Home >Companies >News >Valuation of Tata stake is the next battleground

By dismissing the NCLAT order, and allowing the appeals by the Tata group, the Supreme Court (SC) has given the Tata group a big relief and dealt the SP group a major blow. Tata Sons has appealed to the SC against the December 2019 order of the NCLAT which reinstated Cyrus Mistry as chairman on the board of Tata Sons. Tata Sons had contended that the NCLAT judgement sets a dangerous legal precedent and is a blow to corporate democracy. Today’s SC ruling has completely quashed the orders of the NCLAT on the reinstatement of Cyrus Mistry on the boards of Tata Sons and other operating companies and on the validity of the oppression and mismanagement allegations.

The SC has ruled that the NCLAT has, except for the one relating to the removal of Cyrus Mistry, not overturned individually and specifically each of the findings and rulings of the NCLT. The SC ruled that NCLAT did not expressly overturn the findings of facts recorded by NCLT, on these allegations. The SC has noted that NCLAT lost track of the law that a removal of the chairman by the board cannot be termed as oppression or mismanagement. The SC also ruled that right to claim proportionate board representation is not available to the SP group even contractually, as per the Articles of Association.

The fight put up by Cyrus Mistry and the SP group was not only a matter of pride and honour. Even if the SP Group had won the battle, it would have been a pyrrhic victory. The SP Group has already indicated their desire to exit the shares of Tata Sons and proposed a valuation to the SC. The SC, however, has said that the court cannot go into the question of fixation of fair value compensation for exercising an exit option. In turn, the SC has ruled that the Article 75 of the Articles of Association of the company would govern the transfer of shares. Article 75 basically gives the board of Tata Sons the power of right of first refusal on the 18.37% shares held by the SP Group.

By allowing Tatas and Mistry to work out their separation terms, but not commenting on the valuation terms, the SC ruling has again gone in favour of the Tatas. In the foreseeable future, the biggest bone of contention between the Tata group and the SP Group is going to be the valuation and monetization of the shares. The SP Group is keen on monetizing their shares in Tata Sons. The court room battles between the two groups may be over for now. However, the larger issue of the relationship between the two groups remains unresolved. SP Group may not find it easy to monetize, either by sale or pledge, their shares of Tata Sons.

Shriram Subramanian is founder and managing director of InGovern Research Services, a corporate governance advisory firm.

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