata Sons Ltd. & Ors- 06/01/2020

On the basis of definition of ‘Private Company’ as amended by Section 2(68) and was applicable on the date of correction of Certificate of corporation, absence of any prescription of minimum paid-up share capital, the Registrar of Companies has no power or jurisdiction to carry out any changes the Register of Companies or Certificate of corporation of ‘Tata Sons Limited’ and the ‘Memorandum of Association’ of the ‘Tata Sons Limited’.

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI

I.A. No. 4331 of 2019

Company Appeal (AT) No. 254 of 2018

THE MATTER OF:

Cyrus Investments Pvt. Ltd. ….Appellant
Vs.
Tata Sons Ltd. & Ors. ….Respondents

I.A. No. 4336 of 2019

Company Appeal (AT) No. 268 of 2018

THE MATTER OF:

Cyrus Pallonji Mistry ….Appellant
Vs.
Tata Sons Ltd. & Ors. ….Respondents

Present:

For Appellant: Mr. Sanjay Shorey, Director (L&P), Mistry of
Corporate Affairs for Registrar of Companies.

For Respondents: Mr. Akshay Makhija and Ms. Kriti Awasthi,
Advocates for R-1.

Mr. C.A. Sundaram and Mr. Arun Kathpalia, Senior Advocates with Mrs. Sonali Jaitley Bakhshi, Mr. Manik Dogra, Mr. Ravi Tyagi, Mr. Shubhanshu Gupta, Ms. Ri Badoni, Mr. Pragalbh Bhardwaj, Mr. Akshay Doctor and Mr. Gunjan Shah, Advocates for Respondents 24 & 25.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

Interlocutory applications have been preferred by the Registrar of Companies, Mumbai for seeking amendment Judgment dated 18th December, 2019 passed by this Appellate Tribunal so far as it relates to observations made at Paragraphs 181, 186 & 187 of the Judgment.

2. the aforesaid Judgment, this Appellate Tribunal while dealing with conversion of ‘Tata Sons Limited’ from ‘Public Company’ to ‘Private Company’ noticed that the ‘Tata Sons Limited’ was initially a ‘Private Company’ but after insertion of Section 43A (1A) the Companies Act, 1956 on the basis of average annual turnover, it assumed the character of a deemed ‘Public Company’ w.e.f. 1st February, 1975.

3. The aforesaid provision was amended and Section (2A) was substituted after the commencement of the Companies (Amendment) Act, 2000. As per sub-section (4) of Section 43A, a ‘Private Company’ which has become a ‘Public Company’ by virtue of the aforesaid provisions, is to continue to be a ‘Public Company’ until it has, with the approval of the Central Government and accordance with the provisions of the Act, again becomes a ‘Private Company’.

4. It was noticed that part of the Companies Act, 1956 was repealed by the Companies Act, 2013, from the date of its notification, except those covered Part IX-A of the Companies Act, 1956.

5. Section 31 of the Companies Act, 1956 which relates to “Alteration of Articles by Special Resolution” was repealed and substituted by Section 14 of the Companies Act, 2013 which relates to “Alteration of Articles”, as referred the Judgment.

6. Taking into consideration the definition of ‘Private Company’ as defined under Section 2(68) of the Companies Act, 2013 and the definition of ‘Public Company’ as defined under Section 2(71) of the Companies Act, 2013, following observations were made by this Appellate Tribunal at Paragraphs 181, 186 & 187 of the Judgment dated 18th December, 2019:-

“181. The aforesaid action on the part of the Company, its Board of Directors to take action to hurriedly change the Company (‘Tata Sons Limited’) from ‘Public Company’ to a ‘Private Company’ without following the procedure under law (Section 14), with the help of the Registrar of Companies just before filing of the appeal, suggests that the nominated members of ‘Tata Trusts’ who have affirmative voting right over the majority decision of the Board of Directors and other Directors/ members, acted a manner ‘prejudicial’ to the members, including minority members (‘Shapoorji Pallonji Group’) and others as also ‘prejudicial’ to the Company (‘Tata Sons Limited’).

xxx xxx xxx

186. As regards the conversion of the company from ‘Public Company’ to ‘Private Company’, as action taken by the Registrar of Companies is agast the provisions of Section 14 of the Companies Act, 2013 and ‘prejudicial’ and ‘oppressive’ to the minority members and depositors, etc., conversion of the ‘Tata Sons Limited’ from ‘Public Company’ to ‘Private Company’ by Registrar of Companies, is declared illegal.

