Famous cases under Company Law
Updated: Oct 3, 2022
#CompanyLaw #LandmarkCases #FamousJudgements
By: Arryan Mohanty
The corporate sector has seen tremendous expansion all across the world. The business sector is the backbone of many countries economies, particularly India.
It accounts for over 53% of the Indian economy. Individuals in this field have numerous options to advance.
As a result of this expansion, a proper and well-formed corporate law was established, which includes monitoring all legal and external affairs problems such as investigations, litigation, mergers and acquisitions, international trade issues, and so on.
Hence, to ensure the legitimacy of economic transactions, employees are advised of their rights and responsibilities, and firms are represented. This also focuses on the corporate governance that is required for a company's smooth operation.
Landmark Cases under Company Law
Salomon v Salomon & Co. Ltd
Facts of the Case
Aaron Salomon's business was organized into a company in 1892, with his wife, daughter, four sons, and himself as shareholders.
Mr. Salomon, the company's managing director, sold the company for £39,000 and took a £10,000 debt out of it.
Edmund Broderip paid Mr. Salomon a £5000 advance on the security of the debentures.
Soon after, there was a drop in sales, followed by strike action, resulting in a business downturn.
Because of his position and duty in the company, Mr. Edmund sued Mr. Salomon to enforce security.
In this case, Mr. Salomon, the company's founder, is protected from the personal obligation to creditors because the company is a separate legal entity from its members.
The notion of corporate personhood established by the Companies Act of 1862 was upheld by the court.
Thus, creditors of a bankrupt firm cannot sue the company's shareholders for payment of outstanding debts.
Royal British Bank v Turquand
Facts of the Case
Mr. Turquand was the insolvent Cameron's Coalbrook Steam, Coal, and Swansea and Loughor Railway Company's official manager (liquidator).
It was established in 1844 under the Joint Stock Companies Act.
The company had issued a £2000 bond to the Royal British Bank, which guaranteed the company's current account draws.
The bond was signed by two directors and the secretary and was under the company's seal. For non-payment of the same, the claimants, the Royal British Bank, sued him.
The company stated that the directors had only the ability to borrow the company's resolution had allowed what under its registered deed of settlement (the articles of association).
The defendants also claimed that no resolution authorizing the issuance of the bond had been passed and that no bond was issued without the approval and consent of the company's shareholders.
Sir Jervis was of the opinion that the Court of Queen's Bench's decision should be affirmed. He was inclined to believe that the issue, which had been raised primarily in this case and in that Court, did not always arise and did not require a decision.
His impression is that the replication's resolution goes far enough to satisfy the deed of settlement's criteria.
According to Sir Jervis, the deed allows directors to borrow on a bond the sum or sums of money that may be borrowed from time to time by a resolution passed at the Company's General Meeting, and the replication of the resolution, adopted at the General Meeting, authorizes the directors to borrow such sums on bonds for such periods and at such interest rates as they may deem expedient, in accordance with the act of settlement and the Act of Parliament; however, the resolution authorizes the directors to borrow such sum.
It seemed to me to be enough, said Sir John Jervis CJ.
If this is the case, the other point does not arise, and we do not need to determine; for it appears to us that the plea, whether we regard it as a confession and rejection or a unique non-est factum, does not create any obstacle to the Company's advance.
He went on to say that - we can now assume that dealings with these firms are not the same as dealing with other partnerships and that the parties involved must read the statute and the settlement act. But they're not obligated to go any further.
And the party here would discover permission to do so under specified conditions in the settlement statute rather than a prohibition on borrowing.
It would have the right to infer the fact of a resolution allowing what appears to have been adequately done in the face of the document if it found that the authority might be accomplished by a resolution.
Cyrus Investments Pvt. Ltd. & Anr. v. Tata Sons Ltd.& Ors
Facts of the Case
The National Company Law Tribunal, Mumbai Bench ("NCLT") handed down a significant ruling in the case of Cyrus Investments Private Limited & Others ("Petitioners") v. Tata Sons Limited & Others1 ("Respondents") on oppression and mismanagement under the company law regime. Hon'ble Mr. B.S.V. Prakash Kumar, Member (Judicial), and Hon'ble Mr. V. Nallasenapathy, Member (Judicial), delivered the decision (Technical).
In this case, Cyril Mistry joined the Shapoorji Pallonji group's board and became TATA and Sons' largest stakeholder in 1991.
In 1994, he was named a director of the company. His firm owns around 80% of the shares in TATA Sons.
