Cyrus Mistry, the 50-year-old former Tata Sons chairman
Image: Danish Siddiqui / Reuters
In a dramatic turn of events in the Tata-Mistry battle on Monday evening, Cyrus Mistry, the 50-year-old former Tata Sons chairman, announced his resignation from the boards of listed group companies, many of which were due to hold shareholder meetings later this week to vote on his removal as director of these firms. By virtue of his resignation as director of these companies, he has also relinquished his position as their chairman.
Mistry’s decision to step down as a director on the boards of large and listed group operating companies, including Indian Hotels Co. Ltd (IHCL), Tata Steel, Tata Power, Tata Chemicals and Tata Global Beverages Ltd (TGBL), came after a scheduled board meeting of Tata Sons Bombay House on Monday, which both Mistry and Ratan Tata, the septuagenarian interim chairman of Tata Sons attended.
The announcement that was made through an intimation to the bourses, as well as a statement and a recorded video message from Mistry, also came just hours before IHCL shareholders were due to convene for an extraordinary general meeting (EGM) on Tuesday morning to decide on Mistry’s fate as a director of the company.
But Mistry ensured that he went out with a bang. Or in this case, a strongly-worded statement and video message that reiterated some earlier allegations that he had made against the Tata Trusts and notably Ratan Tata himself, who is the chairman of these trusts; leveled some new allegations; and promised to continue the fight at another “larger platform and also one one where the rule of law and equity is upheld.”
In his statement issued on Monday evening, Mistry said that events of the last eight weeks (since October 24, when he was summarily dismissed as Tata Sons chairman and replaced with his predecessor Ratan Tata as interim chairman) have been about saving a legacy of values and ethics inherited from the founder of the salt-to-software Tata Group, Jamsetji Tata.
“Having deeply reflected on where we are in this movement for cleaning up governance and regaining lost ethical ground, I think it is time to shift gears, up the momentum, and be more incisive in securing the best interests of the Tata Group,” Mistry said in his statement. “Towards this end, the objective of effective reform and the best interests of employees, public shareholders and other stakeholders of the Tata Group (the very people I sought to protect as chairman) would be better served by my moving away from the forum of extraordinary general meetings.”
Though Mistry didn’t specify, which forum he proposed to move in order to secure good corporate governance standards at the Tata Group, experts such as noted corporate lawyer HP Ranina feel that Mistry may be more inclined to raise the matter with the government (ministry of corporate affairs) and capital markets regulator, Securities and Exchange Board of India (Sebi), rather than drag the matter to court.
“While Mistry has termed his sacking at the October 24 Tata Sons board meeting as illegal, if he were to move court now, he may very well be questioned regarding the reasons for the delay in seeking relief from the court,” Ranina said. “He may instead seek to open a dialogue with the government seeking a change in the law.”
One indication of what Mistry may be seeking to achieve can be found in the statement he issued on Monday where he said that till 15 years ago, the trustees of Tata Trusts enjoyed no voting power on the Tata Sons shares they held. Company law, says Mistry, vested voting power in the hands of a “public trustee” appointed by the government who would decide how to vote shares held by public charitable trusts. Mistry may very well seek the restitution of the position of a “public trustee” at Tata Trusts.
VR Mehta, a trustee of the Sir Dorabji Tata Trust, one of the principal entities comprising the Tata Trusts told CNBC-TV18 that the Tata Trusts had been functioning in a “perfectly legal” manner and that there had been no violation of the law.
Mehta said that all that the trusts tried to do was that when it saw the likelihood of its dividend income going down, which would have impacted the various charitable programmes that it runs, it brought the matter to the notice of the then chairman, Mistry. When adequate actions were found wanting, an alternate course of action was contemplated, said Mehta. He denied that the Trusts ever sought to interfere in the functioning of Tata Sons or the group operating companies.
Ranina also pointed out that the entire Tata-Mistry episode should lead to a re-think on the part of the government with respect to the provisions of the Companies Act of 2013. For instance, Ranina says, whether an independent director, who is supposed to function as the fiduciary guardian of minority shareholders, should be appointed by the promoters of a company and whether he can be removed from the board of a company by a mere ordinary resolution moved by these promoters needs to be examined.
“If an independent director of a company earns sitting fees and commission from the company that is controlled by promoters, then there is a question mark regarding such independence,” Ranina said.
Mistry emphasized that he had, at all times, acted only in the interests of the Tata Group and there was no reason for him to quit. After being sacked as Tata Group chairman, Mistry dug in his heels and refused to step down as chairman of the group operating companies. Which is why, Tata Sons as the promoter shareholder of these companies had to requisition for EGMs of shareholders to put the resolution to oust Mistry to vote. With Mistry stepping down voluntarily from the boards of these companies, the EGMs where he was being sought to be removed as director now stand redundant. However, another item in the agenda for EGMs at group companies like Tata Steel, Tata Motors and Tata Chemicals also is a resolution to remove Nusli Wadia as an independent director on the board of these firms.
