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Exceptional circumstances for waiver in Mistry case

NCLAT notes Rs 6 lakh cr Tata Sons valuation vs Rs 291 cr investment in preferential shares

Dev Chatterjee  |  Mumbai 

Illustration: Ajay Mohanty

The National Company Law Appellate Tribunal (NCLAT) said when the combined equity and preference shares shareholding of in future,  it would result in only two shareholders of the Tata group holding company -- and -- eligible to file any complaint of oppression and mismanagement against the company even as other shareholders would be reduced to mute spectators.

Tata Sons, valued at a whopping Rs 6 lakh crore, came out with a Rs 291 crore preference share issue, which was subscribed mainly by Tata, Sekhsaria and other Tata group veterans while keeping out the Mistrys.

“We find that except Tata having issued shareholding of 31.43 per cent and Sekhsaria, having 17.01 per cent shareholding capital of the company, none of the 49 members are eligible to file an application under Section 241, individually having less than 10 per cent of the shareholding.  That means except that the minority shareholders join together, i.e. either six in numbers or such numbers of members whose joint shareholding will come up to 10 per cent of the issued share capital of the company, which will be also not less than three to four members, none of the 49 shareholders can file an application under Section 241 alleging ‘oppression and mismanagement’,” the order by Justice S J Mukhopadhaya, retired judge of the Supreme Court, said. The order was uploaded on the court's site on Friday.

Thus, the order noted that it will remain only in the hands of two major shareholders, Tata and Sekhsaria, who have the rights and prerogative to file such an application. “One or the other minority shareholder cannot be asked or directed to form a group of 10 per cent of the members that means six persons in the present case, as it will be dependent on the prerogative of the other members. We are of the view that this is one of the exceptional and compelling circumstances, which merit the application for ‘waiver’ subject to the question, whether (proposed) application under Section 241 relates to ‘oppression and mismanagement’,” the order said.

Exceptional circumstances  for waiver in Mistry case
When contacted, a spokesperson declined to comment. 

As per the resolutions passed on Thursday by Tata Sons' shareholders in the AGM, the preference shareholders will get voting rights in the company if the company defaults to pay dividend for two years. When combined with equity shares, would emerge as the largest shareholder in the company by investing just Rs 105 crore while reducing Mistry family stake valued at Rs 1 lakh crore to below 3 per cent.

Another resolution passed by the shareholders on Thursday was to make a private limited company that would make transfer of shares difficult for the Mistrys apart from reducing the regulatory disclosures that the company would have to provide. 

“The appellants (the Mistrys) have pleaded and not disputed by respondents is that the valuation of the company being in the region of at least Rs 6 lakh crore. The interest of the appellants (the Mistry family) in the overall value of the company would be over Rs 1 lakh crore. Therefore, the interest of the appellants in the overall value of the company is 1/6th of the total value of the company. On the other hand, the value of the preference share holding would be only Rs  291 crores, who do not carry voting rights other than in the exceptional circumstances,” the order said.

“The interest of the appellants to the extent of ‘one lakh crores’ of the overall value of the company whose valuation being in the region is about Rs six lakh crore, is another factor, which we have kept in our mind to answer the application for ‘waiver’ in favour of the appellants,” the order said.

The also reviewed Articles 121 and 121A of the Memorandum of Association of Tata Sons, and said has some control over the affairs of Tata group companies such as Tata Steel, Tata Motors,  Tata Teleservices, Tata Power and AirAsia India, and rejected the argument of that the complaints raised by the appellant firms were on unrelated companies.

First Published: Sat, September 23 2017. 23:10 IST