At Tata, an uneasy friendship shows its cracks

From the time Framroze Edulji Dinshaw paved the way for Shapoorji Pallonji Mistry's entry into Tata Sons, the relationship between the two families has been tenuous

Statements, counter-statements, allegations, insinuations, defamation notices, and not to forget the trolling on social media from either side — the Tata-Mistry slugfest has all the ingredients of a soap opera. 

Late Tuesday, another statement, titled Ratan Tata takes credit, Cyrus Mistry shares credit, came from Cyrus Mistry’s office. It was the curtain call after some quick move through the day from the Tata side: Tata Sons had asked Tata Power to call an extraordinary general meeting (EGM) of shareholders to consider removing Mistry from the company’s board; and the Tata Chemicals board fixed the date for the EGM, December 23.

 

Among many points, the Mistry statement narrated an instance: Ratan Tata, when he was heading Tata Industries’ joint venture with IBM (it didn’t mention the year), had approached JRD Tata, then Tata Sons chairman, with a proposal from IBM to buy out TCS.  

JRD refused to discuss the deal because Faqir Chand Kohli, the founding CEO of TCS, was recovering from a cardiac condition in hospital. On his return, Kohli assured JRD that TCS had a bright future and the group should not sell the company. JRD turned down the offer, demonstrating true vision. 

TCS is the crown jewel of Tata Sons, apart from Jaguar-Land Rover, and accounts for a large chunk of its income. The Mistry statement indicated that Ratan Tata’s proposal, if it was accepted, would have spelt doom for Tata Sons.

This was repudiated by Kohli who put out a statement that said: “Mistry’s comments regarding sale of TCS to IBM at some ‘unspecified point in time’ are not correct. I was actively involved in the decision to bring IBM to India. A joint venture for hardware manufacturing and support in India, Tata IBM, was set up in 1991-92. This JV was undertaken to promote a computer hardware industry in India which was non-existent at that time. I would like to reiterate that at no point at that time was there ever an intention of the Tata group to sell TCS to IBM.”

Strained ties

Those who knew JRD say that he wanted to buy out the Shapoorji Pallonji stake in Tata Sons. In her book, Business Maharajas, Gita Piramal makes a passing reference to JRD’s estrangement from Pallonji Mistry. In her other book, Business Legends, Piramal mentions what JRD had told his biographer (Russi M Lala). 

Ratanji Dadabhoy Tata, JRD’s father, died in 1926. Ratanji Dadabhoy had five children, JRD was the eldest son. In his will, he said, from the family income,  JRD would get the first Rs 3,000 a month, Darab Rs 2,000 a month, Jimmy Rs 1,000 a month and the balance would be divided among the five. 

JRD consulted his father’s friend, Dinshaw Daji, and he said that if all brothers and sisters agreed, the will could be ignored. So the family income was divided equally as were the shares of Tata Sons. In 1938, at the age of 34, JRD became the chairman of Tata Sons, a post he held till his retirement in 1991.

Years later, Darab Tata, JRD’s younger brother, in a fit of temper sold his shares to Shapoorji Pallonji Mistry, a construction magnate by then. JRD never quite forgave him for it.

But Shapoorji’s entry into Tata Sons wasn’t paved by Darab Tata’s sale of shares. By then Shapoorji Pallonji Mistry (Cyrus Mistry’s grandfather) already had a 12.5 per cent stake in Tata Sons. With Darab’s shares, the stake went up to 17.5 per cent.

When lawyer-financier of the Tata group, Framroze Edulji Dinshaw, died in 1936, his 12.5 per cent stake in Tata Sons was acquired by Shapoorji Pallonji Mistry from his heirs and trustees. Dinshaw had lent Rs 2 crore to the company, which over a period of time was converted into equity because he could not be repaid in full.

Warming up to each other

But the relationship between the two families improved when Pallonji Shapoorji Mistry (Cyrus’s father) came into the picture. In fact, when JRD proposed Ratan Tata as his successor, it was seconded by Pallonji Shapoorji Mistry. His daughter, Aloo, was married to Noel Tata, Ratan Tata’s half-brother.

If JRD’s mission among other things was to establish Tatas’ supremacy in the Tata group, Ratan Tata’s aim when he took charge, was to shore up Tata Sons’ stake in group companies and create crossholdings.

When Tata Sons went for a rights issue in the latter half of the 1990s, the trusts didn’t subscribe, but group companies like Tata Motors, Tata Steel, Tata Chemicals, Tata Power, Indian Hotels and Tata Tea chipped in. As a result, the trusts’ holding in Tata Sons came down from 80 per cent to 66 per cent. Pallonji Shapoorji Mistry reportedly paid Rs 60 crore to increase his stake to 18.5 per cent.

In 2005, Cyrus joined the board of Tata Sons when Pallonji Shapoorji Mistry stepped down. In 2011, he was selected as a successor to Ratan Tata. The story moved full circle when on October 24 he was replaced as the chairman of Tata Sons. 

Tata Sons said that the directors were primarily concerned with the results of Tata Sons and their duty to all its shareholders, particularly to Tata Trust which holds 66 per cent of the equity capital.

A Tata executive says that there is no right or wrong in this. “It’s a difference in the style of functioning. The Tata group has a definite way of doing things which was not being followed. From a fragmented Tata structure, Ratan Tata had galvanised it into one group,” says he.

Ratan Tata is not new to such battles; an underdog among the many contenders for JRD’s post, his rise in the Tata group was anything but smooth. Through the 1990s, he fought many a boardroom battle with JRD’s independent satraps — Russi Mody, Darbari Seth and Ajit Kerkar — to get a tighter grip on the group. Yet the similarities with the ongoing battle with Cyrus Mistry are scant, caution people close to the Tata group. The most obvious difference is that Cyrus Mistry’s family is an 18.5 per cent shareholder in the group’s holding company, Tata Sons. 

In 1985, when the battle was brewing with the satraps, Ratan Tata had said in an interview, “I’m a patient man, and I have time on my side.” 

This time, looming large on the horizon is the deadline of four months for the search committee to find a replacement for Cyrus Mistry.

The tata-mistry bond

1924-26: Framroze Edulji Dinshaw loans Tatas Rs 1 crore

1936: Dinshaw dies, Shapoorji Pallonji Mistry buys his 12.5 per cent stake in Tata Sons

1936-38: Darab Tata sells his shares to Shapoorji Pallonji, stake increases to 17.5 per cent

1938: JRD Tata becomes chairman of Tata Sons

1981: Ratan Tata becomes chairman of Tata Industries

1991: JRD Tata passes the baton to Ratan Tata

1992: Ratan Tata invokes the Tata group’s retirement age policy

1993: Russi Mody forced to resign

1994: Darbari Seth resigns

1997: Ajit Kerkar resigns

2005: Cyrus Mistry replaces Pallonji Mistry on Tata Sons board

2011: Cyrus Mistry selected successor to Ratan Tata

2016: Tata Sons replaces Cyrus Mistry, Ratan Tata becomes interim chairman