Cyrus Mistry – scion of the Shapoorji Pallonji Group [SPG] which holds 18.4% shares of Tata Sons Limited [TSL], holding company of the Tata Group – was elevated to the position of Chairman, TSL in 2012 [after serving several years as director on its board] with full support of Tata Trusts that has majority ownership of TSL at 66%.
Mistry continued at helm for 4 years even as his performance was commended by the promoters as well as independent directors of all leading group companies viz. Tata Motors Ltd [TML], Tata Steel Ltd [TSL], Tata Consultancy Services [TCS], Tata Power Ltd [TPL], India Hotels Co. [IHC], Tata Chemicals Ltd [TCL] etc.
Yet, he was removed in a meeting of TSL board in October, 2016 by moving a resolution under ‘any other item’ in the agenda [he was not even given an opportunity to defend himself – violating principles of natural justice!]. In a logical extrapolation, subsequently, he was removed from the board of group companies.
The trigger for the volte face by the movers and shakers of the Tata Group was Mistry’s attempt to review the past decisions taken under the previous dispensation led by Ratan Tata [RT] such as buy-out of Corus Group [2007] and his objection to projects like AirAsia and Vistara Airlines that were being thrust upon without conducting due diligence [Tata’s foray in to airlines is under investigation by CBI/ED for alleged corruption and money laundering].
Mistry’s disapproval of continuing with ‘Nano’ despite persisting losses, purchase of real estate property at inflated price [e.g. Sea Rock Hotel, Mumbai], mis-handling of issues with foreign partner NTT-DoCoMo in its telecomm JV Tata Teleservices and mess up in the power sector etc also did not go well with the majority owners of TSL.
Further, in a bid to curb any voice of dissent from other minority shareholders, on September 21, 2017, the majority owners voted to convert TSL’s status from one of “deemed public company” to a ‘private limited company’ under the Companies [Amendment] Act 2000 by amending the Articles of Association [AoA]. Accordingly, the name was changed to Tata Sons Private Limited [TSPL].
This way, Tata family owned trusts took complete control over TSL and through it, control over all group companies. As a private limited company, it need not make any disclosures and minority shareholders cannot even sell their shares without taking prior permission of his masters voice [read: Tata Trusts], forget their participation in the management and running of the holding company.
The anomaly is all the more grievous when one considers that 34% of the shares of TSPL are held by minority shareholders [apart from 18.4% held by SPG, five listed companies of the group viz. TSL, TML, TCL, TPL and IHC hold 11.41% and balance 4.2% is with some members of Tata family and a few individuals]. How can the rights of such a big chunk of investors be trampled?
In this backdrop, it was only natural that SPG [a minority shareholder in its own right] led by Mistry filed a petition in the National Company Law Tribunal [NCLT] challenging oppression of minority shareholders, mismanagement, interference by Tata Trusts and breakdown of governance besides his removal from TSL and group companies. Subsequently, the conversion of its status to a private limited company was also challenged.
Initially, the NCLT refused to even admit saying it was not maintainable. However, following intervention by National Company Law Appellate Tribunal [NCLAT], the petition was admitted. Now, in its order delivered on July 9, 2018, the NCLT has dismissed the petitions of Mistry lock, stock and barrel. The dismissal has been justified primarily on three counts.
First, Mistry no longer enjoyed the trust and confidence of the shareholders and hence, his continuation as Chairman, TSL and director on the board of group companies was untenable. Second, his conduct did not bode well for TSL as he allegedly leaked information to the media. Third, he was unable to demonstrate/prove that there was oppression of minority shareholders. All the three planks defy logic.
How could a person who enjoyed the confidence of shareholders – including the dominant promoters – for several years as a director and then, for 4 years as Chairman suddenly lost it? Merely, because on one fine day, a majority shareholder [read: Tata Trusts] expressed lack of trust cannot be taken to mean that he committed something horribly wrong. The reasons as to why the former took take a U-turn needs to be comprehensively analyzed and that is what NCLT should have done.
Second, it is hard to fathom as to how a mere act of Mistry sharing information with media can be interpreted as harming the interest of shareholders? Far from that, considering huge stake of minority shareholders [34%] including millions of retail investors as also depositors money coming via loans from banks/financial institutions [FIs], it was prudent for the Chairman to bring the mismanagement and irregularities to the attention of the public.
Third, in all the mentioned instances of irregularities [arising from undue external interference in arriving at decisions and some members of Tata Trust acting as super-directors], there was inevitable loss to the concerned group companies viz. TPL, TML, Tata Teleservices, TSL etc. Correspondingly, this meant loss to shareholders including minority shareholders. If, this is not oppression then, what else?
The oppression reached its nadir when the Chairman [read: Mistry] who was taking steps to limit the damage of past wrongs/irregularities and resisting further irregularities – in the overarching interest of safeguarding the shareholders – was ‘suddenly’ forced to exit even as the board conducted itself in a ‘non-transparent’ manner.
Finally, by converting Tata Sons into a private limited company wherein a closely held group [a few family controlled trusts, to be precise] has almost ‘absolute’ powers to run, the majority shareholder has gone much beyond by completely muzzling the voice of minority shareholders. This is much too evident to require any further proof.
The order of NCLT is incomprehensible and defies logic. But, this is just the beginning of a long drawn legal battle eventually, landing in the Supreme Court [SC]. While, conducting the proceedings and delivering its verdict, hopefully, the SC will keep in mind legitimate interests of the minority shareholders. Till then, they have no option but to surrender to the brute majority of a few.