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Tata group firms may gain from court’s ruling

An appeals court order reinstating Cyrus Mistry as Tata Sons Ltd chairman may have caused uncertainty about the management of the holding company of Tata group, but market experts say the net impact is likely to be positive for group companies.

Shares of Tata Consultancy Services Ltd, Tata Steel Ltd, Tata Motors Ltd and Tata Global Beverages Ltd—the key units of Tata Sons—gained on Thursday on BSE. TCS rose 2.83% to close at 2,229.05, Tata Steel gained 0.45% to close at 446.75, Tata Motors advanced 2.49% to 179.15, Tata Global gained 0.51% to 313.95 while Indian Hotels lost 2.20% to 142 per share.

The market sees the National Company Law Appellate Tribunal’s (NCLAT) order as positive for Tata firms as it amounts to saying that Tata Sons will be a deemed public company. This means there will be greater accountability ensuring that any decision by the majority shareholders will have to be taken in the interest of all stakeholders, including minority shareholders such as the Shapoorji Pallonji group, said lawyers and analysts.

“Once a company is public, all shareholders get more freedom in terms of exercising their rights by virtue of their stakes in the firm. There are better disclosures to all classes of shareholders and the company’s promoters are unlikely to take decisions detrimental to minority shareholders in a public company,” said a fund manager at a large asset management firm, who declined to be named.

With Tata Sons being the holding company, the order is bound to have a ripple effect on governance of all group companies. The order on Mistry’s chairmanship will however take effect only in four weeks, which is the time granted if the Tata group wants to appeal the decision.

An executive in a Tata group company, who did not want to be named, said Tata Sons is likely to soon move the Supreme Court to get a stay on the judgement to make sure the order does not take effect.

The NCLAT also ruled Mistry can take over as director on three Tata group firms forthwith. These are TCS, Tata Industries and Tata Teleservices (Maharashtra) Ltd.

However, Siddharth Mahajan, partner at Athena Legal, said as directors owe a “fiduciary duty” towards the company and shareholders, they cannot do anything against their interests and “hence any significant disruption in day-to-day functions is unlikely.”

Also, as per Securities and Exchange Board of India’s listing norms, any change in the board of any listed firm due to any event can be effected only after informing the stock exchanges. So far, no Tata company has informed the exchanges about reinstating Mistry on their boards.

Mahajan, however, said the order “no doubt creates uncertainty for Tata group as many key decisions would have to be kept on hold unless there is clarity on position of chairman”.

Source: Livemint