NCLAT removes the private company status of Tata Sons

by aditi verma 2019-12-20 08:29:46

Business News: The National Company Law Appellate Tribunal (NCLAT) that had previously given an order for the reinstatement of the ousted chairman Mr. Cyrus Mistry, has now made a statement that converting of the Tata Sons from a public limited company into a private company is not valid legally.

NCLAT had said in a statement that the conversion of Tata Sons into a private company was legally invalid and a reversal of the same had been ordered on Wednesday, 18th December 2019.

In September 2017, Tata Sons got the approval of the shareholders for its conversion into a private limited company from a public limited company.

Mr. Cyrus Mistry's stake

The family companies of Mr. Cyrus Mistry that are holding an 18.4 percent stake in the Tata Sons, were opposing the decision as this may end up restricting them if they wish to sell their stakes to the outsiders. In the year 2018, the appellate tribunal had given orders to the company that they can not force Mistry to sell his family's stake until the proper decision is taken on his appeal.

Being a private limited company, Tata Sons will need no consent of the shareholders and it can easily take any important decisions as long as it gets the board's approval. This basically means that the Mistry family will get no say in the board of directors, even though it is the biggest shareholder in the company after Tata Trusts, as per a spokesperson.

The Tata Trust counsel made an argument earlier at the National Company Law Tribunal (NCLT) that they want Tata Sons to acquire a share of the Mistrys in the holding company. "Tatas wish to remove the Mistry family from the ownership of the shares of Tata Sons," as per an industry expert.

Mr. Sudipta Sarkar, the senior counsel of the Tata Trust said while the argument was made that this would be in the interest of the Tata Sons company to buy the stakes of the Shapoorji Pallonji (SP) Group in the holding company. He alleged that the SP Group was using their rights in a "disruptive manner" which was not in the interest of the company.

The Tata counsel had made a statement in the court saying that the Mistrys didn't hold any shares of the company until the year 1965. They bought the shares from the siblings of JRD Tata at a later time.

The Tata Sons shares were acquired by the SP Group when they were bought by the financing firm F.E. Dinshaw and Co in the 1930s. Though, the SP Group had always been a silent shareholder but this changed whit the ouster of Cyrus Mistry from the Chairman post of the Tata Group.

Tata Sons shareholders' vote

In September 2017, the Tata Sons shareholders had voted in the favor of the Tata group holding firm to become a private limited company during the first annual general meeting (AGM) during the time, Mr. N Chandrasekaran was the Chairman. This move had been opposed by the Mistry family due to the reason that it will prevent them from selling their shares in the company. The shareholders of the Tata group firms even complained that this move may lead to giving out lesser information about what was happening at the holding company level.

Mr. Cyrus Mistry's counsel C Arya Sundaram made an argument for the introduction of particular "safeguards" within the Group so as to protect the interests of all the minority shareholders. After a while, Mr. Mistry wanted his SP Group that is the largest shareholder in the Tata Sons, should be given proper representation in the board proportionate to their holdings.

Mr. Abhishek Manu Singhvi, the representative of the Tata Group's holding company, had countered the arguments of the Mistry family by saying that Mr. Cyrus Mistry (while he was a Tata Sons board member), was a part of almost all of the decisions of the company as well as the alleged mismanagement after he was removed from the post. He added that the board lost confidence in him and as a result, he was removed from the chairmanship position.

Image Source - scroll.in

Also Read: Tax Saving Investments: Save your taxes beyond Mutual Fund