Tata, Mistry may look at settlement options to avoid legal, financial wrangle

The boardroom battle at the Tata Group will likely see both sides search for common ground to avoid strong confrontations, which could lead to legal tangles such as class action lawsuits or erosion in stock values.

According to sources at Bombay House, the headquarter of the $103-billion group, and legal experts, this stance is also guided by the corporate structures of various group companies where ousted group chairman Cyrus Mistry continues to hold the chairman’s position. Mistry is chairman of large and vital companies, including Tata Industries, Tata Motors, Tata Power, Indian Hotels as well as Tata Industries, a critical incubator for various future projects of the group. To replace Mistry as chairman, at least one independent director has to vote against him. Tata Industries, for example, has only two independent directors on board – Ashish Dhawan and Ireena Vittal.

Therefore, Tata Sons could explore options of retaining Mistry as a director only on the board of companies in the same way as it did in case of the group holding company. Even after his ouster, Mistry continues to be a director on Tata Sons board.

Currently, Tata Sons is taking steps to boost presence on various boards by roping in independent directors wherever possible.

“Mr Mistry continues to be on the board of various companies as chairman. The expectation of Tata Sons is that he will step down from the chairman’s post at such boards,” said the spokesperson for Tata Sons. He added that the Tatas will not make any efforts in this direction, indicating that the top management at Bombay House is keen for a smoother transition of power.

Besides Mistry’s family, Shapoorji Pallonji, is the single-largest shareholder in Tata Sons. So any move to remove him is likely to affect the fortunes of these companies.

The twenty nine Tata Group companies listed on the stock exchanges lost a combined R27,000 crore in market capitalisation in the first three days alone following Mistry’s ouster on October 24.

“It is in nobody’s interest to change the status quo via confrontation. The Tatas will not want any public duel. Any extension of the confrontation will give rise to more issues which nobody wants,” said Ramesh Vaidyanathan, managing partner at Advaya Legal.

Mistry’s five-page letter after his ouster on October 24 had mentioned about the likelihood of the Tata Group looking at a $18-billion writedown at various group companies. It had sparked speculation that some institutional shareholders might initiate class action lawsuits against group companies on grounds that the sensitive information was withheld from them. This may trigger long legal tangles, which the Tata Group would look to avoid.