While Ratan Tata’s return to the helm of affairs at the Tata group is completely above board, the ouster of Cyrus Mistry could point to corporate governance issues that are yet to come to light.
JN Gupta, MD at proxy advisory firm Stakeholders Empowerment Services, said, “As per the securities market regulator SEBI’s listing obligations and disclosure requirements, the change in management did not need any public disclosures because Tata Sons, of which Cyrus Mistry was Chairman, is not a listed company.”
“But in perspective,” he went on to elaborate, “The question is why such a sudden decision has been taken. If you want to replace him, you could have said we’re looking for a replacement. The (abrupt) announcement led to questions being asked.
Logically speaking, there is something more serious (happening there than) that what has come out. If I was a board member of Tata Sons, I would never have agreed to this. So the million dollar question, what is hidden, what is not in the public domain? And is that a corporate governance concern for a group company?”
Shriram Subramanian, MD, InGovern, also voiced a similar view. ““The lack of any explanation is the biggest corporate governance issue, and this has a cascading effect on the operating companies. For instance, group company CEOs were asked to write to the board asking for the Chairman to resign. Minority shareholders should know why this happened. I think the reasons for his replacement must have been explained.”
Gupta also found the fact that Ratan Tata called a meeting of the group company CEOs troubling. “Can I call all the CEOs to discuss with me (about their performance). What right does Ratan Tata have that other shareholders don’t?” Gupta asked.
Sanjay Buch, Partner, at law firm Crawford Bayley and Co, said that the process of replacing Mistry seems in accordance and in compliance with the Articles of the Company hence, valid. “Cyrus Mistry’s legal options to contest the decision by the board of Tata Sons will be based on “violation/ adherence of various rights of the shareholders contained under various Shareholder Agreements or Trust Deeds, as the case may be. Being a Company Law issue, NCLT has all the powers to entertain shareholder disputes under the Companies Act, 2013. However, a civil suit for Declaration may also be filed in the City Civil Court or the High Court, if the claim for damages is over Rs 1 crore,” Buch said,
However, he added, “If there is an Arbitration Clause in the shareholders agreement, the matter cannot be heard by NCLT or the High Court except for interim or protective reliefs. A dispute under the Trust Deeds cannot be resolved through arbitration in my opinion”
On Tuesday, in order to prevent Mistry from getting any ex-parte relief from any legal forum, Tata Sons and a Tata Trust, among others, filed caveats that they should be heard before grant of any relief to Mistry.
“Investors of the listed operating companies need not be unduly worried,” Subramanian of InGovern said. “It will be really sad, however, if this becomes a legal battle. We don’t know the reason why Mistry was removed. It shouldn’t end up as a case of the group washing dirty linen in public.”