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Tata’s victory in the Supreme Court is Cyrus Mistry’s loss outside it too

The court ruled, and quite rightly so, that the terms of separation between the two, including the fair valuation of the Mistry family’s 18.37% holding, were not a matter for the court to adjudicate upon. (REUTERS)Premium
The court ruled, and quite rightly so, that the terms of separation between the two, including the fair valuation of the Mistry family’s 18.37% holding, were not a matter for the court to adjudicate upon. (REUTERS)

  • The court’s unequivocal ruling that the actions of the board in sacking Mistry in October 2016 did not amount to the oppression of minority shareholders nor mismanagement, however, give the Tata group a clear edge in future negotiations on the issue

The Supreme Court judgement on the legality of Cyrus Mistry’s ouster from the Tata group concludes his four-year-old legal battle of attrition against Ratan Tata that wound its way through the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) before finally coming up before the country’s highest court. However, while the judgement, resoundingly in favour of Tata Sons, sets at rest the bickering that has gone on for the last few years, it does little to bring an end to the larger battle of control between the two families that collectively control nearly 85% of India’s biggest conglomerate. The court ruled, and quite rightly so, that the terms of separation between the two, including the fair valuation of the Mistry family’s 18.37% holding, were not a matter for the court to adjudicate upon. That leaves the original issue unresolved and in need of urgent resolution if both parties were to move on without further disruption to their respective businesses.

The court’s unequivocal ruling that the actions of the board in sacking Mistry in October 2016 did not amount to oppression of minority shareholders, nor mismanagement, give the Tata group a clear edge in future negotiations on the issue. As has been reported, the Shapoorji Pallonji Group, owned by the Mistry family, is knee-deep in debt and, last September, brought up the issue of selling its holding in the Tata group. Valuation issues, however, have meant that the plan to get Tata to buy back the shares hasn’t gone anywhere.

The court judgement does nothing to expedite that sale, leaving Mistry to figure out how to pay off the debt that is maturing soon. Last year, the Mistry family had looked to raise over 10,000 crore from global investors by pledging its shares in Tata Sons but was forced to suspend the fundraise after the SC asked both parties to maintain status quo on the issue.

While that hold is gone now, it isn’t going to be easy for Mistry to find lenders who will see in the judgement a win for the Tata group, which can now take its time in deciding the best deal it is willing to offer. At the moment, the difference in the valuations is too high to suggest any rapprochement is possible.

Outside the courts, the judgement will bring great relief to all the other shareholders of various Tata group companies, which can now proceed to pursue the long-term strategy laid down by the group’s chairman N. Chandrasekaran, who succeeded Mistry. While questions about where to raise the money as and when a buyback of Mistry’s stake is finalized will still cause upheavals in the overtly diversified group, Chandrasekaran can now make decisions without the distracting shadow of legal issues.

Sundeep Khanna is the author of Azim Premji: The Man Beyond the Billions

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