Tata Vs Mistry: SC Rules In Favour Of Tata Group, Sets Aside NCLAT Order

The Supreme Court on Friday upheld the decision of the Tata Sons board in October 2016 to remove its then chairman, Cyrus Mistry, from office and later the company’s board.

In its 282-page judgment, the court set aside the National Company Law Appellate Tribunal’s (NCLAT’s) order of December 2019, which had re-instated Mistry on the Tata Sons board and had termed the appointment of the current chairman, N Chandrasekaran, “illegal”.

The Supreme Court Bench, led by Chief Justice S A Bobde, rejected Mistry’s Group’s plea against the conversion of Tata Sons from a public limited company into a private limited one and did not get into the issue of valuing the company’s stake.

Lawyers said both sides could begin talks on how Mistry Group could sell its 18.4 per cent stake to Tata Group or to investors nominated by it and at what valuation.

The court said divorce without acrimony should be encouraged and Mistry Group seemed to have realised the futility of litigation.

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It said Article 75 of Articles of Association of Tata Sons was nothing but a provision for an exit option to shareholders and after attacking Article 75 before the NCLT, Mistry Group could not ask it to go into the question of fixing fair value compensation for exercising an exit option

“We cannot adjudicate on the fair compensation. We will leave it to the parties to take the Article 75 route or any other legally available route in this regard,” the court said.

“It is not an issue of winning or losing. After relentless attacks on my integrity and the ethical conduct of the group, the judgment, upholding all the appeal of Tata Sons, is a validation of the values and ethics that have always been the guiding principles of the group. It reinforces the fairness and justice displayed by our judiciary,” Tata said in a social media post.

During the hearing, the Mistry family, one of the oldest business families in India, valued its stake at Rs 1.76 trillion, while the Tatas pegged it far below at up to Rs 80,000 crore.

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With the Tata Group companies’ shares going up significantly in the stock markets, the valuation of Mistry Group’s stake has also gone up.

Lawyers said the verdict would have an impact on not only Tata Sons but also other companies that planned to go private.

The Mistry family had objected to Tata Sons going private. This, according to it, reduced liquidity in Tata Sons shares.

“This has been a very high-profile and highly publicised dispute. The Supreme Court has, by answering the points at issue, laid down an important precedent on the various points raised by the respective parties. As the size of business houses keeps growing in India, this judgment will have a significant impact on disputes of this nature in the corporate sector,” said Anand Desai, managing partner, DSK Legal.

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Tata Trusts, which owns 66 per cent in Tata Sons, is chaired by Ratan Tata, who is 83 and patriarch of the group.

Mistry, 52, who was handpicked to lead Tata Group after a global hunt, took over as chairman in 2012 after Tata retired on turning 75.

While Tata remained chairman of Tata Trusts, Mistry was running the group companies. They fell out, leading to Mistry’s ouster.

A bitter legal and public battle soon erupted, with Mistry complaining that he was made the scapegoat for the mistakes committed by his predecessor.

In his communication to the Tata Sons directors and Tata Trusts trustees soon after he was removed, Mistry had cited the sagging financials of Tata Steel Europe, Tata Motors’s loss-making Nano project, Tata Teleservices, Indian Hotels, Jaguar Land Rover, and Tata Power’s Mundra, which drained Tata Sons’ coffers.

ALSO READ: Tata-Mistry battle: Analysts peg Mistry stake at nearly Rs 1.16 trillion

Mistry also moved the National Company Law Tribunal, which, in July 2017, upheld the Tatas’ plea. But the NCLAT termed Mistry’s removal illegal and reinstated Mistry as Tata Group chairman. Mistry in his petition did not pray for his reinstatement.

The Tatas then moved the Supreme Court, seeking to overturn the NCLAT judgment, and it stayed the tribunal’s order in January last year till further notice.

Just a few weeks before the Supreme Court hearing started, the Mistrys offered to sell their Tata Sons stake in lieu of shares in listed Tata companies, including Tata Consultancy Services, Tata Motors, and Tata Steel, and calculated their stake in Tata Sons at Rs 1.75 trillion, including its brand value.

But the Tatas rejected the offer, saying Mistry had damaged the Tata brand by going public.