The National Company Law Tribunal (NCLT) has turned down a request from the Shapoorji Pallonji Group [SPG] vide heir two investment outfits viz. Sterling Investment Corporation and Cyrus Investments to initiate action against Tata Sons for ‘oppression of minority interest and mismanagement’. It was done on the ground that the group does not have minimum shareholding of 10% needed to make such an appeal.
SPG holds 18.4% shares of Tata Sons which is significantly higher than the 10% threshold. But, its holding plummets to a mere 2.17% once preference shares are also included in computation. Preference shares by nature are entitled to special privileges in regard to dividend payment vis-à-vis equity shares but these carry much lower voting rights or no rights at all. Hence, their inclusion for the purpose of arriving at voting power of particular group is anomalous.
NCLT has the power to waive aside the minimum shareholding requirement to determine whether the petition is maintainable. The Tribunal can exercise this discretion if it is convinced that the issue raised by the petitioner concerns wider public interest and has ramifications for minority shareholders. Yet, it decided against maintainability of the petition.
The judicial body has thus concluded that actions of Tata Sons have not affected [albeit adversely] public/minority shareholders. Herein, there is need for an objective and dispassionate assessment. Two crucial aspects need to be tested. First, whether there exists a link between the two? Second, whether the former took such decisions/actions as would adversely impact the latter?
Tata Sons is a closely held entity controlled by family owned trusts [Tata family owned trusts alone hold 66% shares]. But, it exercises control over dozens of companies viz. Tata Motors, Tata Steel, Tata Consultancy Services [TCS], Tata Power, India Hotels, Tata Chemicals etc [to name a few]. In TCS, Tata Sons has 73% ownership whereas in others, its shareholding ranges from 22% – 31% [acting in concert with institutional investors who invariably support the promoter, it is able to carry through all its proposals].
Almost all companies of the Tata Group are listed even as millions of shareholders/investors have a vital interest in their robust health and growth. The financial institutions [FIs]/banks too have a major stake in view of huge loans given to these companies. Additionally, the fate of hundreds of thousands of employees is inextricably connected with their smooth running.
So, the linkage of Tata Sons with shareholders [albeit minority] is pretty strong as actions of the former by affecting the performance of companies controlled by it determine the fate of latter [in terms of return on capital or even its safety]. Likewise, a link with general public/people is also strong as they put their hard earned savings in banks/FIs who in turn, give this money as loan to companies.
As regards, the nature of decisions and manner of functioning of Tata Sons board and via it, management of group companies, the events/developments narrated by SPG leave no one in doubt that interests of minority shareholders and general public have been seriously compromised.
The functioning of a body corporate revolves around its Chairman. He/she has the responsibility of shepherding all group companies towards their stated goals. Mistry [son of Shapoorji Pallonji] was on the board of Tata Sons for several years till 2012 when he was elevated to the position of Chairman with full support of Tata Trusts. He continued at helm for 4 years and his performance was commended by independent directors on the board of group companies.
If, this very person is removed in an unceremonious manner violating all norms of corporate governance, this by itself speaks volumes about the ‘mismanagement’ and ‘irregularities’. Mistry was removed by moving a resolution under ‘any other item’ in the agenda of Tata Sons board meeting [October, 2016]. This shows that lack of transparency in decision making had reached its nadir. What makes it even more appalling is that he was not even given an opportunity to defend himself, violating principles of natural justice!
A close scrutiny reveals that there was a pre-meditated plan to keep Mistry ‘lame duck’ from the day one. All along, during almost one-and-a-half century of Tata empire, a person appointed as chairman of Tata Sons ‘automatically’ became chairman of Tata Trusts also. But, in this case, Ratan Tata [RT] continued to be in command of the latter even after Mistry was made head of former. Clearly, the intent was to run the conglomerate via remote control.
The ‘lame duck’ chairman was thus presented with fait accompli on projects like AirAsia and Vistara Airlines, not being allowed to get out of ‘Nano’ despite persisting losses, purchase of real estate property at inflated price [e.g. Sea Rock Hotel, Mumbai], unsuccessful foray in to telecommunication [mis-handling of issues with foreign partner NTT-DoCoMo], mess up in the power sector etc.
At another level, Cyrus’s review of past decisions [taken under RT dispensation] such as buy-out of Corus Group [2007] and attempts to reduce un-sustainable high level of debt were viewed as tantamount to working out of sync with the ‘ethos’ and ‘culture’ of the group or losing the trust of owners.
These instances of gross interference in the functioning of the management and financial irregularities [Tata’s foray in to airlines is under investigation for alleged corruption and money laundering] were serious enough to merit attention by the Tribunal. The fact that many of group companies are over-leveraged and in poor financial condition further reinforces the need for scrutiny.
It is ironical that Mistry’s efforts to correct the wrong were stymied by Team RT leveraging its overwhelming control over Tata Sons [via Tata owned family trusts]. In fact, he was removed from chairmanship for this very reason. Now, even NCLT has scuttled this by taking shelter under ‘technicalities’ and viewing even substantive arguments with lot of subjectivity. Will the higher judicial authorities including the Supreme Court act differently?
If, justice is not delivered in this high profile case, this will set a bad precedent. The owners/promoters will then, continue to muzzle good/democratic corporate governance to the detriment of millions of shareholders and public at large.