Sebi says no intervention in Tata-Mistry dispute

Regulator says boards are best decision makers on corporate governance

The Securities and Exchange Board of India (Sebi) has taken a view that the allegations of corporate governance lapses made by ousted Tata Sons chairman Cyrus Mistry might not warrant the regulator’s intervention.

According to Sebi, the boards of companies are “the best decision makers” and are supposed to “exercise their power of decision making in good faith”. 

However, it has not ruled out action in case it detects any violation of securities laws. The regulator has apprised its board members of its stand. 

Mistry had questioned the decision-making process of the boards of Tata companies. “As there is no line of sight to profitability for the Nano, any turnaround strategy for the company requires to shut it down. Emotional reasons alone have kept us away from this crucial decision,” Mistry had written, referring to Tata Motors. 

In the same vein, he had alleged that Tata Power’s aggressive bid for the Mundra project had been predicated on low-priced Indonesian coal. However, it turned out to be an erroneous assumption, according to him. 

The regulator has found little merit in questioning these decisions. “The board takes decisions based on power granted under the Companies Act. The directors are the trustees of the shareholders; they are supposed to exercise their power of decision making in good faith,” Sebi said in its note 

Mistry had raised the issue of the flow of price-sensitive information at the Tata group. However, Sebi said that communications between Ratan Tata, who was then chairman emeritus, and group companies “appear to be in normal course of business”. Given Tata’s official position, sharing such information was allowed under the insider trading rules, the regulator said.

“When a person is appointed as chairman emeritus by the board of a company, the board may discuss the corporate performance, information pertaining to mergers, acquisitions, divestments and other sensitive information with a view to benefit from the experience of that person,” Sebi said, adding that the insider trading regulations allowed such communication for performing duties or discharging legal obligations.

On the removal of Nusli Wadia as independent director from three Tata companies, Sebi has taken cognizance of the process involving the appointment and removal of directors.

“The Tata group imbroglio has brought to the surface certain issues, which may need deliberation,” the regulator said.