TATA’s Corporate Feud gets Murkier

The Battle for the control of the TATA Group of Companies just got murkier with the tussle between the stalwart Ratan Tata and evicted Chairman Cyrus Mistry having entered the third month. The preceding events saw the division between the companies in favor of and opposing Mistry’s candidature become wider. While most of the enterprises in the Group like Tata Steel have backed the ouster of Mistry; others like Indian Hotel Company and Tata Chemicals have backed his being at the helm of affairs. The quintessential aspect of the corporate scuffle will be the decision taken at the Extraordinary General Meetings (EGMs) scheduled in the month of December. It is set to adversely impact the TATA Sons’ image as being India’s most trusted conglomerate.

Allegations of Corporate Governance

The former Chairman of the Tata Sons sent an email to the board of the company and alleged fraudulent transactions on the part of the previous Chairman Ratan Tata. He accused Tata of unethical practices and conflict of interest during his stint as the Chairman. In pursuance of the serious allegations of flouting of the Corporate Governance norms, Securities and Exchange Board of India (SEBI) asked the stock markets to write to the Tata Group of Companies and peruse the transactions for want of non-compliance with the listing regulations of the Board.

It directed the audit panel of the Tata Sons to conduct an impartial probe in this matter on 1^st December. It is pertinent to note that serious claims made by Mistry as regards the involvement of Corporate Governance departures have adversely affected the largely angelic image of the Tata Sons, hitherto unheard of being associated with such ignoble corporate misfeasance.

Tata Sons accused Mistry of Weakening Group Structure

The feud took an ugly turn when both the groups (Tata Sons Management and Cyrus Mistry) were engaged in an unceremonious war of words. On 11^th December, the Tata Sons contended that Cyrus Mistry had weakened the management structure of the firm. It also accused Mistry of misleading the selection committee which was set up for choosing the Chairman in the year 2011. He was also charged with retracting on his promise of distancing himself from the Shapporji Group of Companies, thereby raising the doubts of conflict of interests. Mistry is also blamed for concentrating all power in his hands by systematically trying to reduce the representation of the Tata Sons on the executive boards of the Tata Group of Companies. It pointed out that Mistry had in 2015 changed the Governance Guidelines Framework of the Group. As per the amended Guidelines, an employee must, upon his resignation from the Tata Sons quit from the non-executive membership of other Tata firms as well. It thus, contended that in pursuance of the above norm Mistry must himself quit from the post of Director of the Tata firm voluntarily. In an unpreceded instance of mudslinging, Mistry retaliated by saying the conduct of Ratan Tata had led to the erosion of the core values of the Tata Group. While accusing Ratan Tata’s actions of maligning Tata Sons’ reputation, he said that the allegations against him of power concentration were baseless. He even contested that the management of Tata Sons had not been able to furnish any reasonable cause for his ouster even after seven weeks from the 24^th October decision.

Mistry removed from TCS’s Board

The streak of the removal of Cyrus Mistry from the Board of Directors of the Tata firms continued with him being unseated from his post of Director of Tata Industries on 12^th December. It is important to note that prior to him being shown the door at Tata Industries, he was also the chairman of the company. He also ceases to be the chairman as the majority at the Extraordinary General Meeting favored his removal. It was followed by Mistry being evicted from Directorship of Tata Consultancy Services (TCS). The expulsion of Mistry from the Board of TCS was an easy maneuver for the Tata management as the Tata Sons owns a whopping 73.26% stake in the company. It also secured a major fillip for the Tata management as the question of TCS Directorship was vital for strengthening Mistry’s claim of his removal from Tata Sons’ Chairmanship being unjust.

Wadia filed Defamation Suit against Tata Sons

The corporate battle got even more complex when NusliWadia, the Chairman of the Wadia Group filed a Rs.3,000 crores defamation suit against the Tata Sons. Wadia has been one of the few supporters of Cyrus Mistry who had come at loggerheads with the management of Tata Sons since the removal of Mistry. Mr. Wadia filed the said suit due to the notice issued by the Tatas to remove him from the Directorship of the Tata Group companies. Wadia who was been on the Board of Tata Steel, Tata Motors and Tata Chemicals till 24^th December took the notices to be damaging his reputation. He also stated that the allegations levied against him by the Tata Sons were unsubstantial, false, motivated and defamatory in nature. He said that he being an independent director, had the right to raise the questions against the management because the companies have been recording substantial losses. In the course of a fortnight, Wadia was removed first from the Boards of Tata Steel and Tata Motors, which was succeeded by his departure from being a Director of Tata Chemicals on 24^th December. The ousted Director is expected to take legal recourse for seeking justice from the courts.

