Tata Mistry Feud – The Climax!

The feud that shook the corporate world has reached its bitter end. The battle, which lasted for almost 5 years, saw its conclusion as the Supreme Court of India issued the hearing on the case between Tata Sons and Cyrus Mistry. 

It all started in October 2016, when Mr Ratan Tata asked Cyrus Mistry, the then CEO of the Tata conglomerate, to submit his resignation. Failure to abide by his words, Mistry was ousted officially through a board meeting following the same. No one was aware that it was a seed of the huge tree that would grow up to rule the headlines of the corporate world for years to come.

Before we get into the details of the rulings, let's get a glimpse of the entire case starting from the very base. 

Tata-Mistry tussle: the beginning of the end

The Tata sons Group and the Shapoorji Pallonji Group (SP) had been on good terms for a very long period starting from the early 1920s. Being on its good books, SP group had acquired an 18.4% stake in the company under various timelines via a rights issue and debt to equity conversion. And that is how Mistry became a stakeholder in the company (by inheriting the stake).

On his 75th birthday in December 2012, Ratan Tata stepped down as the CEO of the company and offered the position to Cyrus Mistry. Four years down the line, an epic decision shook the entire company. Mistry was removed from the same position by the Board of directors.

The move that shook the entire business world was claimed to be made after Mr Tata's disappointment with the way Cyrus Mistry handled the operation of the company. Particularly the way events unravelled in the case of NTT Docomo and Tata Steel caused the Board to vote for ousting Mistry. 

So what exactly happened? What made Ratan Tata to break years of friendly alliance with the SP group? 

When NTT Docomo demanded an exit from the partnership held with Tata Teleservices, two options were put forth. Those included the choice to either buy out their stake or to find a new potential buyer for the 26% stake. Tata (under Mistry) ruled out both the options. This caused the Tata to undergo a legal Battle, ultimately costing them $1.2 billion. Furthermore, the aggressive sale of the assets of Tata steel also happens to be one of the crucial reasons. 

Apart from all these, the bad blood between both parties heightened following Mistry's failure to consult with the Board or Ratan Tata in various crucial circumstances. His handling of other companies of the conglomerate, such as Tata Motors etc., further made the board nod for this epic decision.

The Legal War

'War begins when language fails.'

The quote seems true, except for the fact that here it was a legal war between the two. 

The legal battle kick-started when Mistry filed a case in the National Company Law Tribunal (NCLT) against Tata Sons under various heads of the Companies act of 2012. In his petition, he claimed that the company is oppressing the interest of small stakeholders. Unfortunately, the NCLT ruled in favour of the Tatas. They, furthermore, sided the Tatas in removing Mistry from the C-suite position and dismissed his allegations regarding oppression. For everyone who believed the battle had ended, it was nothing more than a disappointment. 

Cyrus Mistry went on to challenge the rulings in the NCLAT (National Company Law Appellate Tribunal). The NCLAT hearings, this time, were in favour of Mistry. It also offered more than that was asked for by asking to restore the CEO status of Mistry, giving rise to new complexities. Meanwhile, the company was transformed from a public to a private company, and Ratan Tata became the Interim Director. SP group was also trying to pledge its shares in a bid to raise funds.

And then...

You could also read the previous blog - Tata, Mistry and NCLAT – The Battle Continues here. 

What is happening now? 

Now let's just fast forward to the current happenings. The Tatas knocked on the door of the Supreme Court in a bid to find a solution to this problem. The Supreme court stayed the SP group's effort to pledge the shares, and the final hearing was issued by a bench of three, headed by Chief Justice SA Bobde. The conclusive decision was issued in March 2021. 

The Supreme Court over-ruled the hearings of NCLAT. The SC also dismissed any allegations regarding oppression and claimed that as per the Companies Act, shareholders with a share-holding of not more than Rs 20,000 are small shareholders. And the provisions only accommodate small shareholders, and NOT Minority stakeholder, the 'right to claim proportionate representation on the board'.

Following the rulings, the SP expressed its intention for a share swap as the Tatas favoured the idea of buying back the shares rather than those shares being sold to a third party. But it looks like fate has some other plans.

The SP group valued their holdings at 175,000 crores. Whereas the Tata Group claimed the valuation to be at approximately 80,000 crores, less than half of what SP claimed. And the tussle continued.

Final thoughts 

Following the Supreme Court's hearing, the Tata Motors' shares saw a 6% increase (intra-day) in the stock market. However, even if things have ended legally, a lot is yet to come for the company. The 70-year relationship will reach its end only after the stakes are surrendered.

But things are quite unclear as to how the groups will sort that out. Having said that, how both the groups will value their shares and how the stake swap will be happening are certain questions that demand time to be answered.