From the frontlines
This excerpt from Abhishek Singhvi’s new book reveals more on the Tata vs Mistry battle
Ratan Tata called me to take on this fight, and warned me that it would be a big one. I had not met him earlier and was pleased to find him a dignified, balanced, solid and sober person, not flashy or ostentatious in the least.
I knew that this case would be a longdrawn one…
Cyrus Mistry and his companies had pegged their case on the argument that the Tata Trusts did not permit him to function with a free hand and that Ratan Tata had never actually let him have real management. The Articles of Association – documents which lay down the rules of how the company is run – of the Trust made it impossible for anyone to function with true independence. Therefore, he was also seeking the striking down of those articles.
In his arguments he described the existing structure as one with “shadow directors” and “super boards”. These “super boards” were allegedly controlled by Ratan Tata and the Tata Trusts’ trustee Noshir Soonawala, with the independent directors on the boards not allowed to function independently.
To back up his arguments he took to a review of the decisions in which he felt he had been interfered with by the board, from having to invest in AirAsia in 2013 where he claimed frauds had taken place, being forced to set up Vistara Airlines with Singapore Airlines as a partner which he felt was financially unwise.
He claimed that Tata Teleservices was prejudicially affected by Ratan Tata’s relationship with C Sivasankaran of Sterling, particularly in losses incurred while dealing with NTT DoCoMo, the Japanese telecom major. He claimed that his planned issue of shares of Tata Motors was stymied, sales of businesses were delayed and interfered with. And that price-sensitive information was constantly being sought from the board.
Cyrus Mistry also claimed to be aggrieved by what he had walked into. According to him, some of the divisions were performing very poorly and it had fallen to him to turn them around. He felt that bad business decisions were being clung to for emotional reasons such as the continuation of the From the Trenches Tata Nano, which had been Abhishek Singhvi a dream of Ratan Tata’s. He with Satyajit Sarna described these as “legacy 194pp, ~599 hotspots” or “white elephants”. Juggernaut His strategy was to get out of failing businesses and write off losses instead of throwing good money after bad.
Mistry cited the example of Tata’s acquisition of Corus Steel saying that it had left the company with underperforming European assets which had been bought at a high cost, and that it was loaded with debt and pension liabilities. He also wanted to write off assets and restructure the balance sheets of Indian Hotels Company – in some of these, the assets he wanted to write off were prestige projects such as the Pierre hotel in New York. He felt, however, that the older heads at the Trusts were more concerned with the image of these assets than in their viability financially.
He also pointed to the results of poor or compromised decision-making, an alleged fraud at AirAsia worth Rs 22 crore and an unconscionable decision by Tata Teleservices not to litigate against C. Sivasankaran and Sterling. From our side, the argument was much more simple and rooted in law instead of highly disputed facts.
Each of the issues he had raised had factual points and counterpoints. There was data to show the wisdom of every decision or the lack of it. All of these were also argued, but that is not what turned the case in our favour. Cyrus Mistry was employed pursuant to a contract like any other employee of Tata Sons and was answerable to the board and ultimately to the shareholders represented on the board. The moment he lost their confidence, for better or worse, he had to go. The public was largely unaware that Mistry was actually on a five-year contract. He was not unceremoniously thrown out. He was firmly asked to leave. He did not leave and, therefore, he was voted out as chairman. He was still kept on as a director.
His shock at the historical state of various businesses or the decisions made could be understandable if he were truly an outsider, brought in and handed an unsteerable ship. But he had been on the board from 2006, and in individual companies even earlier. Each of the legacy hotspots, each of the white elephants he pointed to, was one that he had been in a position to caution about at the time they were entered into.
But he did not do so for more than a decade, and in fact in all of those decisions, he voted in favour of them. For him to now turn around and say he was saddled with them was unfair, highly opportunistic and highly selective. Documents showed that his complaints had arisen in the few months leading up to the crisis when his personal equations with Ratan Tata and Noshir Soonawaala had gone south.
His arguments against the articles themselves being unfair were farfetched, I argued. Those articles had been there long before he was selected, and the shareholding of the companies had been in place since the 1960s. The structure with the Tata Trusts holding a controlling stake in the Tata Sons company had existed for almost a hundred years. In fact, those articles were amended and the amendments had been endorsed by him from time to time. Suddenly, when he fell afoul of them, the articles seemed problematic to him.
The argument of a super board being in place is just a fancy way of saying that an affirmative vote was required on certain major decisions. I argued that you could open the books of any company of any reasonable size and would find similar affirmative provisions – they would always exist to protect key shareholders. In fact, historically, those powers have never been exercised at Tata Sons, who believed that they have never been needed to be used.
But Cyrus Mistry, I argued, had failed in his duties to the board. He had failed to provide the Trusts and the members of the board with information on decisions in advance, and had failed to allow them to make informed decisions consistently. In doing so, he had acted as if he himself were the whole of the board, and this was why he had fallen out of favour with the shareholders.
It was also alleged that Cyrus Mistry had sent cartons of documents to the Income Tax Department after his dismissal as chairman, but while he was still a director. This had resulted in notices being issued to individuals as well as the company. According to our side, he was acting as a Trojan horse inside the company, completely against its interests.
Let us assume that the board’s decision was wrong and prejudiced. Let us assume that Cyrus Mistry was the greatest possible manager and it was a horrible mistake to sack him. The point is that you cannot, and equally a judge cannot, judge corporate decision-making by these standards.
The company is legally a person, and the board is its mind. That board is composed of directors who in turn are nominated by the shareholders. Every employee is the servant of the company. One cannot have an unwilling master with an undesirable servant foisted upon him. One cannot compel a relationship which requires trust and confidence every day, that too by court injunction.
It is as simple as saying that your servant may be right, but you cannot work with him. You cannot be in the same house if you have lost confidence. Even Steve Jobs, who founded Apple, was removed from Apple by its board – that is how corporate democracy works. That is what happened, we reminded the Court. He was voted out by six out of nine board members. One was himself, who did not vote, and two abstained. He did not get a single vote in his favour and none against the motion to remove him – the mind of the company had been made up.