The reason is that the Companies Act, 2013 imposes an extremely high bar on plaintiff shareholders to satisfy a claim of oppression or prejudice. A successful claimant shareholder needs to jump through two hoops.
The first is to show that the conduct of the company or controlling shareholders, in this case Mr. Mistry’s removal from various positions, was oppressive or prejudicial.
The second is that the facts are such that they would justify the making of a winding up order on just and equitable grounds, but that to actually wind up the company would be unfairly prejudicial to the shareholders.
As to the first criterion, the Court found that there was nothing prejudicial about Mr. Mistry’s removal from his positions on Tata Sons. A lot of emphasis was placed on Mr. Mistry’s own conduct, including his leaked letter that raised several allegations of wrongdoing in various Tata Group companies, and his release of files pertaining to the Tata Education Trust to the income tax authorities.
The Court observed in figurative terms: “A person who tries to set his own house on fire for not getting what he perceives as legitimately due to him, does not deserve to continue as part of any decision making body.”
The oppression and prejudice remedies bear complexities and uncertainties because their determination extends beyond pure legality and into other factors such as whether the conduct of the parties was harsh or burdensome. In that sense, a perfectly legal act by a director or controlling shareholder may be found oppressive, while an illegal act could be one that is neither harsh nor prejudicial to the minority. Eventually, based on the evidence, it remains for the adjudicatory authorities to accept one party’s word over the other.
The second criterion, which requires claimant shareholders to demonstrate the existence of facts justifying the winding up of a company on just and equitable grounds, creates an almost impassable barrier. Such a situation generally exists when it can be shown that the business which was organised as a company was effectively run like a partnership, referred to in law as a quasi-partnership. This requires shareholders to have come together in the company by extending and maintaining mutual trust and confidence in each other, along with an understanding that all of them will play an active role in its management.
The Mistry Group’s argument that Tata Sons is a quasi-partnership did not cut ice with the Supreme Court, in particular because the Mistry Group was inducted into Tata Sons only several decades after the company was incorporated. Even then, there was no understanding of mutual trust or confidence of the nature required for an oppression or prejudice claim.