Cyrus Mistry joined the Tata Sons Board of Directors in September 2006, following his father's retirement from the TATA Group in November 2011.
Following Ratan Tata's retirement, Cyrus Mistry was named Deputy Chairman; in December 2012, Cyrus Mistry was named Chairman of Tata Sons.
N. Chandrasekhar, CEO of Tata Consultancy Services Limited, was chosen as Chairman of Tata and Sons in January 2017.
The Board called Cyrus Pallonji Mistry to be removed as a director on February 6, 2017.
This resulted in a dispute between Cyrus Mistry and TATA, which was broadcast throughout the world, and everyone learned of Cyrus Mistry's dismissal from his position.
This elimination was not made on the spur of the moment but rather after much thought. Ratan Tata's next move was to write a letter to the Prime Minister in which he mentioned the termination of the group's chairman.
The reason given for Cyrus Mistry's dismissal was that he did not perform his duties properly.
Cyrus Mistry filed a petition with the National Company Law Tribunal; however, it was dismissed since the TATA Group company had no such mismanagement.
On December 18, 2019, the National Company Law Tribunal reinstated Cyrus Mistry as chairman of TATA Sons and gave TATA a four-week period to file an appeal against the NCLAT judgment.
The Supreme Court then issued an injunction against the NCLAT's order, stating that it has gaps and several flaws. The Supreme Court ordered that the matter be thoroughly investigated.
Cyrus Mistry won the case because he demonstrated that he had done nothing wrong and that his dismissal was unconstitutional.
The Shapoorji Pallonji Group has stated that they are not going through any difficulties and that no legal action against TATA Sons will be considered.
Even though TATA filed a caveat in all courts, Cyrus Mistry stated that he would not take legal action against the corporation but that he would consult a law firm about possible steps ahead of his dismissal.
Because of Cyrus Mistry's dismissal from his post, the corporate sector was stunned, and the company's stocks plunged 3.16 percent in the stock market.
According to the company's Articles of Association, the chairman can only be removed by the board members if he is found to have committed any fraud, been involved in any kind of internal mismanagement, or been found disloyal to the company; however, Cyrus Mistry has not met any of the above conditions.
Finally, the National Company Law Appellate Tribunal (NCLAT) ruled that Cyrus Mistry's removal was unconstitutional.
The NCLAT also halted TATA Sons' transition from a public to a private corporation. It also announces the return of mystery to the TATA Sons.
The Supreme Court has delayed the NCLAT's order because it contains "fundamental mistakes."
According to the Court, the Tribunal had approved a prayer that had not been requested.
Tata Consultancy Services Limited v. Cyrus Investments Pvt. Ltd.
Facts of the Case
The Sapoorji Pallonji Group (SP Group), led by Cyrus Mistry, owned 18.37 percent of Tata Sons Limited's total paid-up share capital. Cyrus Mistry was named as the Tata Sons' Executive Deputy Chairman for a five-year term in 2012.
By the end of the year, the Board of Directors had named Cyrus as the Executive Chairman of Tata Sons, effective December 29, 2012, while Ratan Tata was named Chairman Emeritus.
On October 24, 2016, the Tata Sons Board of Directors issued a resolution removing Cyrus from his role as Executive Chairman of the company.”
After separate shareholder votes, Cyrus was dismissed from the board of directors of Tata Industries Ltd., Tata Consultancy Services Ltd., and Tata Teleservices Ltd..
Following that, Cyrus resigned from a few additional board positions. Following that, two SP Group firms, Cyrus Investments Pvt. Ltd. and Sterling Investment Corporation Pvt. Ltd., filed a company petition under Sections 241, 242, and 244 of the Companies Act, 2013, alleging mismanagement, oppression, and discrimination.
The complainants also questioned Tata Sons' shift from a public to a private company.”
The National Company Law Tribunal ruled that Cyrus Mistry's dismissal as executive chairman was unconstitutional and ordered that he be reinstated.
The Supreme Court delayed the NCLAT order in January 2020, and the verdict was postponed until December 17, 2020.
The Supreme Court has now ruled that Tata Sons' conduct did not amount to minority shareholder persecution or mismanagement.
The judgment went in the Tata Group's favor.
The bench dismissed Cyrus Mistry's allegations of persecution and mismanagement against Tata Sons Limited. A Supreme Court bench led by Chief Justice S A Bobde, Justice V Ramasubramanian, and Justice A S Bopanna made the judgment.
On December 18, 2019, the Supreme Court postponed the National Company Law Appellate Tribunal (NCL