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Wednesday, Oct 05, 2022

Boardroom closure

SC ruling in Tata-Mistry case helps group to move forward, shines light on gaps in corporate governance.

In October 2016, the widely admired Tata group was engulfed in controversy, with Mistry being removed from the chairman’s post by a majority of the board of directors.

After a period of prolonged uncertainty, the Supreme Court on Friday gave its ruling in the Tata-Mistry case, bringing the curtains down on one of the ugliest boardroom battles in recent history. The court has ruled in favour of the Tatas, setting aside the National Company Law Appellate Tribunal (NCLAT) order which had reinstated Cyrus Mistry as the chairman of Tata Sons, while holding the appointment of his successor N Chandrasekaran as illegal. The court has also rejected the plea against the conversion of Tata Sons into a private company, which will have a bearing on other companies which plan to go private. With this ruling, the lingering uncertainty that has continued to haunt one of India’s largest business groups for the past few years, has been put to rest.

In October 2016, the widely admired Tata group was engulfed in controversy, with Mistry being removed from the chairman’s post by a majority of the board of directors. Mistry challenged this ouster at the Mumbai bench of the National Company Law tribunal (NCLT), alleging, also, oppression of minority shareholders. The challenge was dismissed by the NCLT in 2017. Mistry appealed to the NCLAT, which in 2019, declared his removal “illegal”, and ordered his reinstatement. Subsequently, Tata Sons challenged the NCLAT order before the Supreme Court. Now, a three-judge bench, led by the Chief Justice of India, has set aside the 2019 NCLAT order. The court has also held that there was no oppression of minority shareholders nor mismanagement at Tata Sons. However, it has left a key issue of the terms of separation — the valuation of the 18.4 per cent stake that the Mistry family holds in Tata Sons — to the parties concerned. Given the sharp variance in the valuation — the Mistry family had previously valued its share in the group at Rs 1.75 lakh crore, while the Tata group had assigned a lower value at Rs 70,000-80,000 crore — this may well continue to rankle.

With the broader legal closure, however, the Tata group can now move ahead on the strategy drawn up by its chairman N Chandrasekaran. The manner in which the saga has played out also throws up larger issues that need to be acknowledged and addressed by India Inc. These centre on the need for greater transparency in decision making and fidelity to norms of governance, strengthening the role of independent board members, assuring their “independence”, and making them more accountable. The protection of minority investors and rights of shareholders, along with the extent of corporate transparency, form an integral part of the Ease of Doing Business rankings — failure to abide by best practices will reflect poorly on the country’ standing. These gaps in governance structures in corporate houses, be they listed or unlisted, promoter driven or professionally managed, must be addressed.

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First published on: 27-03-2021 at 03:10:42 am
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