Tata - Mistry: NCLAT Didn’t Specify Why Tata Sons Must Be Wound Up, Harish Salve Tells Supreme Court

The National Company Law Appellate Tribunal didn’t give any basis for arriving at the conclusion that Tata Sons Pvt.—the holding firm of the Tata Group—was a fit case for winding up, Senior Advocate Harish Salve told the Supreme Court on Tuesday.

Section 242 of the Companies Act, 2013 allows a tribunal to pass directions including orders on the regulation of its affairs in the future if it finds that the affairs of the company have or are being run in a manner prejudicial to its members or public interest and that there is a just and equitable case for winding up of the company. But such winding up may not be expedient to do so in the interest of the shareholders and hence the tribunal can pass orders to regulate the management of the company.

Salve, who is representing Tata Sons, told a three-judge bench comprising Chief Justice of India SA Bobde, Justice AS Bopanna and Justice V Ramasubramanian that business losses and other such reasons cannot be grounds enough for the NCLAT to have found oppression and mismanagement unless the losses were enormous and there was a lack of probity that justified removing the majority shareholders, which in this case is the two Tata Trusts that hold 68% stake in the holding company.

The Mistry family has made several allegations that amount claiming mismanagement of Tata Sons and group entities. Salve referred to one such allegation regarding Tata Teleservices and the relationship with C Sivasankaran that granted him undue benefits. He argued there was no merit in the allegations - that issuing shares or giving subsidised accommodation in lieu of services rendered by Sivasankaran did not amount to lack of probity.

Salve also used the submissions by the Mistry side to counter allegations that Tata Sons had been mismanaged. He said that in its earlier appeal, the Shapoorji Pallonji Group—which is the second-biggest shareholder in Tata Sons—pegged the value of its stake at Rs 1.5 lakh crore, and in another application a few months later it increased it to Rs 1.75 lakh crore.

Earlier, Salve had argued the stake is worth Rs 70,000 - 80,000 crore.

In September, the Mistry family announced its intention to seek a separation of interest from Tata Sons. The decision came after four years of litigation, with a recent Supreme Court ruling barring the SP Group from pledging or selling any of Tata Sons’ shares.

On Oct. 29, the Mistry side submitted an affidavit in the top court in which it suggested a share swap arrangement in listed entities of Tata Group in lieu of shares held by them in the unlisted Tata Sons.

The plan of separation proposed by the SP Group included:

• A selective reduction of capital at Tata Sons thereby extinguishing shares held by them.
• In exchange, the SP Group be granted shares in listed companies of the group.
• Also, cash consideration or shares for brand value, unlisted assets, etc.

In case the Tata Group does’t want to part with stocks in a particular listed entity, say for maintaining a certain shareholding level, according to the separation proposal, SP Group was willing to accept shares of Tata Consultancy Services Ltd. or cash.

“The net asset value of 18.37% stake of the SP Group in Tata Sons is estimated at more than Rs 1,75,000 crore,” the SP Group said. “Disputes over valuation can be eliminated by doing a pro-rata split of listed assets (share price value is known) and pro-rata share of the brand (brand valuation is already done by Tata Group and published). A neutral third-party valuation can be done for the unlisted assets adjusted for net debt (that is, debt less cash).”

The dispute between the Tata Group and the Mistry family stemmed from the sudden ouster of Cyrus Mistry as chairman of Tata Sons in October 2016. Soon after, Mistry and firms controlled by the Mistry family approached the National Company Law Tribunal in Mumbai with a suit of oppression and mismanagement against Tata Sons. While the NCLT ruled in favour of the Tatas, the order was reversed by the National Company Law Appellate Tribunal.

Tata Sons challenged the NCLAT ruling in the Supreme Court, where the case is pending.

Apart from Senior Advocate Harish Salve, both sides will be represented by a battery of senior lawyers. Senior Advocate Abhishek Manu Singhvi, Mohan Parasaran would represent the Tatas whereas the Mistry side will be represented by Senior Advocates CA Sundaram, Janak Dwarkadas and Shyam Divan.