Tata Sons and Ratan Tata handed decisive victory by India's Supreme Court
Court rules that India's biggest business group did no wrong when ousting Mistry
New Delhi: Tata Sons Pvt. won a four-year-long legal battle with India's Supreme Court approving the move by the nation's biggest conglomerate to oust Cyrus P. Mistry as chairman. The court ruled that the ouster of Mistry in 2016 was legal, and rejected his allegation of mismanagement at Tata Sons and oppression of minority shareholders.
The court also upheld Tata Sons' rules on minority shareholders' rights, making the sale of shares by investors difficult. The verdict removes an uncertainty for the Tata group, which runs businesses that make products from salt to the luxury Jaguar sedans, and will allow it to focus on accelerating growth.
For the Shapoorji Pallonji Group and Mistry the verdict comes as a blow just as it was seeking avenues to raise money to repay burgeoning debt. The top court also overturned a company appellate tribunal's December 2019 ruling that said Mistry's ouster was illegal.
Tata has opposed the SP Group's proposal to borrow money against its stake in Tata Sons. Cyrus is the son of billionaire Pallonji Mistry, who controls the 155-year-old SP Group. Tata Sons is the holding company of the Tata group.
Friday's legal outcome also allows the Tata group to shift its focus back to reviving some of its flagging businesses. Tata has embarked on a journey to consolidate its sprawling empire and strengthen its balance-sheet. The Mumbai-based conglomerate, which gets about $113 billion in annual revenue, has been looking to sell some of its hotel assets and European steel operations.
Terms of separation
Dismissing all petitions by the Mistry side, a three-judge bench left it to the two warring parties to negotiate terms of their divorce if they wish to.
"The modalities of separation from the Tata Group in terms of shareholding is yet to be decided," said Deepak Jawani, head of retail research at HDFC Securities Ltd.. "This will be a bigger issue as far as the stock market repercussions are concerned."
Shares of Tata Motors Ltd., which controls Jaguar Land Rover, jumped as much as 5.6 per cent in Mumbai after the ruling, the biggest intra-day gain in more than three weeks. Tata Steel Ltd. rallied 6.1 per cent. Tata Consumer Products Ltd. gained 2.7 per cent, while Tata Consultancy Services Ltd. rose as much as 1.5 per cent.
The bad blood between the two sides started when Cyrus Mistry, 52, who worked closely with Ratan Tata, 83 - the then chairman - before taking over the top job at Tata Sons in 2012, sought to reduce the group's debt. In the process, he threatened to undo the legacy of the conglomerate's patriarch. He was removed four years later.
Parsi Control
The two families belong to the Parsi Zoroastrian community, which fled persecution in Persia centuries ago before finding refuge in western India. The Tata Group has been traditionally headed by a Parsi until 2017, when Tata brought in a veteran executive from outside the close-knit community to replace Mistry.
The SP Group had valued its stake in Tata at about 1.75 trillion rupees ($24 billion) and proposed selling it to Tata, but the latter rejected that valuation and instead pegged the amount at about $11 billion.