In a major victory for the Tata group, the Supreme Court (SC) on Friday ruled in favour of the Tatas in their battle with the Mistry group by setting aside the National Company Law Appellate Tribunal (NCLAT) order which had re-instated Mistry on Tata Sons' board and had termed current Chairman N Chandrasekaran’s appointment as ''illegal". The country's apex court also rejected Mistry group’s plea against the conversion of Tata Sons into a private company.
The bench, led by the Chief Justice of India, SA Bobde, also refused to entertain Mistry group’s plea for fair compensation for their 18.5 per cent stake in Tata Sons saying the value of Mistry’s stake will depend on valuation of Tata Sons assets and that it would not get into determining what should be a fair value. Lawyers said both parties can now begin talks on how Mistry can sell its stake to the Tata group or investors nominated by it and at what valuation.
During the hearing at the SC, the valuation of Mistry’s stake was pegged at Rs 1.76 trillion by the Mistrys, while the Tatas peg the valuation far below at Rs 80,000 crore. With the Tata group listed companies' shares going up significantly in the stock markets, the valuation of Mistry stake has also gone up.
The verdict will have an impact not only on Tata Sons, but also on other companies which plan to go private. Today's SC judgement will allow them to convert into a private company. The Mistry family had objected to Tata Sons going private which, according to them, reduced liquidity in Tata Sons shares.
Chiarman Emeritus of Tata Group, Ratan Tata said, "I appreciate and am grateful for the judgement passed by the honourable Supreme Court today. It is not an issue of winning or losing. After relentless attacks on my integrity and the ethical conduct of the group, the judgement upholding all the appeal of Tata Sons is a validation of the values and ethics that have always been the guiding principles of the group. It reinforces the fairness and justice displayed by our judiciary."
“This has been a very high profile and highly publicised dispute. The Supreme Court has, by answering the points at issue, laid down an important precedent on the various points raised by the respective parties. As the size of business houses keeps growing in India, this judgement will have a significant impact on disputes of this nature in the corporate sector," said Anand Desai, managing partner, of DSK Legal.
Tata Trusts, which owns 66 per cent stake in Tata Sons, is chaired by Ratan Tata, the patriarch of the Tata group, while the Mistry family owns 18.4 per cent stake in the company.
While NCLT Mumbai sided with the Tatas, the NCLAT termed Mistry’s removal as illegal and had reinstated Mistry as Tata group chairman, while terming his successor N Chandrasekaran’s appointment as illegal. The Tatas had then moved the SC seeking to overturn the NCLAT judgement.
Just a few weeks before the SC hearing started, the Mistrys offered to sell the stake in lieu of stakes in the listed Tata companies, including Tata Consultancy Services, Tata Motors and Tata Steel and calculated their stake in Tata Sons at Rs 1.75 trillion, including its brand value.
Tatas did not respond to the offer then, but rejected it in the SC saying Mistry had damaged the Tata brand.
A bitter legal and public battle between the two sides erupted when Mistry was removed from Tata Sons’ board as chairman in 2016. Mistry's main grouse was that the shoddy performance of Tata group companies during his tenure since 2012 was blamed for his removal, but it was actually due to the bad apples acquired by his predecessor, Ratan Tata during his 20-year term at the helm of Tata Sons that the Tata group floundered.
In his communications to Tata Sons' directors and Tata Trusts' trustees, soon after he was removed in October 2016, Mistry had cited the sad financial state of affairs of Tata Steel Europe, Tata Motors's loss-making Nano project, Tata Teleservices, Indian Hotels, Jaguar Land Rover, Tata Power’s Mundra which, he said, had drained Tata Sons' coffers.
Calling these as “legacy hotspots” which pulled down the group’s performance, Mistry said it was Ratan Tata and not him who should take the blame. Mistry also raised several corporate governance issues including Tata Capital’s loans to Tata’s close friend, C Sivasankaran (which were never repaid) and bribery by Air Asia India to get its flying license. Mistry said that since he had raised these issues, he was made the fall guy.
In another related step, Tata Sons had also decided to turn into a private company in September 2017 thus making it difficult for the Mistrys to sell their shares to any outsider or even raise funds by giving Tata Sons shares as collateral. As Mistry group's financial situation became precarious, it had no other option but to raise funds by pledging Tata Sons shares. However, it was nixed by the Tata Sons by moving the SC.
Here is a timeline of event:
December 2012 – Cyrus Mistry takes over as Chairperson of Tata Sons
October 24, 2016 – Mistry removed from the Chairperson’s post by the majority of the board of directors of the company.
February 6, 2017 – At an Extraordinary General Meeting (EGM), the shareholders vote for the removal of Mistry from the board of Tata Sons.
February 21, 2017- N Chandrasekaran takes over as Executive Chairman of Tata Sons.
Mistry then files a suit under Sections 241 and 244 of the Companies Act, 2013 alleging oppression and mismanagement in Tata Sons.
July 12, 2018 - Mumbai Bench of the National Company Law Tribunal (NCLT) dismisses Mistry’s petition holding that the Board of Directors are competent to remove the Chairman and that no selection committee is required to remove the Executive Chairman. The tribunal also ruled Tata Sons can’t be prevented from becoming a private company and found no merit in arguments relating to mismanagement in Tata Group companies.
Mistry appeals to the National Company Law Appellate Tribunal
December 19, 2019 – NCLAT allows the appeal and overturns the NCLT judgment; holds that the proceedings of the Board meeting of Tata Sons held on October 24, 2016 removing Cyrus Mistry as Chairperson is illegal. It also quashes the appointment of N Chandrasekaran as Executive Chairman in place of Mistry.
January 2, 2020 – Tata Sons challenges NCLAT decision before the Supreme Court. Subsequently, Ratan Tata also challenges NCLAT decision before the Supreme Court.
January 10, 2020 – Supreme Court stays NCLAT judgment.
February 2020 – Cyrus Mistry files cross-appeal against NCLAT judgment, claims NCLAT failed to grant certain crucial reliefs to the Mistry firms.
September 22, 2020 - The Supreme Court restrains Cyrus Mistry's Shapoorji Pallonji Group (SP Group) from pledging any of its shares in Tata Sons for raising funds.
December 8, 2020 – Final hearing commences before the three-judge Bench headed by CJI SA Bobde.
December 17, 2020 – Supreme Court reserves judgment.
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