Tata Sons seeks Cyrus Mistry’s removal from TCS, IHCL boards

Tata Sons, which has a 73.26% in TCS, has nominated Ishaat Hussain, a long-time Tata group veteran, as the interim chairman of TCS with immediate effect

File photo. Tata Sons has also called for a shareholder meeting to remove Cyrus Mistry as a director of TCS under provisions of the Company’s Act, 2013. Photo: Reuters
File photo. Tata Sons has also called for a shareholder meeting to remove Cyrus Mistry as a director of TCS under provisions of the Company’s Act, 2013. Photo: Reuters

Tata Sons Ltd has removed Cyrus P. Mistry as chairman of Tata Consultancy Services Ltd (TCS) and sought to replace him as a director of the software services provider as the fight between the holding company and its former chairman (and significant shareholder) enters a new phase.

Tata Sons, which has a 73.26% stake in TCS, nominated Ishaat Hussain, a Tata group veteran, as the interim chairman of the company with immediate effect. Thus, Mistry ceases to be chairman of the TCS board, the company said in a stock exchange statement on Thursday.

Separately, Tata Sons has requested a shareholder meeting of Indian Hotels Co. Ltd (IHCL) to pass a resolution for the removal of Mistry as director. On 4 November, IHCL’s independent directors unanimously backed Mistry’s board position as chairman.

This could mark the beginning of a protracted battle, analysts said.

Also read: Did Tata Sons violate insider trading norms?

According to the articles of association of TCS, as long as Tata Sons (and associates) holds at least 26% of the firm, the holding company has the right to nominate the chairman of the board of directors.

People close to Mistry have questioned TCS’s move, saying that Tata Sons has the right to only nominate a candidate.

“TCS had to then convene a board meeting and table the nomination at the board at a meeting or through a circular resolution. Nothing of this nature was done. In pre-meditated haste, by a letter of the same date, TCS has directly gone on to announce that Mistry stands replaced,” one of the people said.

A TCS spokesperson said the due process was followed. “Under Article 90 of the articles of association of the company, the majority shareholders of Tata Sons are vested with the power to nominate the chairman. Accordingly, it informed all the board directors that Hussain is being nominated as the chairman,” the spokesperson said.

Sumit Agrawal, partner, Suvan Law Advisors, said that under the Companies Act, where articles of association specifically and categorically provide a right to a major shareholder or group of shareholder to nominate a chairman, exercising that right effectively removes the incumbent with immediate effect till a regular “appointment” of someone else through a shareholder resolution is made.

“The concept of shareholders’ right in the modern corporate world denotes the shareholder’s supremacy in the governance of the business and the affairs of the corporate sector either directly or through their elected representatives,” said Agrawal.

These shareholders, he pointed out, have certain statutory rights which nobody can take away, except in accordance with prescribed norms under articles and provisions of the Companies Act.

That said, the process followed in TCS to nominate a new chairman needn’t necessarily be followed in other group companies. That’s because the method of appointment or removal of chairman is incorporated in the articles of association of a company. In Tata Motors, for instance, the right to appoint the chairman lies with the board and not Tata Sons.

Also read: Is trust deficit widening on Tatas’ narrative on Cyrus Mistry?

For removing Mistry as a director, shareholder approval is needed and the request for an extraordinary general meeting in TCS by Tata Sons points to that.

Under the provisions of the Companies Act, anyone holding at least 10% of a company can call for a shareholders meeting and propose a special resolution to remove directors before the end of their tenure.

Amit Tandon, founder and managing director of Institutional Investor Advisory Services (IiAS), a proxy advisory firm, said that the latest move marks the beginning of Tata Sons moving shareholder resolutions to remove Mistry from the board of operating companies.

“In the case of TCS, as they have more than 70% stake, they are quite confident of pulling it through,” he said.

In other Tata group operating companies where Mistry is chairman, Tata Sons (plus other group companies that have cross-holdings) owns a 30-35% stake.

In Tata Chemicals, whose board met on Thursday, it has only a 29.98% ownership.

To pass a resolution supporting the removal of Mistry as director, the Tatas will need a 51% majority. Thus, the role of institutional shareholders, particularly Life Insurance Corp. of India, becomes important.

The state-owned insurer holds around 13% each in Tata Steel Ltd and Tata Power, and 10% in Tata Global Beverages Ltd.

“The vote of institutional investors will be decisive. Perhaps, this is a reason why Tata Sons has come out with a detailed statement today explaining its need to replace Mr. Mistry and also rejecting claims made by him in his letter to the Board of Tata Sons,” said a statement by InGovern Research Services Pvt. Ltd.

Hussain’s nomination comes on the heels of a snub the promoters faced on 4 November when independent directors unanimously backed Mistry’s board position at Indian Hotels, which owns the Taj group.

On Thursday, the independent directors of Tata Chemicals too backed Mistry.

Interestingly, Hussain, who is also on the board of Tata Sons, abstained from voting to remove Mistry as chairman of the holding company in its 24 October board meeting.

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