Mistry Stands to Lose if Tata Sons Goes Pri­vate

It can by­pass share­holder con­sent, will only need board nod on key de­ci­sions if it be­comes a pvt co; Mistry may legally chal­lenge pro­posal

The Economic Times - - Companies: Pursuit Of Profit - Megha.Man­davia @times­group.com

Mum­bai: Tata Group’s plan to con­vert its hold­ing com­pany Tata Sons from a pub­lic limited com­pany to a pri­vate one will sub­stan­tially re­duce the pow­ers of its share­hold­ers — mainly for­mer chair­man Cyrus Mistry whose fam­ily owns 18.4% stake — as Tata Sons will now only need board ap­proval for tak­ing cru­cial de­ci­sions, by­pass­ing share­holder con­sent re­quired ear­lier.

Ac­cord­ing to the Com­pa­nies Act, 2013, cer­tain types of re­lated party trans­ac­tions and trans­ac­tions where value is be­yond pre­scribed lim­its re­quire ap­proval from the board of di­rec­tors and share­hold­ers. How­ever, pri­vate limited com­pa­nies are ex­empted from such re­quire­ments.

Since Mistry lost board seat af­ter be­ing re­moved as the chair­man of Tata Sons last year, his power to con­trol de­ci­sions of Tata Group com­pa­nies is cur­tailed fur­ther. Al- so, a pri­vate limited com­pany re­stricts the rights of the trans­fer­abil­ity of shares.

The re­in­state­ment of Tata Sons as a pri­vate com­pany was con­sid­ered by the board to be in the best in­ter­est of the com­pany, a Tata Sons spokesper­son said. When Shapoorji Pal­lonji Group first in­vested in Tata Sons in 1965, it was a pri­vate limited com­pany. Since Com­pa­nies Act, 2013, came into ef­fect, Tata Sons has had an op­tion to be­come a pri­vate limited com­pany again.

Tata Trusts, a bunch of char­i­ta­ble or­gan­i­sa­tions chaired by Ratan Tata, own 66% in Tata Sons. The re­main­ing stake is owned by Tata group com­pa­nies and some Tata fam­ily mem­bers.

Tata Sons will also not need share­hold­ers’ ap­proval for sell­ing any com­pany un­der­tak­ing, bor­row­ing money to in­vest in trust se­cu­ri­ties or ap­point­ing man­ag­ing di­rec­tor, whole-time di­rec­tor, man­ager or their re­spec­tive re­mu­ner­a­tion.

Tata Sons share­hold­ers will vote on the pro­posal in their annu- al gen­eral meet­ing on Septem­ber 21 to con­vert it into a pri­vate limited com­pany.

Mistry, for­mer chair­man and mi­nor­ity share­holder of Tata Sons, is look­ing to legally chal­lenge the in­vest­ment hold­ing com­pany’s lat­est pro­posal to con­vert into a pri­vate limited com­pany from a pub­lic one, call­ing the move a “weapon” to op­press mi­nor­ity share­hold­ers.

“The ma­jor­ity share­hold­ers are at­tempt­ing to equip them­selves with yet an­other weapon to op­press the mi­nor­ity share­hold­ers of Tata Sons ie, by re­strict­ing the free trans­fer­abil­ity of shares of Tata Sons and that too by seek­ing to give such re­stric­tions the cloak of en­force­abil­ity and le­gal­ity by con­vert­ing Tata Sons to a pri­vate limited com­pany,” Mistry’s fam­ily firm Cyrus In­vest­ments wrote in a let­ter to the Tata Sons board.

The let­ter said “the real mo­tive” be­hind con­ven­ing the pro­posed an­nual gen­eral meet­ing is mala fide and for ul­te­rior pur­poses, and the pro­posed res­o­lu­tions are not in the in­ter­ests of Tata Sons.

The Mistry fam­ily firms are al­ready en­tan­gled in a le­gal bat­tle against Tata Sons, al­leg­ing mis­man­age­ment and op­pres­sion of mi­nor­ity share­hold­ers’ rights. The case was filed in De­cem­ber last year af- ter Mistry was re­moved as the chair­man in a sur­prise move that led to a long board­room bat­tle.

Tata Sons was in­cor­po­rated as a pri­vate limited com­pany on Novem­ber 8, 1917, un­der the In­dian Com­pa­nies Act 1913, and it be­came a deemed pub­lic com­pany with ef­fect from May 1, 1975.

“It is ap­par­ent that the present pro­posal is noth­ing but a de­vice and de­sign to equip the ma­jor­ity share­hold­ers of Tata Sons with one more weapon to op­press the mi­nor­ity share­hold­ers and sub­vert the high­est stan­dards of good cor­po­rate gov­er­nance which is ex­pected to be main­tained in a com­pany of the stature and re­pute as Tata Sons,” Cyrus In­vest­ments said. Lawyers said the move is to con­sol­i­date share­hold­ing strength apart from fewer dis­clo­sures, reg­u­la­tory re­stric­tions un­der a pri­vate com­pany. “They can put sev­eral share trans­fer re­stric­tions such as a right of first of­fer or non-com­pete share trans­fer,” a cor­po­rate lawyer said on the con­di­tion of anonymity.

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