The options before Cyrus Mistry
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Mumbai: The National Company Law Tribunal (NCLT) case filed by the Cyrus Mistry family companies may well be the first of a series of planned skirmishes with the Tatas in various fora after the ousted chairman of Tata Sons Ltd stepped down from the boards of operating companies.
“The entire episode is a classic home ground for myriad litigation,” said Sumit Agrawal, partner at law firm Suvan Law Advisors and a former official with markets regulator Securities and Exchange Board of India (Sebi).
“There could also be a class action suit, suit for damages, defamation as well as a public interest litigation,” said Agrawal.
The fight in the courts could very well start with questioning Mistry’s unceremonious removal as chairman of Tata Sons. According to the holding firm’s articles of association, a selection committee is needed to both select and replace a chairman. However, the Tatas have said they had sought legal opinion before replacing him, and it isn’t clear why Mistry has not pursued this option so far.
“If relevant, the breach of any contractual shareholder rights may also be alleged in terms of the shareholders’ agreement at the Tata Sons level. Whether the parties approach arbitration or the courts will also be dependent upon the terms of the said agreement,” said Tejesh Chitlangi, partner at law firm IC Legal.
Pursuing the corporate governance angle, Mistry could complain to Sebi about these issues, especially the possible violation of the need-to-know principle under securities regulations.
“Many of allegations in the public domain against Tata Sons pertain to financial irregularities and insider trading for which Mistry can approach CBI, Sebi. According to his statements, the end goal is to achieve better governance practices, so such investigations could lead to short term pain; however, down the line, there would be cleaner processes,” said Shriram Subramanian, founder of proxy advisory firm, InGovern.
Yet another option is to approach the government. At the heart of the governance reform, which Mistry wants to institute, lies the relationship of the Tata Trusts with the group operating companies. He has said the government has an “inherent obligation” to “remedy and repair (the) breakdown” in the governance of Tata Trusts.
In his Monday message, Mistry talked about how the trustees wielded no voting power on Tata Sons shares until 15 years ago, because company law had vested it in the hands of the government.
The “role of MCA (ministry of corporate affairs) in administering The Companies Act, 2013, and of the ministry of finance in seeking the stand of Sebi and stock exchanges is also involved, since the episode has international ramifications of India’s rankings for business environment,” Agrawal of Suvan added.
Mistry could present these issues of corporate governance and ethics to institutional investors and ask them to raise questions with the Tatas.
“We have brought the dialogue on the table, both from the point of view of governance and ethics, and I think that is today in people’s minds. I believe you will see shareholders in the near future demanding (better) governance,” Mistry said in an interview on Monday.
“I also think that the institutional investors should write to Tata Sons seeking that what is their succession plan, because from where we stand, it seems to be completely unclear,” said Subramanian of InGovern.
Lastly, Mistry and his family can buy shares of the Tata group operating companies from the open market, if he thinks that will best serve his interests as a shareholder in the group.
The Shapoorji Pallonji group has little more than 18% in Tata Sons and very small stakes in at least one group operating company.