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When The Faithful Prince Backfired!

Remember, four years ago when the entire business world was shocked to hear the allegations made against the ‘not so clean’ Tata & Sons? In today’s highly competitive and capitalistic world, where business rivalry is a routine affair among the giants, there are a few players who prefer to keep it clean. The Tata group is one of them and has maintained its reputation as one of the most honest corporate entities.

Ratan Tata, former Chairman of the Tata group is one of the most powerful businessmen in India and one of the most influential in the world. He owns less than 1% of the assets of the group in his own name. He ended up being in the headlines related to a controversy. It all started after the Tata group appointed Cyrus Mistry as the 6th Chairman of Tata Sons in 2012. He had been on the board of Tata Sons since August 2006. Mistry is the son of Pallonji Mistry who was the owner of Shapoorji Pallonji Group till 2012 (presently headed by Shapoor Mistry). The Mistrys are the largest individual shareholders in Tata Sons with 18.4%, which is equally divided between the two sons.

On October 24, 2016, Mistry was removed from his post as the Chairman during a board meeting. According to sources, Mr Tata gave him a chance to resign voluntarily, which Mistry denied. The severity of bitterness among the two was made obvious after he was ousted from all the other boards as well. At that point in time, the Mistrys were crippled and the future course was unknown. Ratan Tata was reinstated as the Interim Chairman for about four months.

Tata Sons stated that a trust deficit with Cyrus Mistry was the major reason for his removal. They also claimed that the members of the board had lost their confidence in Mistry and thus took a collective decision to replace him as the Chairman. On the other hand, Mistry claimed the removal to be illegal and a staged coup.

Since no concrete reasoning has been given out for the removal, many possible reasons have been floating across. Legacy problems within the Tata group, and differences between Mr Tata and Mr Mistry are also seen as the alleged reasons for Cyrus being ousted. Additionally, Mistry wanted to get rid of certain ventures which proved to be unsuccessful. These included Tata Steel’s European business, Tata Nano, and telecoms. Mr Tata refused these advances and these led to certain conflicts. Mistry made some decisions without consulting the board and Ratan Tata himself. Unsurprisingly, these decisions were not well received by all. Tata group also suffered some losses under Mistry’s reign. At times, he even overlooked the existing ventures and was prioritising new businesses. This was not acceptable to Mr Tata as the existing ventures had some emotional sentiment attached to them.

Mistry filed a case against the Tata Sons with the National Company Law Tribunal (NCLT) in December 2016. He stated that even after 8 weeks, he does not have any concrete reason backing the move, and hence he chose to go the legal way. This whole situation has adversely affected the position of the Pallonjis as a minority shareholder.

Mistry’s challenge was turned down by the NCLT. After this, he went to the National Company Law Appellate Tribunal (NCLAT) in regard to the NCLT dismissal. His appeal with the tribunal was admitted in August 2018. The appeal was restored later and judgment was passed by the NCLAT in December 2019. The judgment and order reinstated Mistry as the Chairman of Tata Sons and restored his position on all the boards. This order was challenged by the Tata Son’s in the Indian Supreme Court. The Supreme Court put a stay order on the NCLAT’s judgment after it refused to modify the same. Even after various hearings, both the parties are nowhere near satisfied and the conflict is ongoing.

Tata Sons did what they felt was needed for the group’s benefit. This move was not well reasoned by them and the consequences being faced are dreadful. Even the Mistrys are facing uncertainty at their end! This move has not only defamed Cyrus Mistry but has also raised questions on Tata’s working and management. Even though the NCLAT’s judgment was in Mistry’s favour, he believes it’s not enough. His demands for rights in a corporate democracy for a minority shareholder still remain untackled! This forces us to think more about shareholders and how authority should be controlled within the working of business houses in order to maintain the ideals of corporate democracy.

I don’t believe that majority dominance should play a role in the business culture. Decisions being taken affect all the investors equally and thus their approval should be necessary. A democratic process that includes debate and deliberation regarding every big step should be given importance. In this particular feud, both sides had made similar mistakes of taking decisions on an individual level. Be it Cyrus taking company matters and policies in his own hands or Mr Tata scrapping his ideas and at last ousting him without justification. These examples prove how seniority plays an important role in corporate functioning. This also means that views and opinions of other board members who are usually the minority shareholders are negated or delegitimised. Power dynamics need to be minimised in order to protect minority rights.

The interests of a company should be prioritised while taking crucial decisions. Is it safe to assume that all minority shareholders genuinely care about the company as a whole? Personal interests and gains have always been prioritised by individuals. Keeping this in mind, it is important to make sure these rights are not misused and the interests of a company are always taken care of. Does this justify the ousting of Mistry? Oops! We ended up being in a dilemma.

These situations are not favourable to any of the parties involved but they do unfold the power play within corporate houses. The Tata group which was known for its values and ideals is facing severe repercussions. It is time to rethink and stand up for minority rights not only within national boundaries but also within the corporate world and make sure they are not tampered with. The ambiguity of this whole situation can be sensed in every article present in my search history and thus it makes it difficult to land upon a conclusion which satisfies all the parties involved.

ananya.singh

Ananya Singh

An Economics student trying to make sense of the world! Extremely fun & talkative but only if I like you ;)

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