Mistry stake valued at Rs 80,000 crore at most, says Tata group in SC

This is in response to Rs 1.78 trn sought by Mistry family; Tata Sons counsel says NCLAT judgement setting aside Chandra's appointment went beyond the scope of judicial review

About three months after the Shapoorji Pallonji (SP) Group had offered to sell its 18.37 per cent stake back to Tata Sons at a valuation of Rs 1.75 trillion, the salt-to-software conglomerate has marked it down by more than half. 

Tata Sons counsel Harish Salve, during a Supreme Court hearing on Tuesday, put the value of the Cyrus Mistry family shares at Rs 70,000-80,000 crore — a difference of Rs 1 trillion with the figure projected by the SP Group. The case will come up for hearing again on Wednesday.      

While stating that a member of Tata Sons cannot make allegations against group firms, Salve argued that the Tata group was run amazingly by its former chairman Ratan Tata. During his tenure between 1991 and 2012, the market cap of Tatas rose by 500 times, he said. 

“When there is a growth story of 500 times, there will be some winner projects and some losers,’’ Salve told the court.

He was referring to the Mistry family’s allegations that many Tata firms had run into losses under Ratan Tata. “Just because some businesses make losses does not imply that there is mismanagement in Tata Sons,” Salve argued.

The Supreme Court is hearing an appeal filed by the Tata group against an order by the National Company Law Appellate Tribunal (NCLAT) last December. The NCLAT order had reinstated Cyrus Mistry as Tata group chairman, while terming his successor N Chandrasekaran’s appointment as illegal.

Mistry was removed as Tata Sons chairman in a boardroom coup of sorts in October 2016.  

NCLAT had set aside Chandrasekaran’s appointment despite the Mistry group not objecting to it, Salve said. The NCLAT judgement has gone beyond the scope of judicial review, he added.

By reinstating Mistry, Salve said, the NCLAT had vested the control of Tata Sons with minority shareholders, giving them power to rule over all Tata companies. “As minority shareholders are entitled to dividends, as long as Tata sons is distributing huge amounts as dividends, where is the question of winding up,’’ Salve asked.

On Tata Sons’ Articles of Association — which give veto powers to Tata Trusts — Salve said NCLAT had no powers to re-write them. Although NCLAT has the powers to remove the chairman, the selection of chairman is to be done by its shareholders, according to the Tata counsel. If rules of numbers are allowed, Mistry will not get even one seat on the board, he said. Tata Trusts are the biggest shareholders in Tata Sons with 68 per cent stake in the holding company of the $100-billion group.

 

In his argument, Salve said that any major loss in the group will impact majority shareholders the most and not the minority shareholders. He pointed out that Tata Sons was always a private limited company since 1917 and NCLAT overlooked the fact that articles of association is the primary contract between the shareholders and the company. The changes in the articles of association (AoA) — giving veto powers to Tata Trusts — were cleared by Pallonji Mistry, the patriarch of Mistry family, when he was a director in the company, Salve said.

In 2000, the AoA of Tata Sons was restated and replaced with a new set of articles duly approved by a special resolution of the shareholders. The AoA gave certain special rights to Tata Trusts including right to nominate up to one third of the directors (Article 104B) and its nominated directors having the right of an affirmative vote (Article 121). The AoA said these rights shall exist only so long as the Tata Trusts hold not less than 40 per cent of the equity capital of Tata Sons.

These rights were incorporated mainly to protect the interest of the Trust in the future, should their shareholding get diluted.

The modifications to the AoA were unanimous without any objection from any shareholder. The SP Group had voted in favour of these amendments.

In the year 2012 and 2014, new amendments were made without attracting any objections from shareholders.

Even when the AoA was further modified, in 2012 and 2014 when Cyrus Mistry was a director at Tata Sons and also its chairman, the SP Group did not demand or assert any special right for itself.

After Mistry was removed from the Tata Sons board in October 2016, the Mistry group raised these issues at the National Company Law Tribunal (NCLT) and later at NCLAT. While NCLT ruled in favour of the Tata group, NCLAT backed the Mistrys.