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10
November 2016
Tata Consultancy Services (TCS) on
Thursday announced that Ishaat Hussain will be the new Chairman of the board of
directors of the company in place of Cyrus Mistry with immediate effect. The Total Investment
& Insurance Solutions
Tata Sons has also issued a special
notice under Section 169 (read with Section 115) of the Companies Act, 2013,
and made a requisition for an extraordinary general meeting of shareholders to
consider the removal of Mistry as a director of TCS.
"Hussain shall hold office as
Chairman of the company until a new chairman is appointed in his place,"
the company said in a regulatory filing.
Tata Sons had removed Mistry, 48, as
chairman of Tata Sons last month saying he had lost the confidence of the board
due to several factors and that the trustees were increasingly concerned with
the growing trust deficit. The Total Investment & Insurance
Solutions
Ratan Tata, who had made room for
Mistry four years ago, was reinstated as the chair in an interim capacity. The Total Investment
& Insurance Solutions
Hussain, 69, took over as director
finance of Tata Sons in July 2000. Earlier, he joined the board as an executive
director in July 1999. He is also a director of several Tata firms -- Tata
Industries, Tata Steel and Voltas. Besides, he is the chairman of Voltas and
Tata Sky.
Prior to joining Tata Sons, Hussain
was senior vice president and executive director of finance at Tata Steel for
almost 10 years. He joined the board of the Indian Tube Company (a Tata Steel
associate) in 1981 and moved to Tata Steel in 1983 after the company was merged
with Tata Steel.
The Total Investment & Insurance Solutions
A chartered accountant by training
from Institute of Chartered Accountants in England and Wales, he graduated in
economics from St. Stephens College in New Delhi.
Proxy Advisor, Ingovern Research
Services has just released an independent analysis of the actions by TCS and
Indian hotels and what can be expected at other Tata companies. Here is what
Ingovern says " Tata Sons acts at Operating Company LevelBegins with TCS
and Indian HotelsTata Consultancy Services Ltd (TCS) today notified the stock
exchanges that Mr. Ishaat Hussain has replaced Mr. Cyrus Mistry as the Chairman
of Board of TCS after the company received a letter from its promoter – Tata
Sons Ltd, instructing the Board to do so.
The notification further stated that
Tata Sons has issued a special notice under Section 169 of the Companies Act
2013 and a requisition to call an EGM to consider removal of Mr. Cyrus Mistry
as Director of TCS. The Total Investment & Insurance Solutions
Indian Hotels Company Ltd have also
notified the stock exchanges of a requisition received from Tata Sons to call
an EGM for removal of Mr. Mistry as a Director of the company.
It is expected that Tata Sons will
issue special notices and call for EGMs in all the 7 listed Tata Group
companies where Mr. Mistry serves as a Director and Chairman. The Total Investment
& Insurance Solutions
Can Tata Sons replace Chairman of
TCS without the intervention of Board of TCS?
Yes.
There is no provision in the
Companies Act 2013 on the appointment and removal of the Chairman of the Board.
Method of appointment/ removal of the Chairman is incorporated in the Articles
of Association of a company.
Usually, unless the Articles of
Association have specific provisions, appointment and removal of Chairman is
the prerogative of the Board of Directors. The Board, at their meeting, can
remove the current Chairman and nominate a member among themselves as the new
Chairman through a simple majority of votes.
The Articles of Association (AoA) of
TCS gives the right to Tata Sons to nominate the Chairman of the company. In
absence of a nomination by Tata Sons, the articles provide for the Board of TCS
to elect a Chairman among themselves.
This provision in the AoA of TCS was
effected through an amendment by a special resolution passed on 5th May 2004. The Total Investment
& Insurance Solutions
Will this procedure be followed
across all listed Tata Group companies?
No.
As we have stated earlier, unless
specifically stated in the AoA of the company, removal of Chairman will be the
prerogative of the Board of Directors.
For example, the AoA of Tata Motors
gives the right of appointment of Chairman, Deputy Chairman and Vice-Chairman
to the Board of Directors of Tata Motors and not to Tata Sons.
Hence, Tata Sons will start with
replacing Mr. Mistry as Chairman in all the Companies whose AoA gives it the
right to replace the Chairman without the intervention of its Board.
Since the AoA of all listed Tata
Group companies are not easily available in the public domain, it is difficult
to ascertain which are the companies that have such a provision like TCS.
Wherever the AoA doesn’t give the
right to Tata Sons to replace the Chairman, it will only issue a special notice
with a requisition to call an EGM for removal of Mr. Mistry as a Director. The Total Investment
& Insurance Solutions
Removal
of Mr Mistry from the Board
Removal of a Director from the Board
requires shareholders’ approval, as per Section 169 of the Companies Act 2013.A
special notice is to be provided by a shareholder calling for removal of a
Director from the Board.
A special notice can only be
provided by a shareholder/ number of shareholders who collectively own a
minimum of 1% of voting rights or shares worth a minimum of Rs. 5 Lakh.
No explanation is required to be
provided to shareholders for removal of the Director
The special notice resolution can be
proposed in the next annual general meeting of the company.
In case the proposal needs to be put
before shareholders on an urgent basis, shareholders collectively owning 10% of
equity stake in the company can call for an EGM. (Section 100 of the Companies
Act 2013)
This can be done by submitting a
requisition to the company to hold an EGM
The company must act within 21 days
and call an EGM which should be held before 45 days of the requisition.
In case the company does not call an
EGM, the requisitionists can call an EGM themselves within 3 months of their
requisition.
All the costs borne would have to be
reimbursed by the company.
Conclusion
Out of the 7 listed Tata companies
where Mr. Mistry is a Director, TCS has the highest promoter holding at 73.33%.
The 6 other companies have a promoter holding in between 30%-39%. Once
proposed, it is certain that the proposal will be accepted even if all public
shareholders vote against, since the promoters hold more than 50% of the voting
powers.
It is to be seen as to what happens
with all the other companies where Tata Sons has a holding below 40%. In these
companies, the vote of institutional investors will be decisive. Perhaps this
is a reason why Tata Sons has come out with a detailed statement today
explaining its need to replace Mr. Mistry and also rejecting claims made by him
in his letter to the Board of Tata Sons.The Total Investment & Insurance
Solutions
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