Cyrus Mistri's episode - Was ethical Corporate Governance Norms followed?

We as corporate law professionals, grew up with a strong belief that in Indian Corporate world, TATA group is one of the few corporate which probably has the best corporate practice in their working and that too not only in later but in total sprite. However, the removal of the Chairman in the meeting of Board of Directors of TATA sons limited has raised eyebrows of millions of people of this country and the matter now become a hot topic and matter of discussion in the entire corporate world.

Neither the provisions of Companies Act/rules, nor any regulations or rules framed by SEBI or stock exchanges prescribe the manner of removal of Chairman of the Board. It is Article of Association of the Company which can set the procedure of appointment and removal of chairman of the Board.  However, as per provisions of Companies Act, in case a company wishes to remove directors from the board, it has to give 14 days special notice to such removing director  before the shareholders meeting where the matter of removal of such a directors is going to be discussed. There is a set procedure of removal of director of the company, and even if one has to terminate an employee, it is required to give a due opportunity to such terminating employees to present their case before such removal. And here, in the present case, a chairman of such a large conglomerate has been removed without seeking any explanation from him.  While giving a notice of meeting of Board of Directors, an agenda of items to be discussed to all the directors of the company is annexed with such notice. This is a general corporate practice that in last agenda item, ‘any other items with the permission of directors’ is included, which is residuary provision to the effect that in case directors wish to discuss and decide any items which are not part of the agenda, they can deliberate and decide on such items provided all the directors present in the meeting give their concurrence to such deliberation.  In other words, it is a kind of leverage given to the board that in case board wishes to discuss any issue which  otherwise could not be  foreseen at the time of preparing the agenda, but which later came into picture but cannot be deferred till next board meeting, can be discussed and decided. Generally such items are not very important matters. Here, removal of Mr. Mistry from the post of chairman was not on the agenda, and he has been removed under ‘any other item’. In the present case, such an important person removed from the position of Chairman that too without any discussion and giving him due opportunity of being heard. Where is corporate law ethic and practice while dealing with such a situation and that too in such a highly professional and Ethical Company?

Although legal luminaries of this country might have advised Mr. TATA on this point and decisions of removal of Mr. Cyrus Mistry might have been taken based on such advice, but in my opinion, law might have been followed but the spirit of law and corporate governance practice have been ignored.

This episode is going to set a legal battle between Mr. Cyrus Mistry and Mr. TATA  and like after every big episode, some stringent provisions are  introduced just like we witnessed the introduction of corporate governance norms after Security market Scam and the change in audit norms after Satyam’s fiasco. This event is also expected to lead to a change in the regulations with effect to appointment and removal of chairman, but certainly, best of corporate governance norms were not adopted in the a large and reputed organization. People of this country will definitely ask whether this was a best corporate practice adopted by TATA by removing a chairman of the company by simply raising the item in the meeting which due notice and without giving due opportunity to the person be removed, explaining his case. The stage is set for the battle but definitely that episode which leave a dent mark on the reputation of the TATA and corporate governance of large corporate organization of this country. In the time coming, people of this country will know how the board room functions and how and on whose directions, decisions are taken in such board meetings.

The author can also be reached at Skaggarwal68@yahoo.com

Disclaimer: Views expressed by the Author is based on the Media Reports in recent past on the aforesaid subject and are purely his own expression. There is nothing to intend to harm the reputation of any personal or organization and/or favour any person or entity.