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Wednesday, October 28, 2020

Shapoorji ready to exit as Tata offers to buy out its stake

The statement came hours after the Tata Group informed the court that it was ready to buy out the SP Group's stake.

By: ENS Economic Bureau | Mumbai, New Delhi | Updated: September 23, 2020 11:31:51 am
Tata-Mistry row, Cyrus Mistry, Cyrus Mistry sacking, Ratan Tata, Abhishek Manu Singhvi, Tata Group, Tata news, business news, companies news, latest news, indian expressThe Tata Group said it is open to buying shares held by the SP Group to aid the latter’s fund-raising efforts, its lawyer told the Supreme Court. (File)

THE SHAPOORJI Pallonji (SP) Group said in the Supreme Court Tuesday that it would exit from Tata Sons, provided it gets an “early resolution” and a “fair, equitable solution” in the protracted legal battle between the two sides. This could potentially mark an end to the 70-year relationship between two of India’s oldest and biggest business groups.

The SP Group is the largest minority shareholder in Tata Sons, the holding company of Tata Group, with 18.37 per cent stake. But it said in a statement that a separation “is necessary” due to the potential impact of the continuing litigation between the two sides on “livelihoods and the economy”.

“It was crucial that an early resolution is reached to arrive at a fair and equitable solution reflecting the value of the underlying tangible and intangible assets,” it said. “The SP-Tata relationship, spanning over 70 years, was forged on mutual trust, good faith, and friendship. Today, it is with a heavy heart that the Mistry family believes that a separation of interests would best serve all stakeholder groups.”

Explained| The impending exit of Shapoorji Pallonji from Tata, and what happens now

The statement came hours after the Tata Group informed the court that it was ready to buy out the SP Group’s stake. The court restrained the SP Group from pledging or transferring its stake in Tata Sons and asked the Mistrys to maintain status quo until October 28, when it starts hearing final arguments.

The Tata Group said it is open to buying shares held by the SP Group to aid the latter’s fund-raising efforts, its lawyer told the Supreme Court. The Tata Group had moved the court earlier this month to restrict the SP Group from raising capital against their shareholding in Tata Sons.

In its fresh application, Tata Sons sought a direction to the SP Group “to disclose on affidavit all the pledges, encumbrances or charges, direct or indirect, that may have been created” upon its shares or the shares of two Mistry family-run entities, Cyrus Investment Pvt Ltd and Sterling Investment Corporation.

Under the Articles of the Association (AoA), the board of Tata Sons claimed it has a Right of First Refusal (RoFR) to buy at fair value the shares of Mistry and others who want to sell. However, the SP Group wants the apex court to dismiss this petition as “creation of pledge does not amount to transfer of shares”.

As the urgent application by Tata Sons was filed soon after the SP Group signed documents with a global investor to raise Rs 3,750 crore, the latter has accused the former of blocking its Rs 11,000-crore fund-raising plans.

The SP Group said its role was “always one of guardianship with an aim to protect the best interests of the Tata Group”. “It is a matter of record that prior to the year 2000, when the Tata Trusts, being Public Charitable Trusts, couldn’t exercise their voting rights, the same being held by a Public Trustee, the SP Group voted to protect the best interests of the Tata Group,” it said.

“It is extremely unfortunate that the current leadership of Tata Sons has not only continued to take value destructive business decisions in a misguided effort to prove a point in these proceedings. It is a matter of public record that several issues, identified years earlier, continue to plague the group. Be it the operations of Tata Steel UK, where over the last three years alone the operational losses have increased by an additional 11,000 crores, or the Group’s aviation businesses,” it said.

“In 2012, when Cyrus Mistry accepted the position of Chairman of Tata Sons, it was not only with a sense of pride, but also with a sense of duty as an ‘insider’ on the board of Tata Sons. The Tata Group was going through significant change,” it said.

“A generation of Tata leaders was retiring with implications on the future governance of the Group. Several of these leaders who were retiring from the Board of Tata Sons also served as Trustees of the majority shareholders — Tata Trusts,” the SP Group said.

It was “in this context” that Mistry set about “trying to establish a governance structure that would institutionalize accountability, and create the right checks and balances, without contravening the new SEBI Insider Trading law that regulated the flow of information across all stakeholders”, it said, before he was removed.

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