The Board­room Bat­tle in­side Tata’s Bom­bay House ................................................

Libertatem Magazine - - Content - By Prith­wish Roy

Tata Son’s blue eyed son Cyrus Mistry was sacked from the post of chair­man al­most af­ter 4 years of oc­cu­py­ing the post. The de­ci­sion, taken at a Board Meet­ing in Mum­bai, has ap­pointed the for­mer chief Ratan Tata as the in­terim Chair­man for a pe­riod of 4 months, dur­ing which time pe­riod a re­place­ment would be sought to be fi­nal­ized.

To give a brief about the sacked chair­per­son, Cyrus Pal­lonji Mistry joined as a di­rec­tor on the board of Shapoorji Pal­lonji & Co. Ltd in 1991 and was des­ig­nated as the man­ag­ing di­rec­tor in 1994 of the Shapoorji Pal­lonji Group. Shapoorji Pal­lonji has 18.4 per cent stake (sin­gle largest in­di­vid­ual share­holder) in Tata Sons – the hold­ing com­pany of Tata Group.

In 2012, Cyrus Mistry was ap­pointed the chair­man of Tata Sons and si­mul­ta­ne­ously was also the chair­man of ma­jor Tata Com­pa­nies such as Tata Steel, Tata Pow­ers, Tata Con­sul­tancy, Tata Mo­tors, Tata Global Bev­er­ages, Tata Chem­i­cals and In­dian Ho­tel Com­pany (Taj Group). How­ever, his sack­ing just af­ter 4 years, the short­est ten­ure of a group chair­per­son, at the helm came as a shock.

THE TATA – NTT DOCOMO SPAT

One of the ma­jor rea­son spec­u­lated for the ouster of the chair­man was the ugly spat be­tween Tata Sons and NTT Docomo, which por­trayed the com­pany, which has built its legacy over a cen­tury, in a very poor light. The way the $1.17 bil­lion com­pen­sa­tion slapped by an ar­bi­tra­tion panel over a breach of agree­ment by Tata Sons is said to be one of the ma­jor rea­sons which irked Ratan Tata. The case re­lates to a INR 145 bil­lion in­vest­ment by NTT

Docomo in In­dia which was based on the terms that if cer­tain tar­gets were not met in 5 years then Tata Group would find a buyer who will pur­chase 26.5% stake (that the NTT Docomo owned in Tata Te­le­ser­vices) at fair mar­ket value or would take over those shares at half the orig­i­nal value of the in­vest­ment, whichever was higher. On fail­ure to meet the tar­get by Tata Group, NTT Docomo ex­er­cised this op­tion and the pay out to be made by Tata amounted to $1.17 bil­lion and they sought the per­mis­sion of the Re­serve Bank of In­dia (RBI) to pay out this amount. By this time there was a new law put in place by the RBI which pro­hib­ited exit of a for­eign eq­uity in­vestor at a pre­vi­ously de­cided price. The gov­ern­ment in light of this law de­cided to block this pay­ment by Tata to NTT Docomo.

In Jan­uary 2015, Docomo de­cided to take the mat­ter to the London Court of In­ter­na­tional Ar­bi­tra­tion (LCIA). The rul­ing of the LCIA made the Tata Sons li­able to pay $1.17 bil­lion in com­pen­sa­tion to NTT Docomo, how­ever when Docomo came to In­dia and ap­proached the Delhi High Court to en­force the or­der, the court al­lowed the RBI to file an in­ter­ven­tion ap­pli­ca­tion in the en­force­ment of the award. The case is to be heard next on De­cem­ber 1. It is this han­dling of the case and nat­u­ral reper­cus­sions that it had on the im­age of the com­pany that have led to many to con­clude that Ratan Tata and the trus­tees did not ap­prove of the way the lit­i­ga­tion un­folded and it was con­trary to what was tran­spired.

