The national company Law Tribunal (NCLT)’s refusal to waive aside a minimum shareholding requirement that would have allowed minority shareholders in Tata Sons—the Shapoorji Pallonji Group—to initiate action against ‘oppression and mismanagement of minority interest’ is rather unfortunate. The judges have cited their reasons for insisting on sticking to the rules that insist on a minimum shareholding of 10%—which Pallonji does not have once you include preference shares—and while minority shareholders can be annoying and complain frivolously, it should have used its powers to waive the eligibility clause. After all, the Pallonji Group is not just another minority shareholder. The Group’s association with the Tatas goes back some five decades and consequently, the tribunal could perhaps have chosen to taken a broader view of the circumstances rather than merely go by the numbers. As has been pointed out, there are only two sets of shareholders in Tata Sons, so the traditional rules—the 10% rule is to rule out frivolous complaints—probably didn’t make sense anyway.
As a result of this adherence to a technicality, Cyrus Mistry—who was unceremoniously ousted from the post of chairman of Tata Sons on October 24, 2016—was not even allowed to plead his case. Given his hands-on experience as chairman of Tata Sons for four years since December 2012, a post to which he was appointed with the consent and blessings of Ratan Tata, his credibility cannot possibly be in question. That also means that, till December 2012, Mistry had been doing everything right as a director. However, after taking over as chairman and consequently working closely with the group companies, if Mistry believes all is not well within the Tata Group and that there are instances of corporate misgovernance, he should at least have been given a chance to prove the allegations.
Mistry’s performance, over the last four years, has been commended by many in the corporate world—independent directors on the board of Indian Hotels supported him for his performance. Indeed, had the NCLT given Mistry the chance to present his case, this would even have helped Ratan Tata prove that he was right and that there was no mismanagement as Mistry was alleging.
Also, while Tata Sons may be an unlisted company, it is different from other unlisted companies in that it is the holding company for more than a dozen group companies, all of which are listed entities. More critically, the Tata Sons board has been taking crucial decisions relating to these companies; the acquisition of Corus by Tata Steel, and indeed, the numerous other acquisitions would all have been discussed by the board. And while the NCLT has observed that Ratan Tata has been instrumental in making the Tata group a $100 billion conglomerate, the fact is many of the companies are over-leveraged and in poor financial condition; it is Mistry who worked to get them back into shape and present a true picture of their finances. Also, given how the Pallonji family’s fortunes are tied to the Tata Group, it is unlikely it would want to hurt the Tata Group. Had they been allowed to argue the case, all minority shareholders—across all group companies—would have had a better understanding of the group’s functioning.