Mistry stake valuation in Tata Sons may lead to fresh round of legal tangle

Deciding on the valuation depends on the Mistry family, which is under pressure to pay off debts owed by their group.

The mismatch in valuations arrived at by the Tata group and the Mistry family for the latter’s 18.4 per cent stake in Tata Sons can lead to another legal tussle between the two parties.

While the Tata group pegged the valuation of the Mistry family’s stake at up to Rs 80,000 crore during the Supreme Court hearing, the Mistry group expected it to be worth Rs 1.76 trillion, taking into account the runaway share price rise in Tata group's listed companies.

Lawyers said deriving valuation was a complex exercise considering that the Mistrys have put a high value on Tata brand name. “Valuation of shares of such an unlisted company is a complex exercise. It may take time and result in another round of disputes,” said Anand Desai, managing partner of DSK Legal.

V R Mehta, special advisor, Tata Trusts, said the decision with regards to valuation now depended on the Mistry family. “The Mistry family has to decide what it wants to do now. What is it that the Mistrys want to propose in line with this judgment and the Article of Association (AoA) of Tata Sons? Tata Sons or Tata Trusts will decide the next course of action based on that. Seeing the track record of the Tata group for the last 130 years, I will like to add that it has set very high moral and ethical standards.”  

For the Mistry group an exit from Tata Sons is fast becoming essential, considering the precarious condition of group companies. The Shapoorji Pallonji Group’s flagship company has already applied to the banks to restructure its debt worth Rs 23,000 crore. The group has put several assets on the block to raise around Rs 10,000 crore and repay banks.

Its earlier attempt to raise funds by pledging Tata Sons stake to foreign investors was nixed by the Tata group which argued that SP Group cannot pledge shares without its consent. The Tata group moved the apex court which stayed the pledging of shares.

The Mistry family shouldn’t have consented to the terms of the AoA with regards to the valuation, said a person close to the family. “This was all consented to at a time when everything was hunky-dory. This is a lesson to people in how not to negotiate a legal agreement in the context of the prevailing circumstances. The time they conceded to all the terms, no one contemplated things would turn this sour. Those terms, to which the Mistry family agreed to, has now become a millstone around their neck,” the person said.