Tata Sons vs Mistry: Fight continues as holding company readies to turn private

Shareholders voted to turn Tata Sons into a private company, a move that restrains the Mistry family from selling their shares unless the board approves.

Shareholders of Tata Sons Ltd on Thursday voted in favour of the Tata group holding firm becoming a private company in the first general meeting under the chairmanship of N Chandrasekaran.

Tata Sons Chairman Natarajan Chandrasekaran at Tata Steel's 110th Annual General Meeting, in Mumbai on August 8, 2017.(PTI)

The move was opposed by the Mistry family, represented by a proxy. The family owns an 18.4% stake in Tata Sons. Cyrus Mistry, the ousted chairman of Tata Sons, has opposed the move to take the holding company public because it will restrain the ability of his family firms to sell their stake.

With the shareholders approving Tata Sons’ plan, the Mistry firms will now need the approval of the company’s board to sell their shares. The Mistry firms will likely challenge this legally.

On Thursday, the National Company Law Appellate Tribunal, waived a technicality that prevented the Mistry firms from suing Tata Sons for mismanagement and oppression of minority shareholders. A case on this will now be heard by the National Company Law Tribunal (NCLT).

The shareholders ratified all the resolutions (there were 18) at the meeting, three people familiar with happenings in the meeting said on condition of anonymity.

The holding company of the Tata group had sought shareholder approval for three major resolutions: going private, giving preferential shareholders voting rights if Tata Sons failed to pay a dividend for two consecutive years, and amending the articles of association to adopt best governance practices. These include: appointing a woman director; making sure at least a third of the board is made up of independent directors; and the appointment of an alternate director in case the independent director is out of the country. These requirements do not apply to private companies, and Tata Sons has chosen to meet them voluntarily.

The proposal to go private will have to be approved by the NCLT. There is a mandatory waiting period of three months before Tata Sons can approach the NCLT.

This file photograph taken on April 24, 2012, shows then Tata Sons chairman, Ratan Tata and then deputy chairman of Tata Sons, Cyrus Mistry as they pose during a function to launch the new Croma e-retail store in Mumbai. (AFP File Photo)

The meeting at Bombay House, the company’s corporate headquarters, lasted for over an hour and was attended by Chandrasekaran, Ratan Tata, the head of Tata Trusts that controls 66% of the holding firm, chief executives of some of the Tata companies such as Tata Motors Ltd and Tata Steel Ltd that have a stake in Tata Sons, and other directors on Tata Sons’s board.

Mistry had previously written to the boards of the Tata companies that hold shares in Tata Sons asking them to vote against the resolution because it would make their holdings illiquid. Tata Motors and Tata Steel own 3% each in Tata Sons, while Tata Chemicals Ltd and Tata Power Co. Ltd own 2.53% and 1.65% respectively, according to the Tata Sons annual report. Interestingly, in 2015, there was buzz that the Tatas were considering a proposal to list Tata Sons to make the holdings of the operating companies liquid. The holding company denied this at the time, although the news resulted in the stocks of most Tata companies running up smartly.

One of the three people said the stakes held by the Tata companies in Tata Sons were always illiquid because they couldn’t sell them to outsiders under the Articles of Association.

This person added that the Mistry family representative opposed 17 resolutions that were placed, but approved the one related to dividends. Mint couldn’t immediately confirm this.

The shareholders also approved a proposal to raise Rs 45,000 crore of debt through the issue of non convertible debentures.

Tata Sons had Rs 2.26 lakh crore of debt on its books at the end of fiscal 2016 and the first person said that nothing would change as far as creditors are concerned. An expert, however, pointed out that some things will indeed change.

While restriction on free transferability of the shares does not have any proportional impact on the debt, “it may have some impact on realization of value and there would be lesser disclosures regarding that,” said Sumit Agarwal, partner at Suvan Law Advisors.

Sandeep Parekh, founder, Finsec Law Advisors, agreed. “The concern is not just for Mistry firms but also ordinary shareholders.” The group companies are all listed and ordinary shareholders will have less information on what is happening at the promoter or group level; there will be less disclosures under the Companies Act about their debt and borrowings, he added.

Since Mistry’s ouster as chairman of Tata Sons in October, his family firms and the Tatas have been slugging it out in courts. By going private, Tata Sons has ensured that the Mistry firms do not exit by selling their shares to a rival of the Tatas.