In a shock to former Tata Group chairman Ratan Tata, the National Company Law Appellate Tribunal (NCLAT) said he was determined to remove Cyrus Mistry prior to the board meeting and asked him to back down.
“Ratan Tata and the nominee of Tata Trusts shall desist from taking any decision in advance which requires majority decision of the board of directors or in the annual general meeting,” said the NCLAT about one of India’s most high-profile corporate leaders.
The ruling directed Tata Sons to reinstate Mistry as chairman and it said the appointment of present chairman N Chandrasekaran was illegal, portending wide-reaching implications for the business group. For one it puts Rata Tata on the backfoot and in the cross-hairs of his third and possibly last big career battle. Tata’s first major tussle with the satraps in the Tata Group is well-documented.
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Four leaders spearheaded Tata group companies for decades: Russi Mody at Tata Steel, Darbari Seth at Tata Chemicals, Ajit Kerkar at Indian Hotels, and Nani Palkhivala at ACC. Ratan Tata won against them to convert a sprawling, monolithic empire into a cohesive unit that he kept together, and it is one of his biggest contributions to the Tata group.
Round 2 to Tata but no endgame
His second major and very public battle came when he ousted Mistry in 2016 on the basis of his performance and replaced him and his associates in a public corporate spat that took corporate India by surprise.
The Mistry family’s appeal in NCLAT alleged that Tata and his associates interfered in the affairs of Tata Sons, demonstrating their insecurity about their legacy being undermined instead of considering the best interests of the group. The appeal said that over a period of time this turned to insisting that it was the will of the majority shareholder–Tata Group–that should prevail.
This became more pronounced when it came to certain “legacy hotspots” that included problem companies, namely Tata Steel Europe, Tata Teleservices/Docomo and Tata Motors Nano, on which there was disagreement between the two leaders. Mistry wanted to halt losses by divesting or shutting down businesses.
According to Anil Singhvi, chairman of Ican Investment Advisers, the manner in which Mistry was removed by the largest Indian corporate was unbecoming as well as illegal. “Thereafter to have followed up by his removal as director and changing the complete character of Tata Sons just to deprive him of his rights as shareholder was adding insult to injury and a pre-mediated murder of corporate governance,” Singhvi said.
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J N Gupta the founder of proxy advisory Stakeholders Empowerment Services sees it differently. “As far as the removal of Mistry goes, (the) process may have been rushed and the manner not the most appropriate but most of us don’t know what the circumstances at that very moment were involving and why they required such quick action,” he said.
Beyond the financials, one retired senior Tata executive said that it’s ironic that after years of having painstakingly built the Tata brand, its very architect is now risking tearing it down because of his actions. “The Tata brand is in deep trouble, and stands tarnished,” he said.
When he resigned, Ratan Tata was on the cusp of transitioning to India’s statesman designate, as many industrial leaders have done in the past. It was a position in which he may have wanted to spend time funding start-ups, playing enlightened venture capitalist and pursuing hobbies like flying but instead has been saddled with an ongoing battle and no visible end in sight.
“It’s still not too late for the both the groups to come together and sort out issues in the larger interest of the group and Indian corporate sector as a whole,” Singhvi said. “I am sure post this, boards of large corporates will take due care in maintaining governance befitting such large and iconic corporate houses.”
The key issue is that the two of the largest shareholders of a corporate house are in a scuffle. On one side, it’s the Mistry family, which is represented by the actual family members and serve their own interest, and on the other side it’s Tata who is represented through third parties that include nominee directors, and who in turn serve a charity. “That is the fact,” Gupta said.
Source: Business Standard