Tatas move SC to block Mistry-Brookfield deal involving pledged Tata shares

Mistrys say it's vindictive move aimed to delays fund raise; will jeopardise future of 60,000 employees and over 100,000 migrant workers

The Tata conglomerate has moved the Supreme Court against the Mistry group’s plan to raise funds from Canadian financial giant Brookfield by pledging shares of Tata Sons (TSL), the holding company.

Tata Sons moved the court on September 5, just a day after the Mistry group signed an agreement with Brookfield to raise Rs 3,750 crore as debt.

The Mistry family owns 18.5 per cent in Tata Sons while Tata Trusts and Tata group companies hold the rest.

Both the Tata group and the Mistry family are in a legal dispute over the rights of minority shareholders, with the Mistrys seeking a board seat in TSL and asking the Supreme Court to set aside the veto powers enjoyed by the Tata Trusts directors on the TSL board.

The Mistrys have objected to Tata Sons going private. The matter is pending in the Supreme Court.

“The promoters of the Mistry group are in the process of raising Rs 11,000 crore from marquee global investors, with Rs 3,750 crore being raised in the first tranche against the securities of Tata Sons. These funds are intended to mitigate the stress caused by the pandemic, deleverage the group’s balance sheet, support its financial obligations, and protect the livelihoods of its workforce,” said a Mistry group spokesperson.

“This move by Tata Sons is solely aimed to create delay and roadblocks ... It will jeopardise the future of 60,000 employees and over 100,000 migrant workers who draw sustenance by working at various group facilities. These actions are a departure from the values and ethos of the founders of the Tata group and an unfortunate reflection of the mindset of the present leadership. We will contest these frivolous and misguided claims in the Supreme Court,” the spokesperson added.

A Tata group spokesperson declined to comment on the matter.

According to the Supreme Court filing, the Tatas have sought to restrain the pledge of shares, direct or indirect, by the Mistrys. The Mistrys said the articles of association (AoA) of Tata Sons regulated just the transfer of shares, with the board having the right of first refusal (RoFR) to buy at fair market value the shares of any member who is seeking to sell them. There is no provision restricting the creation of a pledge or encumbrance.

The Mistry group is asking the Supreme Court to dismiss the Tatas' application at the threshold by highlighting the settled position in law that a mere creation of a pledge on shares would not amount to a transfer of title of the shares.

“The ability of Cyrus Investments and Sterling Investments to pledge their shares in Tata Sons in favour of third party is not in any way controlled by the Articles of Tata Sons. This is so because the pledge of shares does not amount to a transfer of the title to the shares, as the title of the shares would continue with the (person making the pledge)”, said former Supreme Court judge B N Srikrishna in an opinion obtained by the Mistry group.

The Mistry group questioned the motive and timing of the Tatas’ application, stating “the SP (Shapoorji Pallonji) group had also raised funds against Tata Sons shares in January 2020, which was widely covered in the media.

“The security documents, which are in the public domain, clearly record that lenders would comply with the Articles of Tata Sons in the event they seek to enforce the pledge of shares. The Tatas have suppressed this vital information in their application in a desperate attempt to mislead the Supreme Court.”

In January, the Supreme Court, while giving a stay on a National Company Law Appellate Tribunal verdict, had recorded that the squeeze-out provision of Article 75 would not be used on the SP group. In their application, the Tatas also sought to reverse their commitment to the Supreme Court.

Article 75 of the AoA of Tata Sons gives it the powers via a special resolution to “squeeze out” the Mistry family by buying out its shareholding at fair market value. The NCLAT in an order had noted that the fair value of the SP group’s 18.37 per cent in Tata Sons was more than Rs 1 trillion.

Raising funds is important for the Mistry group because it is under pressure to repay its debt.