14/12/2020
CAFinal : OPPRESSION AND MISMANAGEMENT : Current Affairs!!!
It is almost being four years since Cyrus Mistry, the ousted chairman of Tata Sons, dragged Tata Sons, its interim chairman Ratan Tata, board members of Tata Sons, Tata Trusts and the Trustees of Tata Trusts to court to protect Tata Sons from alleged “oppression and mismanagement.”Cyrus Investments and Sterling Investment Corporation, the two investment companies of Mistry’s family that owns 18.4 per cent stake in Tata Sons filed the petition under section 241 and section 241 of the Companies Act in the Mumbai branch of the National Company Law Tribunal (NCLT).The petition alleged that Mr. Tata “abused the powers vested in him as the erstwhile chairman of the Tata Group in respect of the various ventures that he has entered into,” some of which include the acquisition of Corus, the Nano car project, Tata Teleservices, AirAsia, dealings with Sivasankaran and M Pallonji & Co, it added.
It also alleges that the Articles of Association (AoA) of Tata Sons were altered for the “exclusive interest” of the trust and Mr. Tata.The key allegation by Mr. Mistry was that his removal as chairman and subsequently as a director on the board of Tata Sons was a result of oppression by Tata Sons promoters (Tata Trusts) as they own over 68% stake in Tata Sons.
Back in 2018,In a major setback to Cyrus Mistry, the Mumbai bench of National Company Law Tribunal (NCLT) on Monday dismissed his petition against Tata Group with respect to his removal as Tata Sons chairman and observed that Mr. Mistry’s conduct does not augur well for smooth functioning of Tata Sons.The two member Bench rejecting proportional representation for Mistry Group on the Tata Sons board, said that Tata Sons can’t be prevented from becoming a private company, a move opposed by Mr. Mistry as it imposed restrictions on his family’s ability to sell their 18% stake in Tata Sons to outsiders.
In major sigh of relief to Tata Sons, the company court ruled that the board of directors are competent, and that there is no merit in allegations against Ratan Tata, N.A. Soonawala of being super directors.
In response to the setback,on August of 2018,
Mistry moved NCLAT to appeal against NCLT order;and seeked a seat on Tata Sons board.More than three years after the dramatic boardroom sacking of Cyrus Mistry, on December of 2019, National Company Law Appellate Tribunal,reinstated him as the executive chairman of the Tata group. The order, while upholding Mistry’s charges that he was ousted without due process, said the action taken by Ratan Tata and others against the former Tata Sons chairman was OPPRESSIVE and illegal.The order also ruled against the conversion of Tata Sons from a ‘public company’ to ‘private company’, and termed its approval by the Registrar of Companies as being against the provisions of Section 14 of the Companies Act, 2013. Declaring the conversion illegal, the order said it is ‘prejudicial’ and ‘oppressive’ to the minority members and depositors.Shares of Tata Group companies fell after the ruling, with Tata Motors — the conglomerate’s most indebted company — falling nearly 3%. Tata Global Beverages fell 4% while Indian Hotels slipped 3%.The restoration order sas subsequently challenged by TATA sons in the apex court and was put on stay.Cyrus Mistry said he did not seek to return to the position of Tata Sons' chairman. He did, however, mention in a statement that he will be pursuing all options to protect his family's rights as a minority shareholder of the Tata group's holding company, which includes getting back a seat on the board of Tata Sons. His statement came ahead of the SC's hearing on Tatas' plea.
Recently,to settle the four-year-long legal tangle, the Shapoorji Pallonji Group has officially sought to separate from the Tata group by exchanging its stake in Tata Sons for shares in the Group’s listed companies such as Tata Consultancy Services.To settle the disputes in the valuation of its 18.37 per cent stake in Tata Sons, the Tata Group holding company, the SP Group has proposed a pro rata split of both the listed assets and the Tata brand by a neutral third-party valuer.Valuing its stake in Tata Sons at more than ₹1.75-lakh crore, SP Group said that as non-cash settlement, it should be given pro rata shares in listed entity or entities of the Tata Group, where Tata Sons currently owns stakes.
For example, 72 per cent of TCS is owned by Tata Sons, and SP Group’s 18.37 per cent stake translates to 13.22 per cent shareholding in TCS (based on IT giant’s valuation of ₹1.35-lakh crore). The share price value of the listed assets is already known, while the brand valuation was already done by the Tata Group, said SP Group.
Now that the new valuation has been done by SP group,The Tatas on Wednesday countered in the Supreme Court, the accusation of mismanagement of Tata Sons and said that even according to the claim of Shapoorji Pallonji (SP) group, valuation of the latter’s 18.37% stake in the company rose from ₹58,000 crore in 2016 to ₹1.75 lakh crore in 2020.So if one were to go by SP Group’s claims, it was ‘a strange management’ which had mismanaged the company but still took their valuation from ₹58000 crore in 2016 to ₹1.75 lakh crore in 2020,so said Mr.Harish Salve the senior advocate appearing for TATA sons.
The rejection of the offer to swap stakes sets the stage for a long legal battle between India’s largest conglomerate and the single-largest shareholder in the group holding company.