187. view of the findings aforesaid, we pass the following orders and directions:

(i) The proceedings of the sixth meeting of the Board of Directors of ‘Tata Sons Limited’ held on Monday, 24th October, 2016 so far as it relates to removal and other actions are taken agast Mr. Cyrus Pallonji Mistry (11th Respondent) is declared illegal and is set aside. the result, Mr. Cyrus Pallonji Mistry (11th Respondent) is restored to his original position as Executive Chairman of ‘Tata Sons Limited’ and consequently as Director of the ‘Tata Companies’ for rest of the tenure.

As a sequel thereto, the person who has been appointed as ‘Executive Chairman’ place of Mr. Cyrus Pallonji Mistry (11th Respondent), his consequential appointment is declared illegal.

(ii) Mr. Ratan N. Tata (2nd Respondent) and the nominee of the ‘Tata Trusts’ shall desist from taking any decision advance which requires the majority decision of the Board of Directors or the Annual General Meeting.

(iii) view of ‘prejudicial’ and ‘oppressive’ decision taken during the last few years, the Company, its Board of Directors and shareholders which has not exercised its power under Article 75 since inception, will not exercise its power under Article 75 agast Appellants and other minority members. Such power can be exercised only exceptional circumstances and the interest of the company, but before exercising such power, reasons should be recorded writing and intimated to the concerned shareholders whose right will be affected.

(iv) The decision of the Registrar of Companies changing the Company (‘Tata Sons Limited’) from ‘Public Company’ to ‘Private Company’ is declared illegal and set aside. The Company (‘Tata Sons Limited’) shall be recorded as ‘Public Company’. The ‘Registrar of Companies’ will make correction in its record showing the Company (‘Tata Sons Limited’) as ‘Public Company’.”

7. Mr. Sanjay Shorey, Director Prosecution, Mistry of Corporate

Affairs, who appeared on behalf of the Registrar of Companies, Mumbai was asked to clarify the date from which the definition of ‘Private Company’ as defined under Section 2(68) of the Companies Act, 2013 was amended and whether the Central Government has come out of the Rule prescribing minimum paid up share capital so as to ascertain whether a ‘Company’ comes with the meaning of ‘Private Company’ as defined under Section 2(68) read with Section 2(66) of the Companies Act, 2013.

8. Mr. Sanjay Shorey, Director Prosecution, Mistry of Corporate Affairs, appearing on behalf of the Registrar of Companies, Mumbai specifically formed that the Central Government has not framed any Rule under Section 2(66) of the Companies Act, 2013 prescribing minimum paid up share capital of a ‘Private Company’.

9. It was submitted that till such date, Section 43A (2A) had not been repealed and there is no corresponding provision enacted under the Companies Act, 2013, therefore, Section 43A (2A) of the Companies Act, 1956 is still operating. Reliance has been placed on the Ministry of Corporate Affairs’ Notification S.O. 560(E) dated 30th January, 2019 support of such submission.

10. It was submitted that view of the aforesaid position of law as Section 43A (2A) has not been repealed, after Judgment of the National Company Law Tribunal, ‘Tata Sons Limited’ by its letter dated 19th July, 2018 estimated the Registrar of Companies of its exercise of the option under Section 43A (2A) for reversion back to the status of a private company, therefore, the Registrar of Companies was statutorily obligated to carry out the necessary changes the ‘Register of Companies’, the ‘Certificate of corporation’ of ‘Tata Sons Limited’ and the ‘Memorandum of Association’ of ‘Tata Sons Limited’.

