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Ousted as chairman of Tata Sons in a boardroom coup Monday, Cyrus Mistry has hit back, levelling a series of allegations against the Tata Group and predecessor Ratan Tata including those relating to fraudulent transactions, unethical practices and conflict of interest. Flagging “total lack of corporate governance” in the over $100-billion conglomerate where he says he was reduced to a “lame duck chairman”, Mistry has questioned investment decisions during Ratan Tata’s tenure in several group companies — he has called them “legacy hotspots” — and has warned the board and trustees of a potential $18-billion writedown.
While the official spokesperson of Tata Sons declined comment on Mistry’s allegations, Abhishek Manu Singhvi, senior advocate advising Tata Sons on the matter, said: “No purpose is going to be served by washing dirty linen in public. To every allegation, severe counter allegations are possible. If an overwhelming majority of the nine wise men and women of the board lost confidence in the chairman, what’s the point of making allegations.”
“The factors which go to making loss of confidence are obviously diverse and serious and include economic, corporate, managerial, moral and ethical issues. But even courts do not tread into the review of such causes. Hence, the press should desist from speculative misadventure,” Singhvi said.
In an email to the board of Tata Sons and trustees of Tata Trusts Tuesday, Mistry said: “I cannot believe that I was removed on grounds of non-performance. I am not sure if the individual board members and trustees truly appreciated the extent of the problems I had inherited.”
“Prior to my appointment, I was assured that I would be given a free hand. The previous Chairman (Ratan Tata) was to step back and be available for guidance and advice as and when needed.” But after his appointment, Mistry said, the Articles of Association were modified, changing the rules of engagement between the trusts, the board of Tata Sons, the chairman and the operating companies.
Mistry hits back: lack of corporate governance, was lame duck chairman
“Inappropriate interpretation indeed followed and it severely constrained the ability of the group to engineer the necessary turnaround and as feared, the inappropriate implementation created a flux in the decision-making process,” he said.
According to Mistry, the foreign acquisition strategy, with JLR and Tetley being exceptions, had left a large debt overhang. “The European steel business faced potential impairments in excess of $10 billion, only some of which has been taken as of date. Many foreign properties of Indian Hotels and holdings in Orient Hotels have been sold at a loss… Indian hotels, beyond flawed international strategy, had acquired the Searock property at a highly inflated prices and housed in an off balance sheet structure. In the process of unravelling this legacy, Indian Hotels has had to write down nearly its entire networth over the past three years. This impairs its ability to pay dividends,” he said. The telecom business, he said, has been continuously haemorrhaging. “If we were to exit this business via fire sale or shut down, the cost would be $ 4-5 billion. This is in addition to any payout to DoCoMo of at least a billion plus dollars. The original structure of DoCoMo transaction raises several questions about its appropriateness from a commercial or prudential perspective within the then prevailing Indian legal framework,” Mistry alleged.
On the power business, he said Tata Power aggressively bid for the Mundra project based on low-priced Indonesian coal and a change in rules now pose a threat to future capital impairment.
Mistry’s email is critical of Ratan Tata and his Nano car project: “Nano’s product development concept called for a car below Rs one lakh, but the costs were always above this. This product has consistently lost money, peaking at Rs 1,000 crore. As there is no line of sight to profitability for the Nano, any turnaround strategy for the company requires to shut it down. Emotional reasons alone have kept us away from this crucial decision. Another challenge in shutting down Nano is that it would stop the supply of Nano gliders to an entity that makes electric cars and in which Mr Tata has a stake.” On the performance of the portfolio, he said, “if we look at the aggregate data between 2011 and 2015 and limit the analysis largely to the legacy hotspots (Indian Hotels, Tata Motors PV, Tata Steel Europe, Tata Power Mundra and Tata Teleservices), it will show that the capital employed in those companies has risen from Rs 132,000 crore to Rs 196,000 crore (due to operational losses, interest and capex). This figure is close to the networth of the group which is at Rs 174,000 crore. A realistic assessment of the fair value (of) these businesses could potentially result in a writedown over time of about Rs 118,000 crore”.
Tata Capital, he said, had a book that required “significant clean up on account of bad loans to the infrastructure sector”.
Attacking Tata’s investment in the airline business, Mistry said: “Early in my tenure, our foray into the aviation sector began when Mr Tata ushered me into his office and handed me a report on Air Asia… and wanted the proposal tabled at the forthcoming Tata Sons board meeting. My pushback was hard but futile… A few months later, I was surprised to be confronted with a similar situation requiring me to execute a fait accompli JV with Singapore Airlines… The passion for the airline sector has led Mr Tata to continue his involvement with the strategy of the two airlines.”
He said “board members and trustees are also aware that in the case of Air Asia, ethical concerns have been raised with respect to certain transactions as well as the overall prevailing culture within the organisation. A recent forensic investigation revealed fraudulent transactions of Rs 22 crore involving non-existent parties in India and Singapore. Executive Trustee, Mr Venkatraman, who is on the board of Air Asia and also a shareholder in the company, considered these transactions as non-material and did not encourage further study. It was only at the insistence of independent directors, one of who immediately submitted his resignation, that the board decided belatedly to file a first information report”.
An Air Asia spokesperson declined comment on this allegation.