By Harsh Goenka
As corporate India meandered to the close of a rather forgettable 2019, the National Company Law Appellate Tribunal (NCLAT) threw a few crackers into the dying embers in the form of a verdict that took everyone by surprise.
Most Tata-watchers had settled to a new life under Tata Sons chairman Natarajan Chandrasekaran’s leadership. The ship seemed to have steadied itself after the tumultuous months following Cyrus Mistry’s ouster as Tata Group chairman in late 2016.
Public memory is short. But court trials take their own course. Hence, when the NCLAT order finally came earlier this week, it was a bolt from the blue for the public at large, and an unexpected reversal for the Tata Group. The court has partially suspended the verdict for four weeks, considering the size of Tata Group, and the need for smooth functioning of business. It is a tense few weeks ahead, which have the potential to spiral into longer uncertainties.
Nevertheless, Mistry is to be immediately reinstated on the board of Tata Sons and of the listed group companies. Lawyers will hold sway over the next few weeks, and while each side will pronounce their provincial superiority, the outcomes could possibly be far more removed from their two positions. In no particular order of significance, let us look at the scenarios that could unfold. One, if the Supreme Court admits the appeal with an interim stay on the operation of the NCLAT order.
The result of this would be an extensive period of uncertainty for the Tata Group leadership. It is not an easy seat to occupy with that kind of ambiguity in the air. Chandrasekaran, being a thoroughbred professional, will probably be able to handle it better than most people. Yet, given the size and complexity of the Tata Group, every decision will have an added element of scrutiny, leading to delays and sometimes suboptimal decisions.
U-Turn Ahead. Maybe Not
Two, if the apex court gives a clear verdict overturning the NCLAT judgment.
In this case, it’s back to business as usual. It is, however, pertinent to note that the Supreme Court has, on a variety of occasions, reversed NCLAT’s orders. Recent instances include the case of Jaypee Infra, Essar Steel and Reliance Communications.
The most important issues that will decide this outcome are the allegations of oppression of minority stakeholdership, mismanagement and carrying out actions that were prejudicial to the interests of the company, which the NCLAT has repeatedly referred to in its judgment. NCLAT even went to the extent of saying it would have been a fit case for ordering a winding up of Tata Sons, had it not been for the economic implications of such an act.
Three, the Supreme Court concurs with NCLAT, and Mistry is firmly back in management. This scenario will be totally different to Mistry’s previous tenure in office, and will, perhaps, involve the biggest test of the Tata Group’s character in how it accepts the prodigal son. Knowing the high standards that Tatas have set for themselves, it is possible that they will offer an olive branch to Mistry and welcome him back, although with some period of discomfort and awkwardness.
Unfortunately, in the present Tata board, there have been several who have been critical of the Mistry scion, and it may be difficult for them to bridge the divide and continue. This may lead to a lot of upheaval and uncertainty.
The fourth option is that Mistry — now that his stand is vindicated and that he has won a moral victory — decides to graciously bow out from getting reinstated as chairman of Tata Sons.
Fifth, a reasonable solution in the long term for the Tata Group, and for Mistry, would be to arrive at a compromise settlement.
No corporate wants any hurdles in its march ahead, neither does it want any tension in the boardroom. Moreover, Tata Sons has found an able and professional chairman in Chandrasekaran.
Psst, Sale Ahead. Maybe Not
On the other hand, the Shapoorji Pallonji Group is looking to raise funds to pare its debt. A stake sale can fetch it a handsome amount of money. The value of Shapoorji Pallonji’s stake in Tata Sons may be settled in cash, or in stake sale of some of the Tata companies including, possibly, Tata Consultancy Services (TCS). Unlike in war, where there must always be a victor and a vanquished, resolution of corporate battles can be achieved on a win-win formula. The leaders involved in this particular case are highly capable of arriving at an endgame where the scoreline reads 1-1. So let’s watch this space, shall we?
The writer is chairman, RPG Enterprises
Views expressed are author’s own.
Source: Economic Times