The government and the Securities and Exchange Board of India (Sebi) are closely monitoring the bitter war unfolding between the Ratan Tata-controlled Tata Trusts and Cyrus P Mistry, who was suddenly replaced by the board of Tata Sons Ltd, the holding company of Tata Group.
Of particular interest to market regulator Sebi are the ‘red flags’ on corporate governance with respect to listed group companies raised by Mistry in his October 25 letter to the board of directors of Tata Sons and the trustees of Tata Trusts. “We are looking at the allegations. Although Tata Sons is an unlisted company and out of the purview of the market regulator, issues raised by the previous chairman (Mistry) are of a serious nature that possibly affect shareholder interests,” said a source in Sebi, who did not wish to be named. “We are waiting for more information and explanations from the listed companies,” the source said.
With details of Mistry’s letter to the Tata Sons board and trustees of Tata Trusts spilling out in media, the Bombay Stock Exchange and the National Stock Exchange have asked the listed companies named by Mistry to clarify.
“The exchange has sought clarification from Tata Motors Ltd, Tata Power Company Ltd, Tata Steel Ltd, Tata Teleservices (Maharashtra) Ltd, Tata Communications Ltd, Indian Hotels Company Ltd, in response to a news item by Bloomberg wire service under the listing regulations of Sebi,” a BSE executive said. Meanwhile, a top government official told The Indian Express that the government did not wish the Tata brand name and consequently, the reputation of India Inc, to be sullied. “It is one of the largest corporate groups. We would never like this fight to prolong and the image of India tarnished,” said an official in the Prime Minister’s Office, who did not wish to be named.
The official said the government would not interfere in the group’s internal affairs because there were existing legal mechanisms for seeking recourse. “We should not interfere. It will not be right for us to interfere. If there is a legal issue, they should approach the courts,” the official said.
Ratan Tata, after being appointed interim chairman, had kept the Prime Minister informed about Mistry’s replacement. “This to inform you that the Board of Directors of Tata Sons has, in its meeting today, replaced Mr Cyrus P Mistry as Chairman, with immediate effect. A new management structure is being put in place and a Selection Committee has been constituted to identify the next Chairman of Tata Sons. The Committee has been mandated to complete the process in four months,” he wrote in his letter to the Prime Minister.
When contacted, a former Sebi chairman said as far as replacement of Mistry was concerned, Sebi would not have any role. “What they have done is not legally wrong. The position of chairman is after all that of ‘first among equals’. But whether they followed norms of good corporate behaviour are questionable. There is definitely need for better communication on reasons that led to the ouster,” the former regulator, who did not wish to be named, said.
According to the former Sebi chairman, Mistry has the option to either file a writ in a high court or approach the National Company Law Tribunal for redressal. In his letter to the Tata Sons board and trustees, Mistry said that to “replace” the chairman in such “a summary manner must be unique in the annals of corporate history”. He raised issues related to corporate governance, insider trading and fraudulent transactions in his letter and cited instances with respect to listed entities from which the stock exchanges have now sought clarification.
Of the six companies from which BSE sought clarification, only one, Tata Power, replied until late evening. “The Company has always made all relevant disclosures, as required, and has no further comments to offer,” it said. Replies are awaited from the other five companies.