SELL­ING THE TATA STEEL UK BIZ

The shed­ding of loss-mak­ing en­ti­ties by Mr. Mistry,

in­clud­ing sell­ing off of the en­tire steel busi­ness in the United King­dom in March too did not go down well within the Tata hi­er­ar­chy. The blame for sell­ing of the Bri­tish busi­ness ven­ture was put on cheap im­ports of Chi­nese steel, high en­ergy costs and weak de­mand mak­ing for an un­sus­tain­able fu­ture. The sell­ing of the busi­ness can well be what was al­leged to be “de­par­ture from cul­ture and ethos” of the com­pany as Tata’s growth in the United King­dom was seen as a mat­ter of pride for the com­pany and the nation, the step was seen as a lack of dy­namism and a fail­ure to re­or­ga­nize the wide ar­ray of busi­ness that the group has. Sources say that the de­ci­sion to sell the UK Biz was not the way Tata’s han­dled busi­nesses of loss mak­ing en­ti­ties. The group cul­ture and ethos sug­gested to re­vive the busi­ness in­stead of shut­ting it down com­pletely. How­ever, the Tatas has stopped the sales process of the Tata Steel UK Ops and are eye­ing for other al­ter­na­tives in­clud­ing joint ven­ture with Ger­man gi­ant Thyssenkrupp AG. The com­pany has now en­tered into dis­cus­sions with strate­gic col­lab­o­ra­tions through a po­ten­tial joint ven­ture.

MISTRY’S AL­LE­GA­TIONS

Mr. Mistry, too, held back no punches af­ter his sack­ing and made some shock­ing al­le­ga­tions against the Com­pany and its heads. The most ma­jor claim made by Cyrus Mistry post his sack­ing is that there was no op­por­tu­nity pro­vided to him to rep­re­sent him­self in front of the board. The sec­tion of the Com­pa­nies Act, 2013 deal­ing with “re­moval of di­rec­tors”, I.e. sec­tion 169 states that “A com­pany may, by or­di­nary res­o­lu­tion, re­move a di­rec­tor, be­fore the ex­piry of the pe­riod of his of­fice af­ter giv­ing him a rea­son­able op­por­tu­nity of be­ing heard”. Prima fa­cie, thus, this does seem to be an il­le­gal ter­mi­na­tion of the chair­man. How­ever, a read­ing of the Com­pany’s (Tata Sons Ltd.) Ar­ti­cles of As­so­ci­a­tion (The ar­ti­cles of as­so­ci­a­tion is a doc­u­ment that spec­i­fies the reg­u­la­tions for a com­pany's op­er­a­tions, and they de­fine the com­pany's pur­pose and lay out how tasks are to be ac­com­plished within the or­ga­ni­za­tion, IN­CLUD­ING THE PROCESS FOR AP­POINT­ING DI­REC­TORS and how fi­nan­cial records will be han­dled) specif­i­cally art.104 of the same shows that Tata Trusts, which is the Com­pany’s largest share­holder with around 66% share­hod­ing and headed by non-other than Mr. Ratan Tata, gave it­self spe­cial pow­ers in nom­i­nat­ing, ap­prov­ing and re­mov­ing chair­man of the group hold­ing com­pany, and this was done just few days be­fore Mr. Mistry took over the post. Thus, th­ese may well have been added to pro­tect the in­ter­est of the Tata Trusts.

How­ever, in spite of such spe­cial pro­vi­sions, a bare read­ing of sec­tion 6 of the Com­pa­nies Act,2013 states that:

“Save as oth­er­wise ex­pressly pro­vided in this Act—

(a) the pro­vi­sions of this Act shall have ef­fect not­with­stand­ing any­thing to the con­trary con­tained in the mem­o­ran­dum or ar­ti­cles of a com­pany, …; and

(b) any pro­vi­sion con­tained in the mem­o­ran­dum, ar­ti­cles, agree­ment or res­o­lu­tion shall, to the ex­tent to which it is re­pug­nant to the pro­vi­sions of this Act, be­come or be void, as the case may be.”

Thus it is abun­dantly clear that it is the pro­vi­sions of the Com­pa­nies Act, 2013 which shall have an over­rid­ing ef­fect ir­re­spec­tive of any­thing stated in the Ar­ti­cles of

As­so­ci­a­tion and it would be thus in­ter­est­ing to see how the Tata’s can jus­tify not giv­ing a chance of proper rep­re­sen­ta­tion to Mr. Mistry when the same is his right as per the pro­vi­sions of the Com­pa­nies Act, 2013.

