Gloves come off as Mistry levels grave charges against Ratan Tata

The gloves are coming off in the corporate war between Tata Sons and Cyrus Mistry, with serious risk of long-term reputational damage to the business group, and likely regulatory intervention, following the airing of dirty laundry in public.

On Wednesday, Mistry, the recently ousted Chairman of Tata Sons, wrote an explosive letter to the company’s Board disclosing gory details of the problems within the Tata Group, including the possibility of write-downs to the tune of ₹1.18 lakh crore on five unprofitable businesses that he inherited.

‘Interference’ from Ratan Tata Mistry revealed that he had faced interference from former Chairman Ratan Tata, which left him without full control.

In the five-page letter, which BusinessLine has seen, Mistry said: “I was assured that I would be given a free hand. The previous Chairman was to step back and be available for advice and guidance as and when needed. After my appointment, the Articles of Association were modified, changing the rules of engagement between the Trusts, the Board of Tata Sons, the Chairman and the operating companies. Inappropriate interpretation indeed followed.”

The amendments created alternative power centres without any accountability, he added.

Mistry said that a number of decisions made before he took over were flawed, and indicted Ratan Tata for some of them.

“If we look at the aggregate data between 2011 and 2015 and limit the analysis to the legacy hotspots, it will show that the capital employed in those companies has risen from ₹132,000 crore to ₹196,000 crore. This figure is close to the networth of the group, which is at ₹174,000 crore. A realistic assesment of the fair value of these businesses could potentially result in a write-down over time of about ₹1,18,000 crore,” Mistry said.

“Early in my tenure... Mr Tata ushered me into his office and handed me a report on Air Asia by Bain & Co. He had concluded negotiations to partner with Air Asia and wanted the proposal tabled at the forthcoming Tata Sons board meeting. My pushback was hard but futile,” Mistry wrote, adding that he later faced a similar situation requiring him to execute a fait accompli JV with Singapore Airlines.

Ratan Tata’s “passion for the airlines sector” had led him to continue his involvement with the strategy of the two airlines, Mistry said. “It is on his advice that the Tata Sons board has increased the capital infusion in the sector at multiple levels of the initial commitment.”

₹22-crore ‘fraud’ Mistry disclosed that an investigation in Air Asia had revealed a ₹22-crore fraud involving non-existent parties.

As for the telecom business, Mistry said the original deal with NTT DoCoMo (which had been finalised by Ratan Tata) had raised several questions about its appropriateness from a commercial or prudential perspective within the legal framework.

Mistry further said the decision to price the Nano car at under ₹1 lakh was unreasonable as the costs were higher. “This product has consistently lost money... As there is no line of sight to profitability... any turnaround strategy for the company requires to shut it down. Emotional reasons alone have kept us away from this,” Mistry said. Tellingly, he added that any closure of Nano would stop the supply of Nano gliders to an entity that makes electric cars — in which Ratan Tata had a stake.

Mistry said the Tatas’ foreign acquisitions, with the exception of JLR and Tetley, had left a large debt overhang when he took over in 2012.

Further, he said the decision to dismiss him based on ‘performance’ was “unbelievable”: during his term, the group’s operating cash flows grew at 31 per cent compounded per annum, and networth increased from ₹26,000 crore to ₹42,000 crore.