Tata Group Patriarch Ratan Tata Is Fighting For An Empire And An Image

Tata is caught up in a nasty public fight for control of the business with the man he had chosen to succeed him as chairman.

New Delhi: In India, where corruption is a fact of life, the Tata Group, a powerhouse conglomerate that makes Land Rovers, operates the historic Pierre Hotel in New York and sells the world Tetley tea has been held up as the exception to the rule.

Its patriarch, Ratan Tata, 78, is a revered figure in India, a cross between Warren Buffett and Bill Gates whom even school children know and look up to as Mr Clean, the billionaire whose family built its name in part on zero tolerance for corruption. His company symbolises the role an ascendant India sees for itself on the global stage. In 2010 Tata arranged a $US50 million donation to Harvard Business School, the school’s largest gift from an international donor, and its dean sits on the board of the empire’s umbrella organisation, Tata Sons. Tata has been knighted by Queen Elizabeth.

Now, however, Tata is caught up in a nasty public fight for control of the business with the man he had chosen to succeed him as chairman. The company finds itself defending against serious allegations of wrongdoing. Some of the claims have been raised by his chosen successor, Cyrus Mistry. Tata ousted Mistry in late October, saying it was necessary because “the board of Tata Sons lost confidence in him and in his ability to lead the Tata Group in the future.”

Mistry, 48, told Tata’s board in a letter that an internal audit indicated that its airline joint venture, AirAsia, had made more than $US3 million in “fraudulent transactions” with two companies. In recent days, India’s Directorate of Enforcement has started an investigation into the AirAsia payments. The directorate did not respond to requests for comment.

He said he was fighting “to protect the Tata Group from capricious decision-making by the interim chairman,” a reference to Tata. (On Tuesday Mistry resigned from the boards of all Tata Group boards).

Separately, on Friday, a crusading member of India’s parliament, Subramanian Swamy, called in a court complaint for an investigation into allegations from a government report that Tata in 2008 used a front company to apply for a telecommunications license, potentially circumventing the limits on the number of licenses one investor could hold.

This is alleged to have happened at a time of furious maneuvering among companies trying to win the rights to offer cellphone service in India, a battle that resulted in one of India’s biggest corruption scandals ever.

Ultimately the scandal helped sweep India’s founding political party, the Congress party, from power in an epic defeat. The New York Times has reviewed government documents showing that India’s Serious Fraud Investigation Office recommended prosecuting Tata in 2013. For reasons that are not clear, the government did not file a case in court.

Officials at the fraud office and at the Central Bureau of Investigation, the federal agency responsible for bringing cases, did not respond to requests for comment. The fraud office documents, which Swamy filed as part of his court complaint, say that the Tata Group invested $US250 million in eight subsidiaries of a real estate firm, Unitech, a sum roughly equivalent to the telecom license application fee. Unitech used that money to apply for a license on Tata’s behalf, the report from the government’s fraud office said. A Tata spokesman said the company made “a bona fide real estate deal” with Unitech unrelated to telecom licenses, adding that “no evidence was found which could be attributed to any criminality.”

Unitech did not respond to requests for comment.

The Tata Family Empire

The Tata Group was started in 1868, when the British ruled the Indian subcontinent. The founder, Jamsetji Tata, was a descendant of Persian immigrants, known as Parsis, who form a tiny and vibrant community in Mumbai. He began with a trading business, and over the decades the company grew building India’s first steel mill, its first hydroelectric power station, its first locally made trains and its first airline.

In 1903, Tata opened India’s first luxury hotel serving Indians, the Taj Mahal Palace Hotel, which is today considered a national landmark. In 2008 the hotel was one of the targets of the dayslong Mumbai terrorist attack by Pakistani infiltrators that shocked India and the world. The company today has its hand in almost every business imaginable, from consulting to automobiles. Ratan Tata, the cousin of his predecessor, took over the company in 1991 at age 53. He became the group’s fifth chairman.

He widened the group’s international presence, acquiring Corus Group, the Anglo-Dutch steel company, in 2007 and the Jaguar and Land Rover brands in 2008.

Mistry the first non-Tata family member to lead the nearly 150-year-old company was elevated in 2012 after a two-year search. However, in India’s tight-knit Parsi community, the ties can be close. Mistry’s family, which owns a major construction business, was the biggest shareholder in Tata Sons, with 18 per cent, and Mistry had been on the board since 2006. His sister is married to Tata’s half brother.

According to several people close to Mistry, the relationship between him and Tata soured in part because Mistry had begun reining in some favours that the company had previously extended to Tata’s personal friends.

In one instance, after Mistry raised the issue, the Tata board explored starting legal proceedings against C. Sivasankaran, a longtime friend and close business associate of Tata, to try to recover $100 million the company said it was owed from a telecom deal. Sivasankaran also had been renting a 5,300-square-foot penthouse for $US11,000, less than half the market rent, from the company, according to correspondence reviewed by The Times. Mistry raised his rent to the market rate.

Sivasankaran, in an interview, said he was a friend of Tata’s. He said, though, that he had suffered financially from the investment and had no intention of paying back the $US100 million he owed.

“I don’t want to pay it because Tata has not managed the company properly,” he said. “Siva is alleging the Tata Group does not have management skills,” Sivasankaran said, referring to himself in the third person. He also confirmed that he was ousted from the luxury apartment. Sivasankaran said he had a longterm contract to stay there, so he could have fought to stay, but decided to go quietly.

Another issue at Tata involved no-bid dredging, shipping and barge contracts granted to companies belonging to another of Tata’s longtime friends, Mehli Mistry, according to three people who have reviewed company documents. (He and Cyrus Mistry, the ousted Tata executive, are cousins.) Cyrus Mistry allowed the contracts to be put up for bid once they expired, according to the people who have reviewed the documents. A Tata Group spokesman referred questions to Tata Power, the unit that made the contracts. Tata Power did not respond to requests for comment.Mehli Mistry, through a lawyer, said the contracts were not the result of his friendship with Tata, and disputed that they were not fairly valued.

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