‘TATA NANO’ NOT BE­ING SHUT DOWN DUE TO EMO­TIONAL RESAONS

An­other in­ter­est­ing de­vel­op­ment that arose post the sack­ing of Mr. Mistry was his email to the board of Tata Sons wherein he made some star­tling al­le­ga­tions one of which was that the Tata Nano, Ratan Tata’s one of the most cher­ished brain child, has con­sis­tently lost value and that there was no sight of prof­itabil­ity nei­ther were there any turn­around strat­egy and hence it re­quired that the pro­duc­tion of the car be shut down. He fur­ther went on to add that it was only “emo­tional rea­sons” that have stopped them from tak­ing this de­ci­sion. His scathing at­tack did not stop there has he fur­ther in­sin­u­ated ul­te­rior mo­tives of Mr. Tata in con­tin­u­ing with the Nano pro­duc­tion by stat­ing that shut­ting down Nano would stop sup­ply of Nano glid­ers to an­other en­tity that makes elec­tric cars in which Mr. Tata has a stake.

In the af­ter­math of the sack­ing the Tata Sons have filed caveats in the Bom­bay High Court, to en­sure no ex-parte or­ders are passed against them such stay­ing the sack­ing or any other sim­i­lar or­ders.

Mr. Mistry’s email to the Tata Sons Ltd. board also al­leged about how the ar­ti­cles of as­so­ci­a­tion was an ob­struc­tion in his abil­ity to func­tion freely, and also that the com­pany, which is val­ued at INR 1.74 lakh crore, could have a pos­si­ble write down of INR 1.18 lakh crore.

SEBI’S IN­TER­VEN­TION

In re­sponse to the let­ter to the mar­ket reg­u­la­tor – Se­cu­ri­ties and Ex­change Board of In­dia (SEBI) have been re­port­edly keep­ing a watch over any vi­o­la­tion of cor­po­rate gov­er­nance or list­ing obli­ga­tion norms. Fur­ther­more, stock ex­changes have sought clar­i­fi­ca­tions from many of the listed com­pa­nies of the Tata group on the al­leged dis­clo­sures made by the for­mer chair­man. The SEBI thus is look­ing into the pur­ported dis­clo­sures made in the email to the board of Tata Sons. Apart from this the reg­u­la­tor is also keep­ing a very keen eye on the price move­ments and trad­ing ac­tiv­i­ties of the listed en­ti­ties of the Tata group, which are over two dozen in num­ber and have seen a de­cline in value over the trad­ing ses­sions af­ter the sur­prise ouster of its chair­man af­ter only four years in charge. Soon af­ter the Q&A from the Stock ex­changes, the group com­pa­nies of Tata Sons have filled re­ports clar­i­fy­ing them that the ac­counts are in or­der.

LE­GAL AD­VI­SORS

As per re­ports the Tata Sons are be­ing ad­vised the law firms Karan­jawala & Co. and Shardul Amarc­hand Man­gal­das, with brief­ings be­ing done to se­niors – Har­ish Salve and Ab­hishek Manu Singhvi. Cyrus Mistry on the other hand has turned to De­sai & De­wanji for ad­vice with se­nior coun­sels Iqbal Chagla and Janak Dwarkadas be­ing briefed, for­mer part­ner at J Sagar As­so­ciates, So­masekhar Sun­dere­san is also be­ing briefed. The stage is thus set for a mouth-wa­ter­ing le­gal bat­tle in­volv­ing the who’s who of the le­gal in­dus­try rep­re­sent­ing both the par­ties, yet whether there will be a le­gal bat­tle is yet to be seen. Mr. Mistry is yet to file a case against Tata Sons, al­though counter caveats have been filed by him.

THE TATAS AND THE PRIME MIN­IS­TER OF IN­DIA

Al­though Mistry has been re­moved as the Chair­man of Tata Sons, the hold­ing com­pany for the Tata group, he still re­mains on its board. More sig­nif­i­cantly, he is the

Chair­man of var­i­ous Tata group en­ti­ties like Tata Power (Chair­man), Tata Global Bev­er­ages (Non-ex­ec­u­tive Chair­man), Tata Steel Ltd (Chair­man), Tata Mo­tors (Nonex­ec­u­tive Chair­man), In­dian Ho­tels Com­pany Ltd (Non-ex­ec­u­tive Chair­man), Tata Chem­i­cals Ltd (Chair­man), Tata Con­sul­tancy Ser­vices (Non In­de­pen­dent, Nonex­ec­u­tive Chair­man), Jaguar Land Rover Au­to­mo­tive Plc (Chair­man).