11. This Appellate Tribunal specifically asked Mr. Sanjay Shorey, Director Prosecution, Mistry of Corporate Affairs, who appeared on behalf of the Registrar of Companies, Mumbai that the year 1975 when the Company was converted to be a deemed ‘Public Limited Company’, necessary correction was made the Articles of Association with regard to the nature of the Company as ‘Public Limited Company’. On behalf of the Registrar of Companies, it is specifically stated that the year 1975 when ‘Tata Sons Limited’ (Company) was converted to a deemed ‘Public Company’, necessary corrections were also made the Articles of Association of the Company as ‘Public Limited Company’. Apart from this, necessary changes were made ‘the Register of Companies’ and ‘the Certificate of corporation’ of ‘Tata Sons Limited’. This will be also evident from the specific pleading made at Paragraph 20 of the interlocutory Application, as follows:

“………..the Applicant was statutorily obligated to carry out the necessary changes the Register of Companies, the certificate of corporation of TSL and the Memorandum of Association of TSL.”

12. It is accepted that prior to the letter dated 19th July, 2018, the definition of ‘Private Company’ as defined under Section 2(68) was amended and the words “of one lakh rupees or such higher paid-up share capital” omitted by Act 21 of 2015 w.e.f. 29th May, 2015. After such amendment, the definition of ‘Private Company’ as defined under Section 2(68) reads as follows:

“2. Defitions.─ …………..(68) “private company” means a company having a minimum paid-up share capital as may be prescribed, and which by its articles,—

(i) restricts the right to transfer its shares;

(ii) except for the case of One Person Company, limits the number of its members to two hundred:

Provided that where two or more persons hold one or more shares a company jointly, they shall, for the purposes of this clause, be treated as a single member:

(A) persons who are the employment of the company; and

(B) persons who, havg been formerly the employment of the company, were members of the company while that employment and have continued to be members after the employment ceased, shall not be included the number of members; and

(iii) prohibits any invitation to the public to subscribe for any securities of the company”

13. The word ‘prescribed’ is defined under Section 2(66) of the Companies Act, 2013, as follows:

“2. Defitions.─ (66) “prescribed” means prescribed by rules made under this Act;”

14. It is accepted that the Central Government has not framed any Rule under the Companies Act, 2013 under Section 2(66) prescribing

minimum paid-up share capital of a ‘Private Company’.

15. Therefore, it is clear that on the basis of definition of ‘Private Company’ as amended by Section 2(68) and was applicable on the date of correction of Certificate of corporation, absence of any prescription of minimum paid-up share capital, the Registrar of Companies has no power or jurisdiction to carry out any changes the Register of Companies or Certificate of corporation of ‘Tata Sons Limited’ and the ‘Memorandum of Association’ of the ‘Tata Sons Limited’.

16. The Registrar of Companies cannot take advantage of Section 43A

(2A) on the ground that it has not been repealed for the following reasons.

17. Section 43A (2A) while empowers a ‘Public Company’ to become a ‘Private Company’ on or after commencement of the Companies (Amendment) Act, 2000 by forming the matter to the Registrar for substitution of the word ‘private company’ with the word ‘public company’ the name of the company upon the register and certificate of corporation issued to the company and its memorandum of association but under Section 43A (4) such ‘private company’ which has been made public company by virtue of the said provision, will continue to be a ‘public company’ until it has, with the approval of the Central Government and accordance with the provisions of the said Act, aga become a ‘private company’. This we have noticed our Judgment at Paragraph 166 where Section 43A (2A) has been quoted along with sub-section (4) there, relevant of which reads as follows:

“43A. Private company to become public company certain cases.─ ………..[(2A) Where
a public company referred to sub-section (2) becomes a private company on or after the commencement of the Companies (Amendment) Act, 2000, such company shall form the Registrar that it has become a private company and thereupon the Registrar shall substitute the word `private company’ for the word `public company’ the name of the company upon the register and shall also make the necessary alterations the certificate of corporation issued to the company and its memorandum of association with four weeks from the date of application made by the company].”

