Mystery over Tata-Mistry: Everything You need to Know

All the drama which unfolded on the last week of October shocked the market worldwide. Late evening after the maket closed down the Tata Sons Ltd released a statement stating that  its board has ousted Cyrus Mistry as Chairman.

Created On: Oct 30, 2016 05:17 ISTModified On: Nov 1, 2016 16:27 IST

The most recent meeting room drama at Tata head office to ouster the Cyrus Mistry from Tata group, has brought up uncomfortable issues on corporate administration in India. Were it not for the advantageous legacy of the salt (‘Desk ka Namak’ fame)-to-software heavyweight combination, the arrival of a family patriarch to expel a successor designated by him only four years prior would have pulled in far more significant slander.

All the events which unfolded on the last week of October shocked the market worldwide. Late evening after the maket closed down the Tata Sons Ltd released a statement stating that  its board has ousted Cyrus Mistry as Chairman. The statement also added that Ratan Tata the predecessor of Cyrus Mistry will take over in the interim. The statement also said a new search panel has been created to find a new boss.

However the reason behind this shuffle is still unknown. The blame game has started and complete story is still a mystery. Ratan Tata, has not come out with any comment on it so far. There are speculations of conflict of interest and under performance.

The Allegation

The Tata Trusts  has alleged that  the Tata Group was concerned about the falling revenue and decrease  in funds earmarked for charity  work since Mistry took over as a chairman of  Tata Sons. The Trusts were also concerned   about the fact that the  independent performance of Tata Sons was decreasing and its performance was increasing dependent on just two companies i.e. Jaguar Land Rover And Tata Consultancy Services.

The allegation from the Tata sons seems pretty shallow, because evaluating poor performance is a relative term and it is complex to figure out performance of a massive organization by a single yardstick. The average dividend received by Tata Sons during the Mistry’s tenure was Rs 6,855 Crore in four fiscal years from 2013 to 2016. And the average received dividend for Fiscal years 2014 to 2015 was 5,015 crore.  But, It is noticeable that in seven of last nine years the contribution of TCS and JLR was atleast 70 % of dividend received by Tata Sons  and in one years it was as high as 148 % of the dividends received by Tata Sons.

Opposite view from Cyrus Mistry

Curus Mistry has defended his tenure by asserting that he was burdened with a lot of problems which he inherited from his predecessors. He questioned the precedent decisions of Tata Sons such its entry into aviation, Tata Power’s bidding for Mundra Power Project, The continuation decision with Nano Car etc. He also said that he never had a free hand as a Chairman because he was consistently interrupted by Tata Trusts and Ratan Tata. He wrote an email to the directors of Tata Sons where he has said that the two members of the nomination and remuneration committee of the board who had recently praised and commended his performance voted for his removal.
Mistry has warned in his email about a Rs1.18 trillion writedown. This is two -third of the Tata group’s net worth of Rs1.74 trillion. He has raised the issues of bad corporate governance in the group.

Mistry’s letter has  raised questions on the Tata’s reputation for being a well-governed Indian corporate group. The Tata Group will have to come out with explanation on Mistry’s allegations.And this battle can go on for longer time if legality is involved with this issue.

Legal backing of this sacking

Tata Trusts gave powers in approving, nominating and terminating Chairmen of Tata Sons to the directors nominated by the trusts. If the majority of them votes against the chairmen then he or she can be removed from its position. This is written under Section 173 of the Companies Act a seven-day notice should be given to the chairman but this notice is renounced if the decision is ratified by majority of directors.

In support of this sacking, the Tata sons have filed the caveat in the court, in order to prevent any legal harassment from the counter party.

The term Caveat Petition is a precautionary measure which is undertaken by people usually when they are having a very strong apprehension that some case is going to be filed in the Court regarding their interest in any manner. The word 'Caveat' is not defined in the Code.

Tata Trusts

Tata Sons is a part of the Tata group of companies. It can be said that it is a holding company of Tata Group. The chairman of Tata Sons is also basically the chairman of other operating companies of Tata Group.  Tata Sons decided how much capital to allocate to other operating companies such as Tata Steel and Tata Motors.

Tata Trusts is the group of Sir Dorabji Tata Trust, Sir Ratan Tata Trust and other trusts bestowed by the members of the Tata family. This trusts holds two third of Tata Sons. In a statement released by a Tata Sons and Tata Trusts stated that   the decision to remove Mistry was taken on the basis of the recommendations of the principal shareholders  who decided that  it would be appropriate to change the chairman for the long term interest of Tata Sons and Tata group.

Impact over Market

After the removal of Cyrus mistry the shares of Tata group reacted strongly in the market. The stocks of Tata Steel,Tata Motors, TCS, Tata Metaliks , Titan Company ,  Tata Communications, and Tata Chemicals saw a decline between 1 % to 3%. By comparison, the    shares were trading 0.2% lower at the S&P BSE Sensex  and the Nifty 50.
The Tata group companies together lost the 26000 Cr in market capitalization. The Tata teleservices, however suffered the most by losing 10 percent value of its shares.

Can the Government intervene?
The Minstry of corporate Affairs can look into these allegations. Already, Securities and Exchange Board of India which regulates the exchanges and capital market is asking group companies about these allegations of violations  of law.

The government has categorically said that they have no intention to intervene in this crisis.

What are experts saying?

There is complete divide in the opinions. Some experts are in favor of  Mistry and  some are in favor of Tata Sons .Some experts  are also pointing out that whether Mistry handled the group’s spat with Tata DoCoMo properly or not. Some insiders also came out with commets that Mistry was aloof and he could have communicated more with Board members.Another opinion is that  this issue could have been solved in a more appropriate manner.

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