The valuation of the Mistry family’s holding went up from Rs 69 crore in 1965 to Rs 58,000 crore in 2016 and yet it is complaining that its former Chairman, Ratan Tata, ran the company so badly that it should be wound up in 2016, argued Tata Sons counsel, Harish Salve.
During the hearing in the Supreme Court today, Salve said all Tata companies are doing well and are making money and Cyrus Mistry, former Chairman of Tata group and Tata’s successor, is making allegations of mismanagement. The Mistry family owns 18.4 per cent in Tata Sons and is embroiled in a legal dispute with the Tata group over his removal and has complained of mismanagement of Tata Sons. The Tata Trusts own 66 per cent of Tata Sons equity while the rest is owned by various Tata group entities.
“The person complaining must show that the conduct of management lacks probity and has affected his legal and proprietary rights as a shareholder,” Salve said.
On Tata Sons going private, Salve said it limits transfer of shares and number of members to 50. “After the 2013 Act, by definition we became a private company,” Salve said.
Mistry was initially inducted as Deputy Executive Chairman to work under Ratan Tata and after a year took over from the latter. “It was the first time someone outside Tata Trusts was taking over as chairperson of Tata Sons and Ratan Tata said that articles of association of Tata Sons might need some changes,” Salve said.
Salve said after the changes in the AoA, certain specified matters needed affirmative vote in Tata Sons board.
“Earlier a person from Tata Sons used to be appointed to boards of Tata companies. What Mistry did was to appoint his persons to those companies with the result that there was a disconnect between Tata Sons and operating companies and the only link was Mistry,” he said.
In 2000, the AoA of Tata Sons was restated and replaced with a new set of articles duly approved by a special resolution of the shareholders. Certain special rights of Tata Trusts were incorporated: right to nominate up to one third of the directors (Article 104B) and those nominated directors having the right of an affirmative vote (Article 121).
These rights exist only so long as the Tata Trusts hold not less than 40 per cent of the equity capital of Tata Sons. The rights were incorporated to protect the interest of the Trust in the future, should their shareholding get diluted. The 2014 amendments added two new Articles: Article 121A which required that certain matters must be decided by the Board only, and Article 121B, which entitled any member of the Board to bring, with 15-days prior notice, any matter or resolution for deliberation and consideration by the Board. Mistry had not objected to any of these changes before he was removed in October 2016.
The hearing will continue tomorrow.