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Can Tatas buyout Mistrys from Tata Sons?

The question that arises is whether Tata Sons would come upfront to facilitate an exit deal.

twitter-logo Nevin John   New Delhi     Last Updated: January 23, 2018  | 20:10 IST
Can Tatas buyout Mistrys from Tata Sons?
PC: Reuters

After Tata Trust counsel argued at the National Company Law Tribunal (NCLT) on Monday that the Trust wanted Tata Sons to acquire the stake of Mistry family in the holding company, the question doing rounds in the industry circles is that whether Tatas will attempt it. Experts say that it won't be possible if Pallonji Mistry family doesn't want to do so and the court will not intervene in this matter. "But Tatas wish to remove Mistrys from share ownership of Tata Sons," says an industry veteran.

Now the question that arises is whether Tata Sons would come upfront to facilitate an exit deal. The Trusts' senior counsel Sudipta Sarkar said during the argument that it would be in the interests of Tata Sons to buy out Shapoorji Pallonji (SP) Group's stake in the holding company. He alleged that the SP Group has been exercising their rights in a "disruptive manner" which is not in the best interest of the company.

The hearing was in relation to the case filed by SP Group's family firms against Tata Sons and Tata Trusts for alleged mismanagement and oppression of minority shareholders. The petition was filed after Tata Sons removed Cyrus Mistry as its chairman on October, 2016.

It was believed that SP Group got the Tata Sons shares when they bought into the financing firm F.E. Dinshaw and Co in the 1930s. But Tata counsel argued in the court that Mistrys didn't hold any shares until 1965 and they bought it later from the sibilings of JRD Tata. However, SP Group had been a silent shareholder until the controversial ouster of Cyrus Mistry from the post of Tata Group chairman. 

Earlier, in September last year, the shareholders of Tata Sons voted in favour of the Tata group holding firm becoming a private company in the first annual general meeting (AGM) under the chairmanship of N. Chandrasekaran. The move was opposed by the Mistry family, which owns an 18.4 per cent stake in Tata Sons at present, as it would restrain them from selling their stake. The shareholders of the Tata group companies also complained that it would leave less information on what is happening at the holding company level.

Cyrus Mistry's counsel C. Arya Sundaram earlier argued before NCLT for the introduction of certain "safeguards" within the Tata Group to protect the interests of minority shareholders. Later, Mistry sought that his SP Group, the single largest shareholder in Tata Sons, be given board representation proportionate to its holdings.

Countering the Mistry family's arguments, Abhishek Manu Singhvi, representing the Tata Group's holding company, said Cyrus Mistry during his time as a Tata Sons board member was party to almost all decisions that he now alleges amounted to mismanagement, and not a word of protest came from him till he was removed. He also said that Mistry was removed from the chairpersonship of the company as its board had lost confidence in him. Singhvi reaffirmed that the nominee trustee directors of the company had no personal interest in Mistry's removal. Mistry was removed only because the company's board had "lost confidence in him" and it was purely a "commercial decision," he said.


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