Few saw it coming, but come it has. The Tata Group has been thrown into turmoil again by Wednesday’s ruling of the National Company Law Appellate Tribunal (NCLAT) that reinstates Cyrus Mistry as executive chairman of the $100 billion-plus global conglomerate. A two-member bench of the NCLAT has held that Mistry’s 2016 ouster as its chief was illegal, and so his successor N. Chandrasekaran would have to return the business group’s leadership to him. The bench, headed by NCLAT chairperson Justice S.J. Mukhopadhaya, also ruled that the conversion of Tata Sons Ltd, a deemed public entity, into a private company was a violation of Indian law. This puts Ratan Tata in a tight spot. As chief of the Tata Trusts that own nearly two-thirds of Tata Sons, the group’s holding firm, it was he who led the exercise to replace Mistry. This need not, however, be interpreted as an outright victory for Mistry over Tata. The court has granted Tata Sons four weeks to file an appeal against the order, which is scheduled to take effect only after that time period elapses. Given the complexity of the case, we probably haven’t heard the end of it yet.
Mistry was relieved of his job as Tata Sons’ boss barely four years after his appointment. The main reason cited was the group’s poor performance under him, but the charges and counter-charges that surfaced soon afterwards made it clear that relations between him and Tata had got strained over specific matters to do with how the group was being run. The Tata-aligned old guard accused Mistry of trying to wield excessive power and of flouting the group’s long-standing principles, resulting in an internal culture clash, while the latter complained of “interference" by Tata despite having been assured a free hand. Observers at the time saw Mistry’s ejection as the outcome of his trying to break free of Tata’s counsel. While such advice was not legally binding on the group chairman, it would still have been risky to ignore, given the fact that Tata was the group’s “majority owner" for all practical purposes. Mistry’s family only had a minority stake in Tata Sons, of a shade over 18% of its equity, and that too held by two entities. While this stake was enough to exercise some rights, the case appears to have pivoted on whether it also meant Mistry could veto key resolutions of the holding company. Taking Tata Sons private without Mistry’s approval after his ouster was one of these decisions; among other things, it reportedly took away Mistry’s leeway to freely dispose of his family’s shares in the firm. Its conversion was one of several so-called “oppressive" acts that the NCLAT has struck down.
Where does the group go from here? Tata will likely challenge the order at the Supreme Court, even as legal experts pore over majority versus minority shareholder rights under our corporate laws. Meanwhile, the group finds itself wracked by uncertainty at a time when it can hardly afford such a big distraction. With Chandrasekaran at the helm of affairs, the group appeared to have got assorted elements of its global strategy together, and the performance of its companies’ shares over the past three years would suggest that stock markets had by and large been satisfied with what they saw. Business was looking up after a rough patch. It’s no surprise that Tata shares were shaken by the news. But then, it’s not as if the group has never seen off a crisis before.