This provision has been referred to by the Registrar of Companies.

“43A. Private company to become public company certain cases.─ ……….. (4) A private company which has become a public company by virtue of this section shall continue to be a public company until it has, with the approval of the Central Government and accordance with the provisions of this Act, aga become a private company.”

However, the aforesaid provision has not been noticed or referred to by the Registrar of Companies.

18. For the purpose of appreciation, terms of Section 43A (4), as referred to by the Registrar of Companies, the ‘Tata Sons Limited’ which was a ‘Private Company’ has becomes a ‘Public Company’ by virtue of the provision aforesaid shall continue to be a public company, having not taken any approval from the Central Government and accordance with the provisions of the said Companies (Amendment) Act, 2000 to become a ‘Private Company’.

19. We have already referred Section 14 of the Companies Act, 2013 which relates to “Alteration of articles”. It is not the case of the Registrar of Companies that as per Section 14, ‘Tata Sons Limited’ (Company) by a special resolution altered its article having the effect of its conversion as a ‘Public Company’ to a ‘Private Company’. It is also not the case of the Registrar of Companies that such resolution was produced before it. No approval has been taken from Tribunal (NCLT).

20. Section 18 of the Companies Act, 2013 specifically refers to

“Conversion of Companies already registered”, as follows:

“18. Conversion of companies already registered.─ (1) A company of any class registered under this Act may convert itself as a company of other class under this Act by alteration of memorandum and articles of the company in accordance with the provisions of this Chapter.

(2) Where the conversion is required to be done under this section, the Registrar shall on an application made by the company, after satisfying himself that the provisions of this Chapter applicable for registration of companies have been complied with, close the former registration of the company and after registering the documents referred to sub-section (1), issue a certificate of corporation the same manner as its first registration.

(3) The registration of a company under this section shall not affect any debts, liabilities, obligations or contracts curred or entered to, by or on behalf of the company before conversion and such debts, liabilities, obligations and contracts may be enforced the manner as if such registration had not been done.”

21. There beg a specific provision of conversions of Companies

already registered terms of Section 18 of the Companies Act, 2013 and “alteration of articles” terms of Section 14, the Registrar of Companies cannot rely on Section 43A (2A) that too without relying on Clause (4) there which relates to requirement of approval of the Central Government.

22. Section 465 of the Companies Act, 2013 relates to “repeal of certain enactments and savings” and sub-section (1) there reads as follows:

“465. Repeal of certain enactments and savings─ (1) The Companies Act, 1956 (1 of 1956) and the Registration of Companies (Sikkim) Act, 1961 (Sikkim Act 8 of 1961) (hereafter this section referred to as the repealed enactments) shall stand repealed:

Provided that the provisions of Part IX-A of the Companies Act, 1956 (1 of 1956) shall be applicable mutatis mutandis to a Producer Company a manner as if the Companies Act, 1956 has not been repealed until a special Act is enacted for Producer Companies:

Provided further that until a date is notified by the Central Government under subsection (1) of Section 434 for transfer of all matters, proceedings or cases to the Tribunal, the provisions of the Companies Act, 1956 (1 of 1956) regard to the jurisdiction, powers, authority and functions of the Board of Company Law Administration and Court shall continue to apply as if the Companies Act, 1956 (1 of 1956) has not been repealed:

Provided also that provisions of the Companies Act, 1956 (1 of 1956) referred the notification issued under section 67 of the Limited Liability Partnership Act, 2008 (6 of 2009) shall, until the relevant notification under such section applying relevant corresponding provisions of this Act to limited liability partnerships is issued, continue to apply as if the Companies Act, 1956 (1 of 1956) has not been repealed.”

23. terms of Section 465 of the Companies Act, 2013, all provisions of the Companies Act, 1956 stand repealed except provisions of Part IX-A of the Companies Act, 1956 which applies mutatis mutandis to a Producer Company a manner as if the Companies Act, 1956 has not been repealed until a special Act is enacted for Producer Companies.

