The Tata group has estimated the valuation of Mistry’s family’s 18.4 per cent stake in Tata Sons ranges between Rs 70,000 crore and Rs 80,000 crore as compared to Rs 1.78 trillion sought by the family.
During the hearing today at the Supreme Court today, Tata Sons counsel Harish Salve mentioend that the Mistry family shares are worth Rs 70,000-80,000 crore and a member of Tata Sons can’t make allegations about other group firms.
Arguing on behalf of Tata Sons, Salve said Tata group was run amazingly by its former chairman Ratan Tata and during his tenure between 1991 and 2012, the market cap of Tata went up 500 times. “When there is a growth story of 500 per cent, there will be some winner projects and some losers,” Salve informed the court. “Just because some businesses make losses does not imply that there is mismanagement in Tata Sons,” Salve argued.
The Supreme Court is hearing an appeal filed by the Tata group against an order by NCLAT in December last year which had not only reinstated Cyrus Mistry as former Tata group chairman, but had also termed Mistry’s successor N Chandrasekaran’s appointment as illegal.
Salve said NCLAT had set aside Chandra’s appointment though Mistry and Pallonji group had never objected to such appointment. The NCLAT judgement has gone beyond the scope of judicial review, he said.
By reinstating Mistry, Salve said the NCLAT had vested the control of Tata Sons with minority shareholders and gave them power to rule over all Tata companies. “As the minority shareholders are entitled to dividends, as long as Tata sons is distributing huge amounts as dividends, where is the question of winding up,” Salve asked.
On Tata Sons’ articles of association, which give veto powers to Tata Trusts, Salve argued that NCLAT has no powers to re-write the articles of association and though it has the powers to remove the chairman, the selection of Chairman is to be done by its shareholders. If the rule of numbers is allowed, then Mistry will not get even one seat on the board. Tata Trusts own 68 per cent stake in Tata Sons.
Salve said any major loss of the group will impact majority shareholders too, not just the minoroty shreholders. Salve said Tata Sons was always a private limited company since 1917 and the NCLAT overlooked the fact that articles of association are the primary contract between the shareholders and the company. The changes in the articles of associations – giving veto powers to Tata Trusts — were cleared by Pallonji Mistry, the patriarch of Mistry family, when he was a director in the company, Salve 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. The AoA gave certain special rights to Tata Trusts including right to nominate up to one third of the directors (Article 104B) and its nominated directors having the right of an affirmative vote (Article 121). The AoA said these rights shall exist only so long as the Tata Trusts hold not less than 40% of the equity capital of Tata Sons.
These rights were incorporated mainly to protect the interest of the Trust in the future, should their shareholding get diluted.
Interestingly, these modifications to the AoA were unanimous without any objection from any shareholder. The SP Group had voted in favour of these amendments. In the year 2012 and 2014, ew amendments were made without attrachting any objections from shareholders.
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 Tata Sons Board.
Even when the AoA was further modified, in 2012 and 2014 when Cyrus Mistry was was a director of Tata Sons and also its chairman), the SP Group did not demand or assert any special right for itself.
After Mistry was removed from the board in October 2016, the Mistry group raised these issues in the NCLT and later in NCLAT. While NCLT ruled in favour of the Tata group, the NCLAT ruled in favour of the Mistrys.
The hearing at the SC will continue tomorrow.