Cyrus Investments, one of the Shapoorji Pallonji family’s holding companies, has objected to Tata Sons’ attempt to convert the primary holding company of the $104-billion Tata Group into a private limited company from a public limited one, saying it amounts to oppression of minority shareholders.
Apart from voting against it, ousted Tata Sons chairman Cyrus Mistry will move the National Company Law Tribunal (NCLT) against the resolution.
The Mistry family holds 18.4 per cent in Tata Sons.
In a notice to its annual general meeting (AGM) on September 21, Tata Sons has sought approval of its shareholders to amend its memorandum of association and articles of association for the purpose of converting itself from a public limited company into a private limited one, and to change its name from Tata Sons Limited to Tata Sons Private Limited.
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“The reinstatement of Tata Sons as a private company was considered by the board to be in the best interest of the company,” said a Tata Sons spokesperson on Friday.
Cyrus Investments, in its letter to Tata Sons’ board of directors, said, “The proposal to convert Tata Sons from a public company to a private company constitutes yet another act of oppression of the minority shareholders of Tata Sons at the hands of the majority shareholders.”
“The real motive behind convening the proposed AGM is mala fide and for an ulterior purpose and the proposed resolutions are not in the interests of Tata Sons,” says the letter.
Cyrus Investments’ letter says that the AGM notice and explanatory statement, which suggest that the conversion of Tata Sons from a public limited company to a private limited one is merely a formality, are misleading.
Tata Sons was incorporated under the Companies Act, 1913, at which time, its articles of association had the features of a private limited company. In 1975, it became a “deemed public company” under the Companies Act, 1956. However, its articles of association remained unchanged and it continued to contain the features of a private limited company.
The Mistry firm said that after amendments in the Companies Act in 2000, Tata Sons was required to inform the Registrar of Companies if it had become a private company, which it didn’t. Despite being a public company, its articles of association remained unchanged and it continued to contain features of a private limited company. The concept of a “deemed public company” is not statutorily recognised under the Companies Act, 2013.
Corporate law experts are divided on the impact of the move on minority shareholders. While converting to a private limited concern would entail lesser compliance requirements, any restrictions on sale or transfer of shares would be decided by clauses in the articles of association of the company. However, there is no mandatory requirement for the presence of an independent director in a private limited company. “This could be construed as detrimental to status of minority shareholder,” said a corporate law expert from one of the big four advisory firms.
The letter from the Mistry firm said, “The explanatory statement fails to disclose that the true effect of converting the status of Tata Sons into a private company is to introduce/re-introduce restrictions on transferability of shares which otherwise today are void and unenforceable under law and norms applicable to public companies.”