‘Time to separate from Tata’, Mistry family says after long-drawn legal battle

The Tata-Mistry feud dates back to October 2016, when Cyrus Mistry was ousted as the chairman of Tata Sons, four years after his appointment.
Ratan Tata and Cyrus Mistry
Ratan Tata and Cyrus Mistry
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The Shapoorji Pallonji group announced on Tuesday that it is separating from the Tata group, which it deemed “necessary” due to the possible impact of the protracted legal battle between both groups on livelihoods and the economy. The SP Group is the largest minority shareholder in the Tata group, holding a 18.37% stake. 

This comes after Tata Sons offered to buy out Shapoorji Pallonji group's stake in the holding company to help the group raise money to pay its debt, after the Supreme Court barred the Mistry group from pledging or selling any Tata shares until October 28.

The SP Group has pegged its shareholding in Tata Sons at Rs 1,78,459 crore at a value of Rs 2.4 crore per share.

In its statement, the SP Group maintained that it has used its voting rights for the best interest of the Tata group.

The Tata-Mistry feud dates back to October 2016, when Cyrus Mistry was ousted as the chairman of Tata Sons, four years after his appointment as the sixth chairman for the massive business conglomerate. 

A long-drawn legal battle ensued between the two parties and various allegations were made by Mistry against Ratan Tata and the group of oppression and mismanagement. 

The Shapoorji Pallonji Group is a business conglomerate in India founded by Pallonji Mistry and the Mistry family has been an integral part of the Tata group ever since Cyrus Mistry’s father Shapoorji Mistry, first acquired a stake in Tata Sons in the 1930s. 

In its statement, the SP Group said that Mistry’s acceptance of the position in 2012 was with a sense of pride and duty, and that many Tata leaders were retiring at the time with implications on the future governance of the group, and were also Tata Trusts trustees. 

“It is in this context that Mr. Mistry set about trying to establish a governance structure that would institutionalize accountability, and create the right checks and balances, without contravening the new SEBI Insider Trading law that regulated the flow of information across all stakeholders. Unfortunately, he was removed in October 2016, when he attempted to implement these governance reforms,” SP Group said in its statement. 

It added that the Tata Sons under its current leadership “has not only continued to take value destructive business decisions in a misguided effort to prove a point in these proceedings”.

It added that issues that were identified many years ago continue to plague the company.

“Be it the operations of Tata Steel UK, where over the last three years alone the operational losses have increased by an additional 11,000 crores, or the Group’s aviation businesses. These actions, or lack thereof, have meant that the total debt in the major Tata group companies has increased by approximately Rs 100,000 crores in the last three years,” it said.

It added that barring TCS, the last quarters’ results of all listed companies of the Tata group saw a loss of approximately Rs 14,000 crore, and that these actions hurt minority shareholders and shareholders of Tata’s listed companies. 

On September 5, Tata Sons had moved the Supreme Court seeking to restrain the Mistry group from raising capital against their Tata Sons shares. Through the petition, the Tatas sought to prevent the SP Group from creating any direct or indirect pledge of shares, and on Tuesday, the Supreme Court restrained the group and Cyrus Mistry from pledging their shares till October 28. 

“Tata Sons has amplified its institutional efforts to suppress and inflict irreparable harm on the SP Group, in the midst of a global crisis triggered by the COVID Pandemic,” the statement by SP Group said. 

It added that the Mistry family was raising funds to meet the crisis arising due to the pandemic against the security of their personal assets to protect employees and migrant workers’ pay. 

“The action by Tata Sons to block this crucial fund raise, without any heed for the collateral consequences is the latest demonstration of their vindictive mind-set,” it added. 

This situation, the SP Group said, has forced the family to reflect, and that the “past oppressive actions, and the latest vindictive move by Tata Sons” that will impact livelihoods has led it to the conclusion that the “mutual co-existence of both groups at Tata Sons would be infeasible”.

“The SP-Tata relationship spanning over 70 years, was forged on mutual trust, good faith, and friendship. Today, it is with a heavy heart that the Mistry family believes that a separation of interests would best serve all stakeholder groups,” it said. 

The feud

The Tata-Mistry feud dates back to October 2016, when Mistry was ousted as the chairman of Tata Sons. 

Two months later, Cyrus Investments and Sterling Investments Corp – who are also minority shareholders of the Tata group — approached the National Company Law Tribunal (NCLT) against Ratan Tata, Tata Sons and a few other board members. The Mistry family runs the Shapoorji Pallonji Group.

A long-drawn legal battle ensued between the two parties and various allegations were made by Mistry over how Ratan Tata and the group ran its businesses and continued investing in loss-making projects. 

In July 2018, NCLT upheld the October 24, 2016, decision of Tata Sons dismissing Mistry and ruled that the board of directors was competent to remove Mistry as they had lost confidence in him. Following this, Mistry quit from the board of six other Tata Group companies but challenged the group and his successor, the former Interim Chairman Ratan Tata's decisions, before the NCLT.

In December 2019, the National Company Law Appellate Tribunal (NCLAT) restored Mistry as executive chairman of Tata Group and held the appointment of N Chandrasekaran (who was appointed as his successor) as illegal.

However, Tata Sons moved SC in January 2020 challenging Mistry’s reinstatement. Following this, Mistry challenged the NCLAT’s reinstatement order in May, saying that it reinstated him till his tenure, which was to end within a few months. He sought a permanent seat on the board of Tata Sons for the Mistry family as the largest minority shareholder in the holding company (Tata Sons). The Mistry family owns 18.5% in Tata Sons.

In the affidavit, Mistry also detailed all businesses, which he claims failed because of business decisions taken by Ratan Tata.

Following this, the Supreme Court stayed the NCLAT order restoring Cyrus Mistry as executive chairman of the Tata Group, observing that there were "lacunae" in the orders passed by the Tribunal. Ratan Tata had filed a separate case against the NCLAT order questioning the comments made by the tribunal against him.

Another legal battle ensued with both parties making allegations against each other. 

Most recently, the Shapoorji Pallonji Group slapped a notice for damages against the board members of Tata Sons, individually and collectively. It questioned their complicity blocking the Mistry family from raising funds against the security of Tata Sons shares that they own.

The notice sought an explanation from the Board members, particularly the independent directors whether oppressive action that causes prejudice to a minority shareholder was with their concurrence.

The SP Group also alleged that the Tatas had failed to disclose a crucial fact that the lending documents entered into by SP Group had a specific covenant that lenders would comply with the Articles of Association of Tata Sons in the event that a pledge of shares were ever invoked. It also alleged that the Tatas were intentionally misleading the Supreme Court by suppressing this vital information.

With inputs from Shilpa S Ranipeta

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