Mistry Initiated Legal Action against Tata Sons

The former Chairman of Tata Sons, Cyrus Mistry on 19^th December surprised everyone by announcing his resignation from the Boards of Tata Motors, India Hotel Company, Tata Power and Tata Chemicals. He had been in the recent past involved in a fierce tussle with the management of Tata Sons over his being removed from the Directorship of the Tata Group of Companies. He said that he had quit voluntarily in the best interests of the companies, but would continue his quest for justice. He then, on 20^th December filed a suit in the National Company Law Tribunal (NCLT) against the Tata Sons alleging oppression and mismanagement. He said that he had decided to shift gears and take legal recourse for upholding the virtues of rule of law and equity. The Tata Sons responded that it had maintained the highest standards of corporate governance in all its transactions and termed the outcome as unfortunate. On 21^st December, Mistry filed a plea for interim relief before the NCLT for restraining Ratan Tata, the present Chairman of Tata Sons from attending meetings of the Tata companies. He also sought that the Tata Sons be restrained from removing Cyrus Mistry from the Directorship of the companies. He prayed before the Tribunal for directing the Tata Sons not to issue any securities which resulted in adversely affecting the paid up capital of the petitioner. The Tribunal, however, refused to hear the plea and gave time to Tata Sons to file its reply to the petition.

Tata Sons Sued Mistry for Breach of Confidentiality

The Boardroom drama took a drastic turn when on 27^th December, the Tata Sons sued its former Chairman Cyrus Mistry of breach of confidentiality rules. It accused that Mistry compromised the secrecy of the company documents by making the sensitive data public pertaining to board meetings and financial information. The legal notice served by Tata Sons alleged that Mistry had deliberately attached the vital confidential information of the conglomerate to his petition submitted to the National Company Law Tribunal. It contended that Mistry acted in complete violation of the confidentiality undertaking to the Tata Sons and had infringed the Tata code of conduct. The Tata Sons also asked Mistry to return all the classified papers in his possession relating to the company. In its legal notice dated 29^th December, Tata Sons demanded Mistry to sign an undertaking within 48 hours that he will not disclose any sensitive information of the company in the future. The notice alleged that Mistry had wrongfully and dishonestly taken the sensitive information out of the company premises without the consent of the management. Mistry responded that the notice was a mere request by the Tata Sons and he would respond only in the court of law.

What happens in 2017?

The corporate battle between the management of Tata Sons had badly affected the reputation of the Tata Group. The feud had seen the level of a slugfest to hit an ebb when the management of Tata Sons and Mistry were locked in a filthy war of words and cross allegations of corporate governance violations. It was followed by NusliWadia slapping a defamation suit against Tata Sons for removing him from the post of Director of the companies. The former Chairman, Cyrus Mistry also took legal recourse and filed a petition before the National Company Law Tribunal accusing Tata Sons of oppression and mismanagement. Ratan Tata had on 24^th December termed the legal suit as a move to tarnish his personal reputation and that of the Group as well. He also thanked the shareholders for their gratitude and continuous support to the Group. In response, Tata Sons gave a legal notice to Mistry to not disclose the confidential information of the company and return the documents in his possession. On 30^th December Ratan Tata acknowledged the prodigious support of the employees of the Tata Group and called the Boardroom tussle to be a wilful and well-orchestrated attempt to subvert the core values of Tata Group. The outcomes of the legal suits filed by Mistry, Wadia and Tata Sons would take the time to fructify, but the imbroglio has definitely dented the aura of trust and holiness associated with the Tata Group. It will be in the best interests of one of India’s oldest and most trusted conglomerates that the differences between the top brass are amicably settled rather than pursuing the current legal recourse, the outcome of which is bound to get filthier and ignoble.