Cyrus Mistry’s e-mail warns of $18 billion writedown at Tata group
In an e-mail to Tata Sons board of directors targeting Ratan Tata, ousted chairman Cyrus Mistry raises a raft of corporate governance issues in the group
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Mumbai: Ousted Tata Sons chairman Cyrus Mistry has claimed that interference from Ratan Tata pushed him “into the position of a ‘lame duck’ chairman”, raised a raft of corporate governance issues in the Tata group, and warned of a Rs1.18 trillion writedown, over time, from five unprofitable businesses. He added that the net worth of the group was Rs1.74 trillion.
In an e-mail to the board of Tata Sons Ltd, a copy of which has been seen by Mint, he also referred to the changes in the Articles of Association of Tata Sons which hampered his ability to function freely. Mint first reported on Tuesday that these changes effectively gave Tata Trusts, which owns two-thirds of Tata Sons, the right to hire and fire chairmen.
Late on Wednesday, the National Stock Exchange of India (NSE) wrote to Indian Hotels Co. Ltd (IHCL), Tata Motors Ltd, Tata Steel Ltd, Tata Power Co. Ltd and Tata Teleservices (Maharashtra) Ltd, the five companies, seeking a clarification.
The offices of two directors of Tata Sons confirmed an e-mail has been received and a spokesperson for the Shapoorji Pallonji group, run by Mistry’s family, said an e-mail was sent.
Tata Power responded to the exchanges saying, “We have perused the article on the Bloomberg website referred to by you, with comments purported to have been made by ex-Chairman of Tata Sons Limited regarding the Company’s Mundra Ultra Power Project. The Company has always made all relevant disclosures, as required, and has no further comments to offer.”
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At the very beginning of the e-mail, written a day after he was replaced as chairman of Tata Sons on Monday, Mistry said that he was “writing this letter to the Board to emphasise the total lack of corporate governance and to point out the failure on the part of the directors to discharge the fiduciary duty owed to stakeholders of Tata Sons and of the group companies”.
Referring to the group’s AirAsia joint venture, Mistry said that “ethical concerns have been raised with respect to certain transactions as well as the overall prevailing culture within the organisation”.
“A recent forensic investigation revealed fraudulent transactions of Rs22 crores involving non-existent parties in India and Singapore.”
He wrote that a Tata Trust trustee, who is also on the board of AirAsia and is a shareholder in the company, “considered these transactions as non-material and did not encourage further study. It was only at the insistence of independent directors, one of whom submitted his resignation, that the board decided to belatedly file a first information report”.
A spokesperson for Tata Trusts and Tata Sons did not respond to an e-mail seeking comment. AirAsia India CEO Amar Abrol said he had no comments to offer at the moment.
To illustrate the control Ratan Tata and Tata Trusts wield over Tata Sons, Mistry cited the example of a board meeting that was held up because directors nominated by Tata Trusts had to leave for an hour to seek instructions from Ratan Tata, who is chairman of Tata Trusts.
“Such a work pattern has also created the added risk of contravening insider trading regulations and exposed the Trust, apart from exposing the trustees to potential tax liabilities,” wrote Mistry. “These circumstances forced me to circulate a note on corporate governance in order to clarify the distinct roles of Tata Trusts, Tata Sons Board and the Boards of the operating companies.”
Proxy advisory firms say the issues highlighted by Mistry could take the shine off the reputation of the Tata group.
“With the caveat that if whatever the letter says is true, it is going to open a can of worms,” said J.N. Gupta, co-founder and managing director at Stakeholder Empowerment Services, a proxy advisory firm. “If the Tata group fails to effectively counter these allegations, it will dent its image as a well-governed Indian corporate.”
Mistry also wrote about the Tata Nano project, which according to him, has “consistently lost money, peaking at Rs1000 crore”. He said any turnaround strategy for Tata Motors requires the company to shut the project down. “Emotional reasons alone has kept us away from this crucial decision,” wrote Mistry.
Mistry referred to Tata Motors, IHCL, Tata Steel, Tata Power and Tata Teleservices as “legacy hot spots”.
“After my appointment the articles of association were modified, changing the rules of engagement between the Trusts, the Board of Tata Sons, the Chairman and the operating companies. Inappropriate interpretation indeed followed.. . it severely constrained the ability of the group to engineer the necessary turnaround.”
Mistry also blamed the previous chairman for questionable decisions taken in the case of Tata Power’s aggressive bidding for the Mundra project, IHCL’s purchase of Searock property and the shareholder agreement struck with NTT DoCoMo.
Shally Seth contributed to this story.