Big win of TATA group: Mistry Case
Jamshedji Nusserwanji Tata, a merchant, and philanthropist founded the Tata Group as a private company in 1868.
From salt to aviation conglomerate, the Tata Group encompasses more than 100 companies of consumer products, chemicals, IT services, automobile manufacturing, real estate businesses, and many more operate in more than 100 countries.
Tata Sons, the holding company and promoter of all Tata Group companies, is currently chaired by Natarajan Chandrasekaran.
Who is Cyrus Mistry?
Cyrus Pallonji Mistry is an Irish businessman of Indian origin, born on 4th July 1968. His father, Pallonji Mistry is the Chairperson of SHAPOORJI PALLONJI GROUP whereby he owns Forbes Textiles, Shapoorji Pallonji Construction Limited, and many other giants.
Mistry's grandfather, Shapoorji Mistry, first bought a share in Tata Sons in the 1930s, and the Pallonji family has been in business for over a century. Cyrus's father currently owns 18.5 percent of the company, making it the largest block of shares owned by a single party.
Mr. Cyrus Mistry joined the boards of Tata Sons on September 1, 2006. He served as the director of Tata Elxsi Ltd from 24 September 1990 to 26 October 2009 and also served as Directorship of Tata Powers Ltd.
Mistry had been a director on the Tata Sons board of directors since his father resigned from the board in 2011. The Mistry family owns approximately 18% of Tata Sons, making them the single largest individual shareholder in the Tata group's holding company at the time, 2012.
In 2011, TATA SONS set up a committee in a hunt for a new Chairmanship of Tata Sons in which the Selection Panel shortlisted some names, one among the five members of the selection panel was Cyrus Mistry.
Mistry was appointed deputy chairman of the Tata Group with the specific aim of succeeding Ratan Tata, who had led the conglomerate since 1991, as chairman a year later. He became the first non-blood relative of the Tata family to take over the top job in the company's history in 2012.
" He has served on the Tata Sons Board of Directors since August 2006, and I have been impressed by his consistency and caliber of involvement, as well as his astute observations and modesty”. I will be committed to working with him because he is intelligent and competent to take on the responsibilities that have been given to him.
In 2012, Cyrus took over as chairman. His top position, however, lasted less than four years. In October 2016, he was fired from his job, shocking the business world. Cyrus had no idea what was about to take place.
Tata also suspended him from all of the committees, including Tata Sons, exposing the extent of the animosity. Later, the group converted Tata Sons into a private limited company from a public firm, where the Mistry family has the stake, after taking necessary approvals The Mistrys have been rendered absolutely helpless as a result of the change, as they have no idea what is going on within the party.
Why Mistry got ousted
Joint Venture of NTT DOCOMO & Tata Teleservices Ltd.
In 2009, NTT Docomo Inc. (Docomo), Tata Sons Ltd. (Tata), and Tata Teleservices Ltd. (TTSL) entered into a shareholders' agreement. In the event that TTSL failed to meet certain performance criteria, Tata was expected to find a buyer for Docomo's shares in the company.
As many of its performance goals were not met, Japanese Tele Co. decided to exit the alliance in 2014 and wanted Tata to find a buyer to buy its 26% stake or they buy it.
Tata could not find a buyer and also not buy back DoCoMo shares because of the change in guidelines by RBI.
The Reserve Bank of India (RBI) issued new guidelines in January 2014, stating that foreign companies can only exit investments at a return on equity valuation. Although neither Tata nor Docomo have confirmed what the sale price will be once RBI guidelines are enforced, it is likely to be substantially less than what Docomo paid in 2009.
DoCoMo lodged a lawsuit in the London Court of International Arbitration in January 2015. (LCIA). By June 2016, a London court had ordered Tata Sons to pay Docomo $1.17 billion in damages and demanded that Docomo return its Tata Teleservices shares to Tata Sons.
Then Tata Sons eventually deposited 1.17B USD to NTT DoCoMo after several Arbitration cases in Delhi High Court, courts in the US and the UK
But Ratan Tata wasn't happy with the operations and working style of Mistry. Though the Tata Group is renowned for its recognition and trust over the world, the DoCoMo case is very concerning in the corporate world which negatively impacted the values and ethics of Tata Group.
Acquisition of Welspun Renewable Energy Ltd.
Tata Power paid Rs 9,249 crore for Welspun Renewables. Despite the boardroom squabble, Tata Power completed the acquisition of Welspun Renewables, making it India's largest renewable energy generator. Tata Power's renewable portfolio profit increased to Rs 173 crore in the quarter ending September from Rs 86 crore a year earlier, thanks to Welspun Renewables' strong results.
But this acquisition by Cyrus Mistry of Welspun was kept untold with the Tata Group, not even shown the acquisition details to the board members of Tata Sons.
Welspun Renewables was seen by Tata trustees and credit rating agencies such as Moody's as a costly acquisition for Tata Power.
The Total Market Capitalization of Tata Power in 2016 was around 18,000 to 20,000 Cr INR and the acquisition deal of Welspun Renewable Energy was 9,249Cr INR which is stupendous as Tata Power was a loss-making company.
These are some of the reasons that TATA SONS’ board of directors decided to ousted Cyrus Mistry from the Chairman and also from all the directorships of all the Tata companies.
What Mistry did after the dispossession
Cyrus Mistry-backed investment companies, Cyrus Investments Pvt Ltd and Sterling Investments Corporation Pvt Ltd, filed a complaint with the NCLT (National Company Law Tribunal) in Mumbai on December 20, 2016, alleging Tata Sons' persecution of minority shareholders and mismanagement. They also objected to Cyrus Mistry's dismissal.
Cyrus Mistry's two investment firms were dismissed by the NCLT Mumbai on March 6, 2017, due to a maintainability problem, alleging that they did not meet the requirement of 10% ownership in a business for filing a case of alleged oppression of minority shareholders under the Companies Act. When preferential shares are removed from the equation, the Mistry family owns less than 3% of Tata Sons.
As a result, on April 27, 2017, these two investment firms filed a complaint with the National Company Law Act Tribunal (NCLAT), challenging the NCLT's decision to deny their applications for maintainability. They have lodged an appeal against the denial of their waiver bid.
The NCLAT then granted the two investment firms' demands for a waiver in filing a case of oppression and mismanagement against Tata Sons on September 21, 2017. It did, however, reject Cyrus Mistry's other petition on maintainability, arguing that the corporations own less than 10% of Tata Sons. The appellate tribunal orders the NCLT's Mumbai bench to issue a notice and continue with the case.
Finally, on December 18, 2019, the NCLAT reinstated Mistry as executive chairman of Tata Sons but put the decision on hold for four weeks to allow Tatas to file an appeal. Tata Sons, on the other hand, filed a Supreme Court petition on January 2, 2020, challenging the NCLAT's December 18, 2019 ruling.
TATA-MISTRY FINAL VERDICT
On March 26, 2016, India’s Supreme Court ruled its final verdict in the Tata vs Mistry case. The Supreme Court ruled in favor of the Tata Party, overturning an appellate court decision that had allowed Cyrus Mistry to be reinstated as Chairman of the company.
The Supreme Court ruled that all the rules were in the Tata Group's favor. “We are unable to rule on the topic of compensation, and they are free to seek it by Article 75. Cyrus Investments' appeal has been rejected, according to Chief Justice of India SA Bobde.