Tatas reject Shapoorji Pallonji Group’s share-swap separation proposal, call it ‘nonsense’

File image of the Supreme Court of India. PTI

New Delhi: The Tatas in the Supreme Court on Thursday opposed as “nonsense” the Shapoorji Pallonji Group’s proposal that its 18.37 percent stake in the Tata Sons, which it claims to be worth Rs 1.75 lakh crore, be swapped with the shares in the Tata Group’s listed companies.

The share-swap separation proposal of the SP Group was rejected by the Tata Group before a bench headed by Chief Justice SA Bobde which is hearing the final arguments on the cross-appeals filed by Tata Sons and Cyrus Investments against appellate tribunal NCLAT’s order.

The NCLAT had restored Cyrus Mistry as the executive chairman of the over $100 billion salt-to-software Tata conglomerate. The SP Group is seeking pro-rata shares in Tata Group’s listed companies in lieu of its 18.37 stake in Tata Sons Private Ltd (TSPL), the holding company of group firms.

“It is nonsense. This kind of relief cannot be granted,” senior advocate Harish Salve told the bench, which also comprised Justices AS Bopanna and V Ramasubramanian. He said that accepting such an offer could spill over to other Tata Group’s listed firms where the SP Group would be again holding minority stakes.

On the third day of the hearing, senior advocate  A Sundaram, appearing for Cyrus Investment, commenced submissions after Salve concluded his arguments.

Sundaram referred to legal provisions and said, “The whole conduct by which Tata Sons was made a private limited company showed that minority shareholders (SP Group) was being sidelined.”

“The act of converting the company from public to private was to prejudice me because the protection afforded by virtue of being public were taken away”, he said.

The bench then sought to know, “You will have to show us what were the precise actions which caused prejudice or oppression to you (SP Group).”

Sundaram said that justifiable loss of confidence in the management or exclusion from management in a quasi-partnership are grounds for winding up of a company on just and equitable grounds. He referred to the long past association of the SP Group with the Tatas and said that Tata Sons is just an investment company which does not do any business on its own, but its directors take decisions for the downstream group firms.

Dealing with the reason for the feud between Mistry and Tata Sons, he said, the whole thing came to a head because Mistry was going to table a corporate governance document which proposed to regulate the Tata Trusts’ say in the Tata Sons so that two nominee directors don’t decide everything for group companies.

“The problem is anything done by any group companies like TCS or Tata Motors is finally decided by the Tata Sons,” he said, adding that usually such decisions are taken by the board of the company concerned. “If these companies want to take a decision then Tata Sons has a role to play in these decisions,” he said.

The bench asked: “I hope Mr Cyrus is not party to any of the communications with regard to operation of these companies.” Mr. Salve said that he was party to many of these decisions. The bench asked the SP group to give a list, if any, of decisions where the directors of Tata Sons had taken such decisions for Tata group firms listed with stock exchange.

“If you are a board managed company but the company is being run by the two nominee directors of Tata Sons, then what is the point of even bringing the matter to the Board,” Sundaram said, adding that the Tata Sons is effectively not a board managed company.

To this, the sought to know if SP group ever lost money or investment in Tata Group companies or is there any such allegation that companies made losses and the owners made monies.

“Siphoning of money by some persons is not my case and the relationship between Tatas and and the SP Group was of mutual trust,” the lawyer replied.

“A company being a profit-making company is not a criteria for deciding whether there is oppression or mismanagement,” Sundaram said, adding that under the law, the issue is whether the affairs of a company are being run in a manner which is prejudicial to members or public interest or interests of company itself. “It could mean any act which leads to loss of confidence in the manner in which company is being run,” the lawyer said.

On being told by the bench that the term oppression was being used in a wider sense by the SP Group, the lawyer said, “Unfair treatment to the minority shareholders is also an act of oppression under the law.”

“The entire case is of oppression by Tata Sons to SP group and downstream companies get affected if the two nominee of the Tata Sons take a wrong decision for them,” Sundaram said.

Earlier, Salve had referred to the Articles of Association and other relevant documents and said there should be an affirmative vote by the majority in the board of directors to appoint a director and the resolution has to be carried out with the majority support.

The bench asked if the court can examine whether an act of an amendment under the Article of Association was oppressive.

“The content of the amendment can be challenged only if it is of such nature that it alters the basic foundation of the company,” Salve replied. “Is it like a basic structure doctrine?” the bench asked. Salve replied in affirmative.

The hearing will continue on Monday.

Earlier, the Tatas had told the court that the valuation of 18.37 percent shares owned by the SP Group in Tata Sons is between Rs 70,000 crore and Rs 80,000 crore. The SP Group said however that it was worth Rs 1.75 lakh crore.