Great victory for Tata at the Battle of Mistry

A three-judge Supreme Court bench, headed by Chief Justice, SA Bobde, also refused to intervene in the matter of the pledge of Tata Sons shares by the Shapoorji Pallonji (SP) family group. Mistry, citing a clause in the Tata Sons bylaws. (AoA) that empowers the company to buy its minority shareholders at fair value in extraordinary circumstances.

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The court’s refusal to determine a fair value for the Mistry family’s stake makes it more difficult for the cash-strapped SP Group to raise funds by selling or pledging its 18.3% stake in Tata Sons, a move. which the Tata group has fiercely opposed.

The victory of the Tata group ends India’s largest corporate battle that was sparked by the ouster of Cyrus Mistry, the eldest son of construction magnate Pallonji Mistry, in October 2016. Cyrus Mistry assumed the presidency of the conglomerate more Ratan Tata in 2012 as part of a succession plan.

The National Corporation Law Appeals Court (NCLAT) had ordered Tata Sons in 2019 to reinstate Cyrus Mistry as CEO of the company, coinciding with Mistry’s allegation that his removal was an act of oppression by majority shareholders of Tata Sons, which includes philanthropic trusts.

Noting that NCLAT had not assessed the merits of Mistry’s allegations regarding the oppression of minority shareholders and lapses of corporate governance by Tata Sons, the supreme court said: “NCLAT, despite being a final tribunal of facts, he did not deal with the accusations one by one. one nor the NCLAT issued any opinion on the correction. Instead, the NCLAT summarized its conclusion on some of the allegations in one paragraph, without any reasoning. “

Rejecting Mistry’s contention that the SP Group, by virtue of being the largest minority shareholder in Tata Sons, had proportional representation rights on the company’s board of directors, the superior court said that Tata Sons was not a “two-group” company. and that one of them was a majority and the other, a minority. “SP Group became a shareholder long after the incorporation of the company, and did not acquire any privilege, prerogative or right,” the bank said, adding that “SP Group became a shareholder, accepting the rights and obligations inter se between shareholders, as detailed in the AoA. SP Group also readily accepted all the amendments made to the AoA. “

On issues related to the pledging of Tata Sons shares, which has emerged as a contentious issue after it emerged that SP Group planned to offer its stake in the company as collateral to raise funds, the higher court ordered both parties to resolve The issue. through negotiations, maintaining its legal validity. “After attacking Article 75 before NCLT, the SP Group cannot ask this court to enter into the issue of setting fair value compensation for exercising an exit option. The valuation of SP Group shares depends on the value of Tata Sons’ interest in listed shares, unlisted shares, real estate assets, etc., and also perhaps the funds raised by SP Group on the collateral / pledge of these shares. Therefore, at this stage and in this court, we cannot rule on just compensation. We will let the parties take the route of Article 75 or any other legally available route in this regard, ”said the bench.

“The oppression has to be malicious, continuous and with intention. None of the elements were present in the deal with Mistry, “said JN Gupta, founder of the representative advisory firm Stakeholder Empowerment Services.” Mistry’s removal was not as a shareholder director. He was holding the chair position as Cyrus Mistry and not as a representative of Cyrus Investment or Sterling Investment. Since his appointment was not a minority right to be represented on the board, his removal cannot be questioned under minority oppression. “

Legal experts said that the SP Group has limited legal resources left. “They can file a petition for review and even a curative petition, but it is unlikely to produce any real results for the SP Group. It has now been resolved, for all good purposes, that the removal of Mistry was not bad fide, “said Sajid Mohamed, managing partner of Argud Partners, a Mumbai-based law firm.” However, Mistry can always question the fair value placed on his bet if Tata Sons decides to buy it, “he added.

In a Twitter post, Tata Sons Chairman Emeritus Ratan Tata said: “This is not about winning or losing. After incessant attacks on my integrity and the ethical conduct of the group, the judgment that supports all of the Tata Sons appeals is a validation of the values ​​and ethics that have always been the guiding principles of the group. “