24. Section 43A (2A) was started the year 1975 Companies Act,1956 as amended the year 2000 stood repealed by the enactment of the Companies Act, 2013. place of the old provision of Section 43A for ‘conversion of the company’ and ‘conversion of Articles of Association’, now Section 18 and Section 14 of the Companies Act, 2013 are applicable.

25. The stand was taken by Mr. Sanjay Shorey, Director Prosecution, Mistry of Corporate Affairs, who appeared on behalf of the Registrar of

Companies, Mumbai that absence of any prescription by the Central Government under any Rule terms of Section 2(66), for the purpose of Section 2(68) (‘private company’), the paid-up share capital should be read as “zero”. However, such submission cannot be accepted as there cannot be a ‘Private Company’ or ‘Public Company’. For the said reason, amended Section 2(68), it is specifically mentioned that “as may be prescribed by the Central Government” (i.e. under the Rules terms of Section 2(66)).

26. view of the aforesaid position of law, the prayer for amendment the Judgment dated 18th December, 2019 is rejected.

27. However, Paragraph 171 of the Judgment dated 18th December, 2019, we fd that wrongly un-amended definition of ‘Private Company’ has been quoted which stood amended w.e.f. 29th May, 2015 i.e. much prior to filing of the petition under Sections 241-242 of the Companies Act, 2013 and the application for change of company from ‘Public Company’ to ‘Private Company’, which was filed July, 2017. It is accordingly ordered to read the definition of ‘Private Company’ as defined under amended Section 2(68) of the Companies Act, 2013 as quoted Paragraph 171, as follows:

“2. Defitions.─ …………..(68) “private company”

means a company having a minimum paid-up share capital as may be prescribed, and which by its articles,—

(i) restricts the right to transfer its shares;

(ii) except for case of One Person Company, limits the number of its members to two hundred:

Provided that where two or more persons hold

one or more shares a company jointly, they shall, for the purposes of this clause, be treated as a single member:

(A) persons who are the employment of the company; and

(B) persons who, having been formerly the employment of the company, were members of the company while that employment and have continued to be members after the employment ceased, shall not be included the number of members; and

(iii) prohibits any invitation to the public to subscribe for any securities of the company”

28. One of the grievances of the Registrar of Companies is that the observations made Paragraphs 181, 186 & 187 of the Judgment cast aspersions on the Registrar of Companies who was not a party before this Appellate Tribunal.

However, we find that there is a wrong perception of the Registrar of Companies as no observation has been made agast the Registrar of Companies, Mumbai, nor anything alleged agast him.

29. Paragraph 181 of the Judgment, the action on the part of the Company, its Board of Directors has been referred which was taken hurriedly to change the Company from ‘Public Company’ to a ‘Private Company’ and nothing has been alleged agast the Registrar of Companies, Mumbai.

30. Paragraph 186 of the Judgment is the finding of this Appellate Tribunal that the action taken by the Registrar of Companies is agast the provisions of Section 14 of the Companies Act, 2013 which is ‘prejudicial’ and ‘oppressive’ to the minority members and depositors. No specific mala fide action has been alleged agast it.

31. Similarly, Paragraph 187 is the directions of this Appellate Tribunal which does not cast any aspersions on the Registrar of Companies.

32. Therefore, no ground is made out to amend the Judgment dated 18th December, 2019 absence of any factual or legal error apparent on the body of the aforesaid Judgment. There is a typographical error at Paragraph 171 where un-amended Section 2(68) has wrongly been typed which has been ordered to be corrected.

In absence of any merit, both the interlocutory Applications are dismissed. No costs.

[Justice S.J. Mukhopadhaya]
Chairperson

[Justice Bansi Lal Bhat]
Member (Judicial)

NEW DELHI

6th January, 2020

AR

Company Appeal (AT) Nos. 254 & 268 of 2018