Forbes India 15th Anniversary Special

From insiders to outsiders: Mistry family finally ready to let go of crown jewel

With the Shapoorji Pallonji Group publicly announcing its intent to part ways with the Tata Group, the Tatas will have an enormous task ahead to raise adequate funds to pay off their debt

Manu Balachandran
Published: Sep 23, 2020 11:05:21 AM IST
Updated: Sep 23, 2020 01:16:09 PM IST

From insiders to outsiders: Mistry family finally ready to let go of crown jewelImage: Getty Images

There certainly wasn’t going to be any handshake. After all, half-a-decade of mudslinging had burnt bridges, leaving no room for reconciliation. 

On Sept 22, the Shapoorji Pallonji (SP) Group, led by the 91-year-old billionaire, Pallonji Mistry, finally decided that it had had enough of its 70-year-old association with the 152-year-old Tata Group. The Shapoorji Pallonji group, commonly known as SP Group, has been the largest minority shareholders in the $113 billion Tata Group, with an 18.4 percent stake. 

“The SP-Tata relationship spanning over 70 years, was forged on mutual trust, good faith, and friendship,” the group said in a statement. “Today, it is with a heavy heart that the Mistry family believes that a separation of interests would best serve all stakeholder group.” 

For the past four years, the Tata Group and the Mistry family have been in the midst of a bitter corporate battle, after Cyrus Mistry, Pallonji’s son and sixth chairman of the Tata Group, was unceremoniously booted out. Pallonji Mistry, through his two-family entities, Sterling Investments and Cyrus Investments, own the 18.4 percent stake in Tata Sons, the holding company of the salt-to-software maker, Tata Group. 

“As the largest minority shareholder owning an 18.37% stake, the role hitherto played by the SP Group, was always one of guardianship with an aim to protect the best interests of the Tata Group,” the statement from the company says. “The SP Group had always used its voting rights as a shareholder for the best interest of the Tata Group.” 

The decision to part ways came after the Shapoorji Pallonji Group decided to pledge its stake in Tata Sons for raising capital amidst the ongoing downturn in the economy. SP Group has debts in excess of Rs 30,000 crore, and it was looking to pledge its shares to repay some maturing debt. Last week, the group had missed a deadline to repay dues to group listed company, Sterling and Wilson Solar, after the promoters paid just a tenth of their total dues of Rs 1,000 crore owed to their subsidiary. 

“The Mistry family were in the midst of raising funds against the security of their personal assets to meet the crisis arising from the global pandemic,” the statement adds. “This move was undertaken to protect the livelihoods of its 60,000 employees and over 100,000 migrant workers.” 

The Tatas, however, challenged the plan in the Supreme Court, where a decision could be taken likely next month. The Tata Group owns more than 100 companies and is 66 percent owned by Tata Trusts, helmed by chairman emeritus Ratan Tata. Of this, its publicly traded firms have a valuation in excess of Rs 7.7 lakh crore. The group also told the Supreme Court that it is open to buying shares held by the SP Group to help with the latter’s fund-raising efforts. 

“It is a sensible decision in the current status of the relationship between the Tatas and Mistrys,” Kavil Ramachandran, the executive director, at the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business says. “Over the past few years, it got drifted from a position of mutual trust and mutual win to the opposite. Very often, such relationships are built on emotional connections and not economic compulsions and once the emotional link is ruptured, it is sensible to part ways as reconciliation is not easy anymore.” 

From being outsiders to guardians 

Much of what Pallonji Mistry owns in the Tata Group today is through inheritance from his father Shapoorji. But it’s still uncertain how Shapoorji managed to lay his hands on the stake, particularly because the Tatas never liked to bring outsiders into the business. 

What is known, however, is that between 1924 and 1926, a businessman named Framroze Edulji Dinshaw lent Rs 2 crore to the Tata Group to help the then-struggling Tata Hydro and Tata Steel. Dinshaw was promised 25 percent of the money that Tata Sons made from Tata Steel and 12.5 percent of that from Tata Hydro. 

However, Dinshaw’s deal didn’t quite materialise and his loan was eventually converted into equity worth some 12.5 percent in Tata Sons. Around this time, JRD Tata, who would go on to become the Tata Group chairman in 1938, divided his father’s stake in Tata Sons between his sisters and brothers. JRD Tata’s father, RD Tata, and Jamsetji Tata’s sons, Sir Dorabji and Sir Ratanji, had merged RD’s family firm Tata & Company with Jamsetji’s family firm Tata & Sons to create, Tata Sons. 

