Tata Vs Mistry: Dispute that can Make or Break India Inc.

tata mistry

The bonhomie between the Tatas and the Shapoorji Pallonji Group was a remarkable example of trust and ethical bonding in the corporate world. That and more was dented with the unceremonious exit of Cyrus Mistry from Tata Group and the legal wrangle that ensued.    

Inarguably, this is one of the most high-profile legal wrangles India has ever seen. Arguably, this could be the most impactful one for the economy as well as India Inc. Yes, we’re discussing the dispute between Tata Sons and Cyrus Mistry, which is being battled in the Supreme Court as we speak. Both parties have filed what lawyers call ‘cross-appeals’ against a 2019 order of the National Company Law Appellate Tribunal.

For those who’ve come late to the show, this is an order that restored Mistry as executive chairman of the Tata Group, one of the largest and oldest business conglomerates in the whole wide world. Tata Sons is the holding and promoter company of Tata Group and it has a market valuation of Rs 5.08 lakh crore. India’s GDP is just about Rs 2.9 lakh crore if you want to put this in perspective. 

The legal battle started in 2016. That year, Mistry was forced to exit as the Chairman of Tata Sons. At the moment, Mistry and his group now want separation from the Tatas. And in all likelihood that’s not going to be an easy separation. 

Cyrus Mistry: The blue-eyed boy

On January 28, 2013, on his 75th birthday, Ratan Tata resigned as the Chairman of the Group. Cyrus Mistry, who became Tata’s successor, had taken charge of the Group in 2012 itself. Media then called Mistry the “blue-eyed boy” of Ratan. Mistry is the son of Pallonji Mistry of the Shapoorji Pallonji Group, which is based in Mumbai and is into engineering and construction. The group is 155-year-old. The SP Group owns 18.4 per cent stake in the Tata Group. The SP Group claims its stake is now worth Rs 1.75 lakh crore. This makes it the largest individual stake in India’s biggest private conglomerate. 

Mistry’s association with the Tatas is pretty old. Mistry became the Director of his family construction company Shapoorji Pallonji & Co. Ltd in 1991. In 2006, he joined the board of Tata Sons. This came a year after his father retired from the post. Also, between 1990 and 2009, he was a director with Tata Elxsi, a design and technology subsidiary of the Tata Group. Meanwhile, he was also a director of Tata Power.

Everything seemed hunky-dory then. But not for long. 

The ouster of Mistry as chairman

The bitter battle between the Tatas and Mistry started in 2016. The Group board of directors voted for the removal of Mistry as the Chairman. The decision, taken on October 24, 2016, had an immediate effect. Ratan Tata, who left the office in 2012 for Mistry, was made the interim chairman.

The Tatas had not given any immediate explanation for removing Mistry. Weeks later, it issued a nine-page statement. The company accused Mistry of twisting facts and figures. Accusing him of betrayal, the group said he desired to control the main operating companies of the Group. They blamed him for failing to improve Tata’s three main problem companies — Tata Steel Europe, Tata Teleservices/ Docomo and Tata Motors’ India business. But Mistry says the “legacy” problem was a drag on his performance.

In December 2016, Mistry resigned from the boards of all Tata Group companies. While stepping down from the listed companies, he announced a legal battle. Months later in February 2017, Mistry was also removed as a director of Tata Sons. Meanwhile, veteran business leader and former CEO of TCS, Natarajan Chandrasekaran, became the chairman of Tata Sons in January 2017.

The legal battle

In December 2016, Mistry moved the National Company Law Tribunal (NCLT), Mumbai. Thus began a new episode of mudslinging and accusations. Two Mistry-family-backed investment firms alleged Tata Sons of oppressing minority shareholders. Cyrus Investments and Sterling Investments Corporation accused Tata Sons of mismanagement. The firms also challenged the removal of Mistry as Tata Group Chairman.

In March 2017, NCLT Mumbai set aside the plea of the two firms. It said the firms were not meeting the criterion of 10 per cent ownership in Tata Sons under the Companies Act. The Mistry family owns 18.4 per cent stake in Tata Sons. But the holding was less than 3 per cent if preferential shares (an elite crop of shares in a firm which usually owners and promoters hold and are not meant for the lesser mortals) are excluded.

The next month, NCLT rejected the firms’ plea seeking a waiver in the 10 per cent criteria. The two firms then moved the National Company Law Appellate Tribunal (NCLAT). They challenged the NCLT’s rejection of their waiver plea. In September 2017, the NCLAT allowed Mistry to raise a complaint against Tata Sons. The body allowed him to raise mismanagement and oppression issues. It dismissed the petition on maintainability citing the 10-per cent criteria.

The next month, the firms approached the principal bench of NCLT Delhi. It demanded transfer of the matter to Delhi from Mumbai citing the likelihood of bias. The Principal bench dismissed the plea and penalised the firms. It imposed a fine of Rs 10 lakh on the Mistry-owned firms. In July 2018, NCLT Mumbai dismissed Mistry’s pleas. It said there was no merit in his allegations of mismanagement in Group firms. Mistry’s plea challenging his removal as chairman was also dismissed.

But Mistry was not ready to back off. The firms again approached the NCLAT against the orders of the NCLT.

Meanwhile, Tata Sons changed its status to a private limited company. The move restricted the Mistry family from selling its stake to external entities. Before this, it was a deemed public limited company. In August 2019, the NCLAT admitted a petition filed by Mistry in his personal capacity. It also decided to hear the petitions filed by the two firms. He sought a seat on the Tata Sons board.

In December 2019, the NCLAT restored Mistry as executive chairman of Tata Sons. In the order, it gave the Tatas four weeks time to appeal. The Tata Sons Private Ltd (TSPL) swiftly moved the SC against the NCLAT order. On January 10, the apex court stayed the NCLAT order. In May, the SC issued notice to TSPL based on Mistry’s cross-appeal.

The battle over stake value

Now, The Shapoorji Pallonji Group wants to sell its share in Tata Sons. It wants to raise funds for its own cash-strapped businesses. The family had even sought to pledge the shares as collateral. The Group proposed that its stake in Tata Sons is worth Rs 1.74 lakh crore. It has submitted the plan for separation with the Tatas. The Mistry’s firm has sought 18 per cent in all downstream Tata companies.

The Tatas claimed that the valuation of the group’s share is between Rs 70,000 crore and Rs 80,000 crore. In September, the Tatas told the SC they were open to buying the stock if the Mistry camp needed money. In September, TSPL moved the SC to restrain Mistry from raising capital from the share it holds in TSPL. The SC directed a status quo on creating pledges or encumbrances on shares of Tata Sons. It barred the SP Group from pledging or transferring its shares.

The final leg of the legal battle

The Mistry family decided to end its 70-year-old ties with the Tata Group in September. This was part of the ongoing legal battle. The Tata Group has rejected the SP Group’s share-swap separation proposal. The Mistrys proposed to swap their stake in Tata Sons with the shares in Tata Group’s listed company. The Tatas called it “nonsense” and rejected the proposal.

The SC has started the final hearing in the dispute. A bench headed by Chief Justice SA Bobde is hearing the matter. In the course of the battle, the focus has shifted from Misty’s removal from the Chairman post to the value of the SPG stakes. The final order from the apex court may give a shape to the battle in the coming time. But with the SP Group toughening its voice and stance, by telling the SC that Tata Sons was not a “family-run enterprise to be headed only by a Tata and calling for an end to the oppression of minority stakeholders in the conglomerate controlled by Tata Trusts, things are only getting heated up.

As they say, watch this space. 

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