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
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.