The Tata trusts hold a ma­jor­ity of the share­hold­ing – close to 66% -- in the closely-held Tata Sons. How­ever, their share­hold­ing in their other listed firms is much less. News18 parsed through pub­licly avail­able doc­u­ments of some Tata firms for a closer look at the share­hold­ing pat­tern:

• Tata Steel: 32% con­trolled by pro­moter and pro­moter groups (Tata trusts and Tata com­pa­nies), 9% by Unit Trust of In­dia, 13% by Life In­surance Cor­po­ra­tion.

• Tata Mo­tors: Pro­mot­ers con­trol 33% while UTI has 4.36%.

• Tata Chem­i­cals: Pro­mot­ers con­trol 30%, UTI has 14% and LIC has 3% Now, if it comes down to a board­room bat­tle at each of th­ese com­pa­nies, the pro­mot­ers, i.e. Tata, will need the co­op­er­a­tion of other share­hold­ers. Get­ting the gov­ern­ment to lend a sym­pa­thetic ear to its cause could be an es­sen­tial part of the strat­egy if ei­ther group wants the sup­port of the state-run share­hold­ers like UTI or LIC.

Tatas are also said to be look­ing up for po­ten­tial buy­ers of the Mistry’s stake in case they be­come avail­able for buy­out.

TATA GLOBAL BEV­ER­AGES RE­MOVED MISTRY AS CHAIR­MAN

Tata Global Bev­er­ages on 14th Novem­ber re­moved Cyrus Mistry as chair­man of the com­pany which co-owns and runs Star­bucks cof­fee stores across In­dia, es­ca­lat­ing a board­room bat­tle that erupted af­ter his sack­ing as head of the $103-bil­lion busi­ness empire. Non-ex­ec­u­tive di­rec­tor Har­ish Bhat has re­placed Mistry, the com­pany said in reg­u­la­tory fil­ing to the Bom­bay Stock Ex­change (BSE).

MISTRY RE­MOVED FROM THE BOARD OF TATA CON­SUL­TANCY SER­VICES

Tata Sons Ltd has re­moved Cyrus P. Mistry as chair­man of Tata Con­sul­tancy Ser­vices Ltd (TCS) and sought to re­place him as a di­rec­tor of the soft­ware ser­vices provider as the fight be­tween the hold­ing com­pany and its for­mer chair­man (and sig­nif­i­cant share­holder) en­ters a new phase.

Tata Sons, which has a 73.26% stake in TCS, nom­i­nated Ishaat Hus­sain, a Tata group veteran, as the in­terim chair­man of the com­pany with im­me­di­ate ef­fect. Thus, Mistry ceases to be chair­man of the TCS board, the com­pany said in a stock ex­change state­ment on Novem­ber 10. Sep­a­rately, Tata Sons has re­quested a share­holder meet­ing of In­dian Ho­tels Co. Ltd (IHCL) to pass a res­o­lu­tion for the re­moval of Mistry as di­rec­tor. On 4 Novem­ber,

IHCL’S in­de­pen­dent di­rec­tors unan­i­mously backed Mistry’s board po­si­tion as chair­man.

The divorce be­tween Ratan Tata and his once blued eyed son has thus not been par­tic­u­larly ben­e­fi­cial for the com­pany and as the now for­mer chair­man has claimed “the board hasn’t cov­ered it­self with glory”. Re­gard­less of the fact that whether the dis­pute goes into lit­i­ga­tion or not, in case it does it would be an­other splash-the-cash level lit­i­ga­tion with its billings in bil­lions, the sud­den ouster and its af­ter­math in­volv­ing the bomb­shell of an email sent by Mr. Mistry has all but dented the 148-year-old com­pany’s rep­u­ta­tion of be­ing well man­aged. The ouster bring­ing into light the Ar­ti­cles of As­so­ci­a­tion which pro­tects the right of fam­ily mem­bers in the fam­ily owned busi­ness fur­ther pecks In­dia down the global cor­po­rate gov­er­nance lad­der and is ev­i­dence enough to prove that though there are suf­fi­cient leg­is­la­tions on pro­tect­ing mi­nor­ity share­hold­ers right yet the same is yet to be pro­tected in sub­stance.

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