EGMs on Nusli Wadia to proceed as HC does not grant interim relief to restrain vote

The Bombay High Court on Friday did not grant interim relief to the minority shareholders of three Tata Group companies who had sought to restrain its promoters from going ahead with voting at the Extraordinary General Meetings next week on a resolution seeking removal of Nusli Wadia as an independent director. However, Justice S J Kathawala restrained Tata Chemicals, Tata Motors and Tata Steel from filling up the vacancies on the board of directors until further orders.

The Court asked Tata Sons to file a written reply to the suit by January 15 and directed the plaintiffs to submit a rejoinder, if any, by January 25. Next hearing would be on February 6. Janak Mathuradas, Yogesh Mathuradas, Chanda Mathuradas and Pramila Mathuradas, minority shareholders of the three Tata firms, had prayed to the HC to restrain promoters of the firms from voting at EGMs on a resolution to remove Wadia. The plaintiffs also challenged a rule in the Companies Act which allows promoters to vote on a resolution seeking removal of independent directors.

Their lawyer Navroze Servai argued that only public shareholders should be allowed to vote on a resolution on removal of independent directors as these directors protect the interests of minority shareholders. Independent directors cannot be equated with non-independent directors and cannot be removed under section 169 of the Companies Act, 2013, the suit said.

The three Tata companies, on a direction of Tata Sons, the Group's holding company, have called Extraordinary General Meetings (EGMs) to remove Wadia from their boards under section 169 of the Act. Meanwhile, in a statement, Tata Sons said, "Bombay High Court has allowed the EGMs of all Tata Companies to proceed without any intervention and as planned. Tata Sons' votes will be counted and factored in as per the law. The High Court also passed an order that one board seat, amongst the maximum permissible directors as per the Articles of each company, should remain unfulfilled until the suit is decided."

Representing the Tata Sons, P Chidambaram, senior counsel and former Union Finance Minister, argued, "He (Wadia) has been a director for many years but if his conduct changes and his attitude is making a doubt, then we can tell shareholders that this independent director is no longer acting in company's interest." Only the body which appoints a director can remove him. Neither the Securities and Exchange Board of India nor the HC has the power to stop the removal of a director, he said.

"Do the plaintiffs want to say that the President of India or the Judges, etc. are removable but an independent director of a company is not?" he asked. All the directors are independent directors subject to special qualification and appointment of independent director and ordinary director is done in the same manner by passing an ordinary resolution, Chidambaram said, adding all directors represent all share-holders. "It is only in re-appointment of a director that a higher threshold of a special majority is required," he said. There could be circumstances which may reduce an independent director to be no longer independent, he said. Four members of a single family who have filed this suit were trying to stall the EGMs, Chidambaram argued, while assuring that due process would be followed at the EGMs.

To the plaintiffs' demand that Sebi should intervene, Chidambaram said SEBI regulates the securities market and not the companies. No case had been made out for putting restrictions on the EGMs against voting on a resolution to remove Wadia, he said. Senior lawyer Janak Dwarkadas, appearing for Wadia, argued that independent directors are watchdogs of investors and cannot be removed abruptly without any specific reason. "When I (Wadia) and others (directors) spoke in favour of Cyrus Mistry (the ousted Chairman of Tata Group) on November 10, on the same day a resolution was passed by the Board to remove me and others," Dwarkadas argued. He also said SEBI should consider whether corporate governance standards are maintained or not, instead of saying that it was helpless.