After a brief ceasefire during the Christmas holidays, the war between former Tata Sons chairman Cyrus Mistry and Interim Chairman Ratan Tata has restarted.
Tata Sons says the Mistrys have no locus standi to move the National Company Law Board (NCLT), as they own only 2.17 per cent in the total issued share capital of Tata Sons, instead of the minimum 10 per cent required to file such a petition.
Cyrus Investments and Sterling Investment Corporation, two investment companies of the Mistry-family controlled Shapoorji Pallonji group, as 18.37 per cent shareholders of Tata Sons, had filed a petition at NCLT under sections 241, 242 and 244 of the Companies Act, alleging oppression and mismanagement by Tata Sons, Tata Trusts and their officers.
In its reply to NCLT, filed on January 6, Tata Sons said the Mistry family did not have the right to file a case at NCLT, as they did not meet the conditions laid down under the Companies Act.
When contacted, a Tata group spokesperson said he did not wish to comment on the issues.
Tatas said the total issued ordinary capital of Tata Sons was Rs 40.41 crore while the total issued preference capital was Rs 294 crore. The Mistrys hold ordinary shares with face value of Rs 7.4 crore of this combined share capital (both ordinary and preference) of Rs 335 crore.
“This translates into the petitioners holding only 2.17 per cent of the total issued share capital of Tata Sons. Therefore, the petitioners held less than one tenth of the issued share capital of Tata Sons at the time of filing the petition and do not meet the eligibility criteria under Section 244 to file the petition,” Tata Sons said in its 210-page reply.
Independent lawyers said the Tata argument was valid as both equity capital and preference shares are to be considered under the Companies Act. “The Bombay High Court has ruled that both equity capital and preference capital should be counted in the Blue Coast Resorts dispute,” said R S Loona, senior partner, Dhaval Vassunji Alliance, a Mumbai-based corporate law firm.
The Tatas also argued that the total number of members of Tata Sons as on the date of filing of the petition was 51. With the two Mistry family firms representing less than one tenth of the total members, Tata Sons said the second eligibility criteria based on members under Section 244 of the Act to file such a petition was also not met.
“The petitioners have deliberately suppressed this information and filed this frivolous petition while knowing well that it is not maintainable,” Tata Sons said in its reply filed with NCLT last week. Tata Sons asked the court that the petition “be dismissed with exemplary costs”.
Sources in the Cyrus Mistry camp said it is but natural that Tata Sons and its directors and the trustees of Tata Trusts would deny allegations and level counter-allegations. “The petitioners and Cyrus Mistry will indeed file their rejoinder on all facts and issues that are involved in the proceedings,” they said.
The exhaustive reply to the NCLT gives a point-by-point rebuttal to the charges made by Mistry against Tata Sons, its board of directors and Tata Trusts trustees since his ouster on October 24. The Tata affidavit also dealt with the reasons of removing Mistry as chairman of Tata Sons saying despite repeated warnings, the “legacy hotspots” companies like Tata Steel, Tata Teleservices and Tata Motors were not showing any signs of recovery. Soon after he was removed on October 24, Mistry had blamed Ratan Tata for making costly overseas acquisitions that would result in potentially write-downs worth $18-billion for the Tata group.
Mistry had also accused Tata of signing deals with his close friends — Chennai-based entrepreneur, C Sivasankaran and Mehli Mistry at the cost of Tata companies. In its reply, Tata Sons denied all these allegations.
On Mistry’s allegation that C Sivasankaran’s firm Sterling Infotech had taken an “advantage” and the “amassed a huge profit” in less than three years” in Tata Teleservices, Tata Sons said the same “advantage” was also taken by the Mistrys, and “that a greater profit per share was amassed” them within a similar time frame. The Tata Sons reply says Mistrys bought the shares for Rs 15 per share, while Sivasankaran’s cost price was Rs 17, which both offloaded for Rs 116.09 per share to Docomo.
On the veto power of Tata Trusts, Tata Sons said Pallonji Mistry had voted in favour of the changes in the Articles of Association in 2000. After Mistry became the chairman of Tata Sons in December 2012, several rounds of discussions between Tata and Mistry were held to discuss the role of the Trusts in Tata Sons. After many deliberations, with the concurrence of Mistry, the Articles of Association were amended, by a unanimous resolution passed by the shareholders of Tata Sons in April 2014, pursuant to which Articles 121A and 121B were introduced.
Article 121A specified certain items which were mandatorily required to be resolved upon by the Tata Sons board, which included the five-year strategic plan and the annual business plan. “Mistry was present at the extraordinary general meeting of the members of Tata Sons on April 9, 2014 when Article 121A was unanimously resolved to be included,” the reply said.
Giving reasons for Mistry’s removal, the Tatas said disturbing facts came to light on Mistry’s competence including lack of discipline to make capital allocation decisions. “It was expected that Tata Sons would approve new capital issuance or debt guarantees requested by any of the Tata Group companies. There was little discipline on what the expected returns on these capital commitments would be or whether there were superior alternate uses of the capital being requested,” it said. The reply also added that there was limited detail on the financial or strategic milestones that companies were expected to achieve to justify these capital requests.
Besides, the Tatas said Mistry seemed focused only on the problems from the past and blamed them on “legacy issues”. “Even after identifying these hotspots, the execution and follow-through on these matters was slow and lacked a sense of urgency,” it said. Tata Sons board was informed of the Welspun renewable power business takeover by Tata Power only at the last stage, Tatas said.
The Tatas also cited the example of sagging financial health of Tata Teleservices. “As opposed to being decisive and taking a write-down or reducing the debt burden, Mistry kept optimistically holding out for a merger that might save the business, which has yet to materialise, while the losses in the business kept mounting. This inability to be decisive to cut losses and resolve issues was a significant weakness in Mistry’s leadership.”
The business plans prepared by Mistry and his teams were weak and there were no projections of how the revenues, profits, and other metrics of the various businesses would add up to the goals outlined in the strategic vision, it said. During his tenure, Mistry did not launch any new business initiatives that have gained meaningful traction in the form of revenues or profits. The Tata said Mistry’s top team did not inspire confidence.
“By not appointing a strong Group Finance Director/Group CFO or executive directors with a track record of running companies who could complement him in overseeing the affairs of group companies, Mistry did not appear to fully value the importance of a strong professional team at Tata Sons that could provide proper guidance and support to the operating companies,” said the Tatas.
There was also trust deficit between Tata Sons and Mistry as he failed to put into effect his strategy for managing a large and complex group such as the Tata group, as committed by him in the detailed note of October 2010 tendered by him to the selection committee.
The Tata said there was also a conflict of interest between Mistry as Chairman of Tata group and being a significant shareholder in his family enterprise — Shapoorji Pallonji group of companies, which were getting “significant contracts” from the Tata Group, even after his appointment as deputy chairman in November 2011 and his appointment as chairman in December 2012. “However, it was almost two years after his appointment as chairman that he took steps to address this conflict of interest and acted to stop this activity, after much reluctance,” it said. However, by then several contracts had been awarded to Shapoorji Pallonji group of companies by the Tata Group, the reply said.