The business of Shapoorji Pallonji (SP) family is in dire crisis and their group is in talks to raise Rs 11,000 crore by pledging nearly 2 per cent of their stake in Tata Sons, the holding company of Tata group companies. SP Group has signed definitive documents with Brookfield to raise Rs 3,750 crore. It is for the second time they are pledging their stake in Tata Sons, after an undisclosed deal in January 2020.
However, Tata Sons threw the spanner in the Brookfield deal as it moved an urgent application before the Supreme Court, seeking to block direct or indirect pledge of shares. SP Group promoters hold 18.37 per cent stake in Tata Sons through investment companies. The National Company Law Appellate Tribunal (NCLAT) in an earlier order had noted that the fair value of the SP Group's stake was over Rs 1 lakh crore.
SP Group, which is controlled by the family of ousted chairman of Tata group, Cyrus Pallonji Mistry, said the move of Tatas to block the fundraising is oppressive and vindictive act, which is intended to cause irreparable harm to them. Tatas moved urgent application on September 5 - a day after the SP Group signed definitive documents with Brookfield.
Articles of Association of Tata Sons only regulate the transfer of shares, SP Group claimed. The Board of Tata Sons have first right of refusal to buy the shares at fair market value, if anyone sells. Mistrys claimed that there is no provision in Tata Sons' Articles of Association that restricts the creation of a pledge or encumbrance.
Construction and real estate sector, the mainstay of the SP Group, has been significantly impacted by the global COVID-19 pandemic, leading to fundraising, SP Group said in a statement. The spokesperson said, the promoters are in the process of raising around Rs 11,000 crore from marquee global investors with Rs 3,750 crore being raised in the first tranche, against the security of shares that their investment companies own in Tata Sons.
"These funds are intended to mitigate the severe stress caused by COVID pandemic, deleverage the group's balance sheet, support its financial obligations and protect the livelihoods of its workforce. This vindictive move by Tata Sons is solely aimed to create delays and roadblocks in the fund raise that will jeopardise the future of 60,000 employees and over 1 lakh migrant workers who draw sustenance by working at various SP Group facilities," a SP Group spokesperson said.
These actions are a departure from the values and ethos of the founders of the Tata Group and is a unfortunate reflection of the mindset of the present leadership, he added. "We will vigorously contest these frivolous and misguided claims in the Supreme Court," he stated.
The SP Group said that a mere creation of a pledge on shares would not amount to a transfer of title of the shares. In the opinion of Justice (Retd) Srikrishna, former Judge of the Supreme Court, "The ability of Cyrus Investments and Sterling Investment 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 pledgor."