Behind the Tata-Mistry feud, the crossed wires of history

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March 27, 2021 8:13 AM

When Cyrus took over, he was the first Tata Sons chairperson in the group’s history not to be made chairperson of the Sir Dorab Tata Trust. Ratan Tata retained his position as chairperson of the two major trusts.

The charitable Sir Dorab Tata and the Sir Ratan Tata trusts own 66 per cent of Tata Sons, which, in turn, oversees all the group companies. (File image)

For fresh insight into the high-stakes billion-dollar Tata-Mistry corporate battle, which set off tremors in the Bombay Stock Exchange and sent shock waves in the entire business world, one needs to look to the past and, particularly, the history of three remarkable Parsi families, Tata, Wadia and Mistry, whose heirs are now at war with one another. For instance, it was, ironically, industrialist Nusli Wadia, now firmly backing the Mistry family, who made it possible for Ratan Tata to retain his grip on, arguably, India’s most prestigious business house.

The charitable Sir Dorab Tata and the Sir Ratan Tata trusts own 66 per cent of Tata Sons, which, in turn, oversees all the group companies. Until 1970, the companies were administered by a managing agency, which was controlled by Tata Sons. But with a change in company law, with the introduction of the Monopolies and Restrictive Trade Practices (MRTP) Act of 1969, the managing agency system was abolished and the numerous Tata companies became legally independent of the parent board.

The unity of the group was in jeopardy. Tata Sons did not have a majority holding in most Tata companies, and it was only the high respect that JRD Tata commanded that held together a group which, in fact, become a loose confederation of companies. The group was especially vulnerable to a hostile takeover since, according to government rules, charitable trusts could not vote directly in corporate matters but only through a neutral government nominee.

During Atal Bihari Vajpayee’s tenure as Prime Minister, Wadia, then a close friend and ally of Ratan Tata, was in a position to take advantage of his old and very close relationship with BJP leaders, especially Vajpayee and L K Advani. Section 153A of the Companies Act, 1963, had for long been a thorn in the side of the Tatas as it empowered the government to appoint a public trustee to act on behalf of private trusts.

Until this section was amended, the Tata Trusts, and Ratan Tata as the head, had technically no say over the running of Tata Sons. Wadia pleaded the Tata cause with the then powers that be. Ram Jethmalani, then minister of both law and company affairs, and a personal friend of Wadia passed an order that Ratan Tata would be a government nominee and remain a public trustee with voting rights for Tatas.

In 2002, the Companies Act was amended on several counts, but few seemed to have noticed that the change in Section 153A was Tata-specific. It allowed Tata trusts to vote directly on the Tata Sons Board and not through a government-nominated trustee. Fourteen years later, this amendment would come in handy for Tata to fire Cyrus Mistry.

Another tantalizing question in the saga is just how the construction magnate Shapoorji Pallonji and his son Pallonji Mistry came to own 18.37 per cent stake in Tata Sons, a tightly held family concern. For years, the Tatas were not very transparent about the circumstances in which the shares were purchased. It was hinted that share transfers were made through the estate of FE Dinshaw, a major financial consultant to the Tatas and some maharajas back in the early 20th century.

While the Mistrys denied the claim, it was repeated regularly in the pink papers as gospel truth. An affidavit submitted by the Tata Trusts before the Company Law Board Tribunal exploded that myth and corroborated the Mistrys’ version.

The shares were bought on three separate occasions in the late 1960s and early 1970s. JRD Tata’s widowed sister, Rodabeh Sawhny, sold her stake of 5.9 per cent shares in January 1965 with her brother’s blessings. In July 1969, the Sir Ratan Tata Trust, of which Naval Tata was then chairperson, raised funds by selling a 4.81 per cent stake in Tata Sons to Shapoorji Pallonji Investment Advisors Pvt.Ltd.

Why the Sir Ratan Tata Trust sold some of its shares in 1969 has not been explained. One theory is that Shapoorji had accumulated a large number of IOUs from Tata companies. Whether the outstanding debts were connected with construction works or to settle long-pending unpaid commissions owed to F.E. Dinshaw Limited, which Shapoorji had acquired from his estate, is a matter of speculation.

But the last Mistry purchase in 1974 was without JRD’s consent, and the Tata head had a shouting match with his younger brother, Dara, who never had much of a head for business. The reason this particular sale created such a scare in the group was the introduction of the MRTP Act. It was only as late as 1980 that JRD grudgingly agreed to make Pallonji Mistry a director on the Tata Sons board.

Incidentally, on several occasions in the 1980s, JRD invited Wadia to join the Tata board. According to Wadia, there was major opposition from Naval Tata, Ratan Tata’s father, who was aligned with Pallonji Mistry. In their efforts to block Wadia’s appointment to Tata Sons, Naval Tata and Pallonji Mistry even reportedly approached Indira Gandhi, who was wary of Wadia because of his old association with Nanaji Deshmukh and the Bharatiya Jana Sangh. JRD was willing to take the two of them on but Wadia hesitated. He knew he would face hostility on all fronts. Besides, he had his own group of companies to run.

When Ratan Tata took charge in 1991, he and Pallonji Mistry were united in a common goal to strengthen Tata Sons’ control over the diversified group’s individual companies and oust the satraps who were entrenched in various parts of the Tata empire. Within days of assuming office, Ratan penned a handwritten note to Pallonji stating that “our common agreement and mutual faith will foster a true and lasting relationship. Our standing together will be a matter of strength.” For the Mistrys, the most painful line of this letter of support is: “Let me reiterate that I will never do anything to hurt you or your family.’

Thanks to probing questions from the Mistry camp, the Tata Trusts’ role in the running of the group is now in the spotlight. For their charitable activities, the trusts, formed in the early 20th century, were granted special dispensations by successive governments both in terms of income tax exemptions and the right to investments in corporate entities.

Now, Cyrus Mistry has raised uncomfortable questions about whether charitable trusts can be used to control a major business empire, rather than fulfil the philanthropic objectives for which they were originally set up. Just before he retired, Ratan Tata ensured that the trusts had tightened their grip over Tata Sons. The Articles of Association relating to the appointment and removal of future chairpersons were revised with Nusli Wadia’s guidance, so that all appointments and removals of directors had to be first cleared by the trusts.

When Cyrus took over, he was the first Tata Sons chairperson in the group’s history not to be made chairperson of the Sir Dorab Tata Trust. Ratan Tata retained his position as chairperson of the two major trusts, and thus sowed the seeds of potential discord. Mistry did not really have the powers a normal chairperson of the board would have had. Wadia recalled to this writer that when Tata asked him for his views on choosing Cyrus as chairperson, his cynical response was that Ratan had not really retired: “All you have done is move the power centre from the board to the trusts.”

(Kapoor, Contributing Editor, The Indian Express, is the author of the soon-to-bereleased book “The Tatas, Freddie Mercury and other Bawas”.)

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