The BoardRoom Battle of Ratan Tata and Cyrus Mistry.

Before we get into the crux of the India largest corporate feud and how did the Tata’s reach here let’s understand more about the Tata’s structure. Tata sons is the main entity that owns and control other firms of the conglomerate Tata group like the Tata chemicals. Tata consultancy services, Tata steel etc.

Ratan Naval Tata who owns 23.56% of this holding company was chairman of Tata group from 1991 to 2012. Sir Dorabji Tata trust (27.97%) and Sir Ratan tata (23.56%) collectively hold 66% of Tata sons.Ratan Tata retired in 2012 as he turned 75 and Cyrus Mistry, the second son of real estate tycoon Pallonji Shapoorji Mistry was made the chairman in December 2012 before he was ousted in October 2016. The second largest shareholders of Tata sons Mistry family owns 18% of the company.

It was 24th October 2016 when the corporate battle of salt to software conglomerate started. Tata sons shocked the entire corporate and business community when Tata in a surprise and unexpected move dismissed Mistry as Chairman of Tata sons and Mr Ratan Tata was appointed as the interim chairman of Tata sons. The action has no parallel in Indian corporate history and evoked strong reactions with surprise. Tata said that Mistry was expelled as board of the company lost its confidence in him , Mistry maintained that the Tata’s were afraid of his clean up drive which resulted in his dismissal.

Since his expulsion Mistry also raised various corporate governance issues in the Tata group. After TCS and Tata steel shareholders voted him out on, Cyrus resigned from the boards of the six listed Tata firms on December 19, 2016 and filed a suit on December 20, in the National Company Law Tribunal against Tata sons alleging oppression. The entire case hinged on whether Tata sons is a partnership between Tata trust and the Shapoorji Pallonji group or is it not?

On February 6, 2017 Mistry was removed from the post of director of Tata sons. On February 20, 2017 the selection committee constituted by board chose N Chandrasekaran former CEO of Tata consultancy services as chairman of Tata sons. On December 9, 2018 NCLT dismissed Cyrus Mistry’s pleas challenging his removal as chairman of Tata sons. On August 3, 2018 Cyrus Mistry approached The National Company Appelate Law Tribunal trying to take on last stab at getting his dismissal reversed. On May 23rd 2019 NCLAT reserved its order after completing hearing in the matter and on December 18, 2019 Cyrus Mistry was restored as Executive Chairman of Tata sons. However, NCLAT suspended implementation of the order for four weeks so that Tata sons can file a appeal.

As the news came before closing bell, shares of Tata motors fell 5.25% to Rs 174.95 on the BSE. Tata Sons moved to Supreme Court against the December 18 order of the NCLAT that held Former Chairman Cyrus Mistry ouster illegal. Tata sons termed the court’s decision untenable in law and inconsistent with companies Act. Tata consultancy services (TCS) also filed an appeal in the Supreme court against the NCLAT reinstating Mistry as the company’s chairman. Ratan Tata also filed a petition in the Supreme Court seeking to quash the company law appellate court order, saying the judgment was “wrong, erroneous and contrary to the record of the case”.

The supreme court is set to hear the plea on 6th January. On 5th January Cyrus mistry said that he will not be pursuing the executive chairmanship of Tata Sons, or directorship of TCS, Tata Teleservices or Tata Industries. He said that interest of Tata group are far more important than any individual or me but he will seek a board see for improving governance standards of Tata sons.

But why was Cyrus Mistry fired in first place ?

Mistry had cleared Tata Power’s 1.4 billion dollar acquisition of Welspun Solar farms in June 2016 for which he didn’t seek approval from other key shareholders. Tata and Mistry also differed with one another on ethos, vision, values and the direction that the Tata group should be headed in. Mistry’s decision of disposal of some of Indian Hotels co’s overseas properties and specifically the move to shut the UK steel operation didn’t go down well with the Tata trusts.

Mistry’s handling of separation of Tata teleservices partnership with Japanese Telco NTT Docomo also didn’t go well with Tata. Concerns had been raised about conflict of interest in relation to award of contracts to the construction companies of Shapoorji Pallonji group. According to Vision 2025 document of Mistry he wanted to make Tata group among the top 25 globally by market capitalization and brand value but there were no solid plans for growth. The creation of Group executive council also fueled the conflict as trustees felt that the members of this brain trust were exceeding their brief and authority in their dealing with group companies.

Mistry said that he was promised a free hand when he was appointed as chairman but articles of Association were modified, changing the rules of engagement between the Tata family trust and the board of Tata sons. Mistry also didn’t give up his Irish citizenship though as Tata sons chairman he should have. According to Ratan Tata loyalists Mistry’s action over the last four years were a systematic attempt to dismantle the conglomerate structure of Tata group whereas the Cyrus Mistry’s loyalist claim that all he was trying to do was put in place a framework that would outlast Tata and any future Tata group chairman.

Tata group as a brand has reputation for giving back to society and had a had a history of nation-building through creation of employment in industrial sectors of national importance. Tata brand has a lot of value in current scenario and at same time there is a risk of loss of value of brand if allegations are proved correct. If appeal against the NCLAT order in supreme court is defeated it will be a set back for house of Tata and signal a breakup of Tata’s house and would cause a huge value erosion to Tata Brand. The Boardroom battle has already costed the Tata’s a lot in term of brand equity and financially and must resolve this matter at earliest.

The high profile board room battle of the conglomerate have triggered the need for transparency and ensuring that the interest of minority shareholders is safeguarded. It is very fateful that Tata which has image of good governance, known for their ethical values and their leaders for their strong decision making are in a leadership tussle. The tussle for leadership may be a result of communications issue and ineffective leadership and Ratan Tata refusing to let go his control on company even after his retirement, But for now, nobody knows for sure how things will pan out of this tussle for leadership of Tata sons.

An Article by – Vraj Mehta