In 1930, just a year after Pallonji Mistry was born, his father Shapoorji, then a reputed builder in Mumbai, acquired the 12.5 percent stake from Dinshaws’s heirs. Shapoorji Pallonji Construction, owned by Shapoorji, had gone on to build iconic buildings such as the Reserve Bank of India, The Taj Mahal Palace, the Oberoi Hotel, and many residential properties in Mumbai. Over the next few years, Shapoorji would also go on to buy out JRD Tata’s siblings’ stake in Tata Sons, raising his stake to over 18 percent. 

By 1975, when Shapoorji passed away, he left his entire stake to his son Pallonji, a graduate from the illustrious Imperial College London. Since then, the families have maintained a rather cordial relationship, with Ratan Tata also reportedly thanking Pallonji soon after taking charge as the Chairman in 1991. “I hope I can continue to enjoy your confidence as we work together in the coming years managed to smoothen the course by ensuring better ties between the two families and with the Tata Group,” Ratan Tata had reportedly written in his letter. Over time, Pallonji’s daughter, Aloo, also married Ratan’s half-brother Noel. 

The warmth and depth of the relationship became even more evident when in 2012, Cyrus Mistry was appointed chairman of the Tata Group when Ratan Tata decided to hang up his boots. It was the first time in 74 years that someone from outside the Tata family had taken the corner office. "He has been on the board of Tata Sons since August 2006 and I have been impressed with the quality and calibre of his participation, his astute observations and his humility," Ratan Tata had said about Cyrus Mistry in 2012, at the time of his appointment. 

The appointment was also seen as a testament to Pallonji Mistry’s invisible powerplay within the group. Within the corridors of Bombay House, Pallonji Mistry is often known as the Phantom, for being hardly visible, yet commanding enormous influence. “In 2012, when Mr. Cyrus Mistry accepted the position of Chairman of Tata Sons, it was not only with a sense of pride but also with a sense of duty as an ‘insider’ on the Board of Tata Sons,” the statement from the SP Group says. 

The crisis and separation 

In 2016, after four years at the helm of the Tata Group, Mistry was voted out as the chairman. Soon after, he had said that some of the group’s foreign acquisitions had left massive debts, and a realistic assessment of five Tata companies, namely Indian Hotels Company, Tata Motors PV, Tata Steel Europe, Mundra Ultra Mega Power Project, and Tata TeleServices, could lead to nearly $18 billion write-downs. 

The Tata Group then countered the allegations saying that Mistry was unable to generate adequate profits even as debt mounted, and was even plotting “devious” means to wrest control of the group from Tata Sons. 

Since then, the two groups had been embroiled in a legal tussle that eventually saw the National Company Appellate Law Tribunal (NCLAT) reappoint Cyrus Mistry as the chairman of the Tata Group in 2019, after he challenged an earlier order by the National Company Law Tribunal, which upheld his removal from the post of chairman of Tata Sons. 

“It is a matter of public record that several issues identified years earlier, continue to plague the group. Be it the operations of Tata Steel UK, where over the last three years alone the operational losses have increased by an additional Rs 11,000 crores or the Group’s aviation businesses. These actions, or lack thereof, have meant that the total debt in the major Tata Group companies has increased by approximately Rs100,000 crores in the last three years,” the statement from SP Group says. 

The decision to part ways came after the Tata Group had on September 5, moved the Supreme Court seeking to restrain the Mistry group from raising capital against their Tata Sons shares. The petition sought to prevent the SP Group from creating any direct or indirect pledge of shares. 

But, with the SP group publicly announcing its intent to part ways with the Tata Group, the Tatas will also have an enormous task ahead to raise adequate funds to pay off the debt. That’s because, barring TCS, many of the group’s listed and unlisted firms haven’t been able to generate adequate profits. The Shapoorji Pallonji (SP) group has reportedly valued its stake in Tata Sons at nearly Rs 178,000 crore. 

“The current situation has forced the Mistry family to sit back and reflect on the past, present and possible future for all stakeholders,” the statement says. “The past oppressive actions and the latest vindictive move by Tata Sons that impact the livelihoods of the wider SP Group community lead to the inexplicable conclusion that the mutual co-existence of both groups at Tata Sons would be infeasible.” 

Finally, after years of mutual co-existence, curtains are drawing on one of India’s most coveted business partnerships.