Tata Vs Mistry Day 4: Both Sides Spar On Board Independence
Supreme Court will continue hearing arguments by the Mistry side tomorrow
The Mistry side cited reasons why it believes that Tata Sons Ltd. was not being run as a board-managed company as the Supreme Court continued hearing the dispute stemming from Mistry's ouster from Tata Group's parent.
Senior Advocate CA Sundaram, representing Mistry, told the bench on Monday that directors of Tata Trusts on the board of Tata Sons were made aware of all the decisions but Ratan Tata insisted on being personally consulted. The Mistry side cited this as "interference".
Citing Tata’s transaction with Uber, the rights issue of Tata Motors Ltd., among others, the Mistry side argued that Tata Sons’ board was being undermined in taking decisions which resulted in the oppression of minority shareholders.
During the hearing, the Chief Justice of India observed that in companies of such nature, the one who started the company or the head of the family does exercise such rights. To this, Sundaram replied that it is not their case that the head of the family cannot be informed. But when they claim they have the absolute right to run the company is a problem, he said.
Earlier, the Mistry side had argued that Cyrus Mistry had sought corporate governance by not letting nominee directors of the trustees decide on their own. The affairs of Tata Sons, Sundaram had said, have an impact on other downstream companies as well since they hold a large number of shares in the group entities.
Senior Advocate Harish Salve earlier had defended the right of the trustees to be informed in advance of developments in the company, arguing they were well within their rights and that advance discussion help in the smooth functioning of the company.
The two Tata Trusts control around 68% of the shares of Tata Sons, while the Mistry family owns around 18%. Going strictly by numbers, the Mistry side would not even get a representation on the board, Salve had argued on the first day of the hearing.
Tata Sons maintained that only lack of probity in the decision-making can be an important factor in determining whether there was the oppression of the minority shareholder and that wasn't the case in this instance.
The Background
The case has already seen two rounds of litigation at the National Company Law Tribunal and the National Company Law Appellate Tribunal, with both sides winning one round each. The case then landed up in the Supreme Court in January this year.
On Oct. 29, the Mistry side submitted an affidavit in the top court offering to settle the dispute presenting a plan of separation and suggested a share-swap arrangement in listed entities of Tata Group in lieu of the 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, SP Group be granted shares in listed companies of the group.
- Also, cash consideration or shares for brand value, unlisted assets, etc.
In case, Tata Group didn’t want to part with stocks in a particular listed entity, say for reasons of maintaining a certain shareholding level, according to the separation proposal, SP Group was willing to accept shares of Tata Consultancy Services Ltd. or cash.
Tata Sons on Thursday rejected an offer by billionaire Pallonji Mistry’s conglomerate to swap Mistry family’s stake in the group’s holding company for shares in listed Tata entities.
Accepting the offer would mean spilling the dispute to the other group companies, Tata Sons lawyer, senior advocate Harish Salve, told the Chief Justice of India-headed Supreme Court bench as he resumed arguments in the first half of the third day of hearing on Thursday.
The Supreme Court will continue hearing the arguments tomorrow. Besides Sundaram, senior advocates Shyam Divan and Jana Dwarkadas are likely to argue for the Mistry side. For the Tatas, Salve will be followed by senior advocates Abhishek Manu Singhvi and Mohan Parasaran.