SC ruling a relief for the Tatas, but here's why the battle is far from over

December 18, 2019 was a day that sent shockwaves through the corridors of the Bombay House, the headquarters of Tata Group. The National Company Law Appellate Tribunal (NCLAT) had just ruled that the action Tata Sons had taken against Cyrus Mistry in 2016 was illegal and he would have to be reinstated as the chairman of the salt to software conglomerate. March 26, 2021 will be a day that Ratan Tata and the top brass of Tata Group can heave a sigh of relief.

The Supreme Court on Friday set aside that NCLAT order; all petitions of the Tatas were allowed while those of the Mistry camp dismissed by the three-judge bench led by Chief Justice S.A. Bobde. "We find all the questions of law are liable to be answered in favour of the appellants, Tata Group and appeals by the Shapoorji Pallonji Group are liable to be dismissed," the court said.

The Mistrys have had a relationship with the Tatas since the 1960s. The Shapoorji Pallonji (SP) group currently holds 18.4 per cent stake in Tata Sons. In 2012, Cyrus Mistry was even appointed the chairman of Tata Sons. However, four years later in 2016, he was unceremoniously sacked and a bitter battle has followed between the two sides since. 

In 2017, Mistry filed a case alleging oppression and mismanagement in Tata Sons. The petition was dismissed by the  National Company Law Tribunal, after which Mistry appealed with the NCLAT, which overturned the NCLT judgement. Both the sides then went to the Supreme Court. 

Friday’s judgement in favour of the Tatas should ideally bring to an end one of the biggest battles in the history of corporate India. It will also allow Tata Sons to go private, a move that was opposed by the SP Group. 

Appearing for Tata Sons, Rajan Karanjawala, managing partner of Karanjawala & Co, told a TV channel that it was a complete victory and “puts a long litigation to rest.”

Ratan Tata, too, said the verdict reinforced the fairness and justice displayed by the judiciary. “After relentless attacks on my integrity and the ethical conduct of the group, the judgement upholding all the appeals of Tata Sons is a validation of the values and ethics that have always been the guiding principles of the group,” said Tata. 

The NCLAT, by reinstating Mistry as the chairman, had held the appointment of N. Chandrasekaran as the new chairman illegal, too. So, Friday’s Supreme Court verdict should be a big relief for Chandrasekaran as well, and should clear the clouds of uncertainty, if any. 

By staying the NCLAT order, the Supreme Court has given Tata Group a big relief and dealt the SP Group a major blow, said Shriram Subramanian, the founder and MD of InGovern, a corporate governance firm. However, this judgement is not bringing the curtains down on the battle, he added.

“By allowing Tatas and Mistry to work out their separation terms, but not commenting on the valuation terms, the Supreme Court has again gone in favour of the Tatas as the biggest bone of contention will be the valuation,” he said.  

The Mistry family, which is the largest minority shareholder in Tata Sons, had already expressed interest of exiting the group by selling their 18.4 per cent shareholding. However, there are huge differences over the valuation of the stake. 

In October 2020, the SP Group had submitted a plan in the Supreme Court, to exit Tata Sons, but sought shares in listed companies of Tata Group as a settlement. The SP group felt their shares were worth Rs 1.75 lakh crore, but the Tatas feel their valuation is around Rs 70,000-80,000 crore only. 

In the last few months, as the stock prices have surged, the valuation of the Mistry family stake would have also gone up. It is still not sure how the two sides will come to an agreement over this valuation, which will be key to SP Group, given its financial woes. 

Hit hard by the COVID-19 pandemic, the SP Group is in talks with lenders for a debt recast. It is also, according to reports, looking to raise funds by selling stakes in some of its companies, including Sterling and Wilson Solar. 

The SP Group had last year tried to raise funds by pledging some of the shares it held in Tata Sons. However, that was objected to by the Tatas who had moved the Supreme Court seeking to block the SP Group’s plans. 

This prompted the SP Group to formally seek to end their relationship. “A selective reduction of capital by extinguishing shares of Tata Sons held by minority shareholders by swapping them with shares of listed companies (say Tata Consultancy Services and others) would be a simple solution to provide liquidity to the Tata companies and fair value compensation for the SP Group,” the Mistrys told the court in October. 

They have also sought a share of the Tata brand value. Getting the two sides to agree on the valuations and finding an amicable exit for the Mistrys from Tata Group is now a battle looming ahead.