The Tata Group has alleged that Wadia was acting in concert with Mistry to garner support for him from other independent directors on the board of group operating companies. Wadia, in turn, has accused the Tata Group of casting baseless aspersions on his role as an independent director and even filed a Rs3,000 crore-defamation suit against Ratan Tata, other directors of Tata Sons, and the company itself. It isn’t immediately clear what course of action Wadia will adopt, in light of Mistry’s resignation on Monday. There are chances that Wadia may be willing to fight it out with the Tatas at the EGMs, by presenting his case before minority shareholders of the companies on whose boards he serves.
It may have been clear to Mistry that the arithmetic with respect to shareholders’ votes to be cast at each group company pertaining to the resolution to remove him as a director wasn’t adding up in his favour. A back-of-the-envelope calculation shows that if the institutional and non-institutional public shareholders of the group companies cast their vote in the same for-and-against ratio as they did at Tata Consultancy Services (including those that abstained) – where Mistry was removed as a director – the latter would have lost out. It takes a simple majority of those present and voting to pass an ordinary resolution such as the one that Tata Sons had floated to remove Mistry as a director. By virtue of Tata Sons’ shareholding in all these companies, which is between 30 percent and 40 percent, the flagship holding firm of the $103 billion-conglomerate may have managed to remove Mistry (assuming 100 percent of the votes that Tata Sons is entitled to cast would have been cast and all of them would have gone against Mistry.
In his recorded video message, the son of Pallonji Mistry, whose family is the single largest shareholder of Tata Sons with an 18.4 percent stake, said that his family’s support to Tata Sons over the past five decades had been one of “guardianship.” He also claimed that even after eight weeks since he was sacked as Tata Sons chairman – which he termed an “illegal coup” – “nothing cogent has been forthcoming,” vis-à-vis the reasons for the decision.
“It is now clear that my attempt to preserve the ethical legacy of our founding father Jamsetji Tata was the real cause for my ouster, Mistry said. “The pursuit of good governance and ethical business seems to have caused a serious discomfort in some quarters. I have been attempting to resolve the governance breakdown at Tata Sons for a considerable period of time.”
Mistry mounted a personal attack on Ratan Tata and Noshir Soonawala, another retired Tata Sons director who serves as a trustee of Tata Trusts, by saying that the two refused to “give up participation in key decisions involving Tata Sons and the operating companies, despite having retired from Tata Sons. Continuing with his allegations of a governance breakdown at the conglomerate, Mistry stated that at the October 24 Tata Sons board meeting, he had tabled a forensic report on the alleged fraud and wrongdoing at AirAsia India. This report, says Mistry, wasn’t discussed; and in another Tata Sons board meeting chaired by Ratan Tata on November 17, further funds were allocated to AirAsia, with “full knowledge of the fraud” and without “concrete steps” being taken to address the situation.
Mistry also reiterated his allegations against founder of the SIVA Group, C Sivasankaran, in his recorded video message. He stated that in a Tata Sons board meeting on September 15, he secured approval from the Tata Sons board to initiate litigation against Sivasankaran to recover large sums of money due from him. “Within a few days, Tata Sons receives a legal notice instead, clearly indicating a leak from Tata Sons,” Mistry noted.
Mehta said that most of the allegations raised by Mistry on Monday were repetitions of what Mistry has said in the past; and that most of these allegations had been responded to by the Tata Group already.
“Bringing to the fore these ethical issues can have a short-term adverse impact on the Tata Group. However, I feel strongly that such short-term pain is necessary for the long-term interest of employees, public shareholders and other stakeholders of the Tata Group,” Mistry said. “As a large shareholder of Tata Sons and a proud long-term partner, my family will also equally suffer this pain. The time has come to take matters to their logical conclusion. I will work on protecting the interests of the Tata Group and realizing the vision of our founder Jamsetji Tata until my last breath,” Mistry summed up.
In response to Mistry’s statements, Tata Sons issued a statement late Monday evening saying that the former’s resignation was a “deliberate strategy on his part, knowing fully well that the overwhelming majority of the shareholders were not in support of his actions.”
The Tata Sons statement termed Mistry’s allegation as “baseless, unsubstantiated and malicious.” The group said that it had responded to Mistry’s charges on multiple occasions and will respond adequately to any allegations made by him. “Tata Sons strongly resents the claims by Mr. Mistry to align with the values and ethics of Jamsetji Tata and the Tata Group,” Tata Sons said. “On the contrary, Mr, Mistry and his family companies have not upheld the high standards and values set by Jamsetji Tata and his successors. Mr. Mistry has done precious little to build the goodwill of the Tata Group, built through the hard work and dedication of its employees.”
The group’s statement reiterated that Mistry had been a director of Tata Sons since 2006 and was fully involved in all the decisions taken by the parent company. The company said that it was “unfortunate” that Mistry chose to level these allegations only after being sacked as chairman.