A thumping win for Tatas but many questions remain

In a recent judgment, the Supreme Court upheld the Tata Sons board’s decision removing Cyrus Mistry as executive chairman of the company in October 2016. In a thumping decision in favour of the Tatas, the apex court also dismissed petitions against the group alleging oppression of minority rights and mismanagement. The judgment has finally brought down the curtains on a no-holds barred firefight that has gripped corporate India over the last four years. The removal of Cyrus Mistry, the first non-Tata executive chairman of the company, led to a ding-dong battle. The National Company Law Tribunal in March 2017 first ruled in favour of the Tata Group, but that was reversed by the Appellate Tribunal that ordered Mistry be reinstated.

The SC has now restored the status quo ante. On his part, Mistry has come out with an emotional statement that he was ‘disappointed’ with the judgment, but that he tried his best to “enable the directors on various Boards to discharge their fiduciary duties without fear or favour …” What will continue to be disputed in coming weeks and months is the Mistry family’s disengagement and exit from Tata Sons. And exit they have to, as despite their 18.5% holding, the Mistrys have lost all hold in management. Exiting means defining the valuation of shares and the apex court has refused to oblige.

On a broader level, the judgment will impact the rights of minority shareholders. In this case, the SC held that being minority shareholders did not give the Mistry family automatic representation on the board of Tata Sons in proportion to their shareholding. Though such protection is envisaged for small shareholders in the Companies Act, 2013, the Mistrys are not ‘small shareholders’ and therefore cannot claim statutory protection. Going forward, minority shareholders will have to write in contractual terms with the majority to ensure representation and safeguard their rights. At another level, many Tata decisions like the acquisition of Corus Steel or the failed Nano car project were questioned by Mistry. The credibility of the group built over decades was dented and it may take some time to earn it back.