Saturday , May 15 2021

Tata end vs service?



As the Tata and Shapoorji Pallonji groups await the final SC ruling on their proposed separation on 8 December, an insight into the decades-old partnership

Earlier this week, it seemed as if a four-year trial between the Tata and Shapoorji Pallonji groups had reached its conclusion in the Supreme Court. It was not.

On December 8, when the last meeting is likely to take place, we can see that one of the longest-running business partnerships in the country will come to an end, as the SP Group and Tatas pave the way for complete separation. SP, which owns 18.37% of the shares of the Tata group holding company Tata Sons, wants to distribute the group’s assets and liabilities proportionally. They have calculated that the value of their shares is 1.75 thousand lats. The Tata group gives shares a much lower value.

The centuries-old relationship began to emerge after the dismissal of Cyrus Mistry, the Shapoorji Pallonji Group, the largest construction company, as chairman of Tata Sons in 2016. Repeated pushing of the issue in court, the National Company Law Tribunal, its Appellate Body and then the Supreme Court, in addition to the auxiliary cases of the Bombay High Court, have shaken stock prices and investor confidence. Many business leaders, who are well acquainted with both groups, also end up in the middle of it. The mirror addressed several of them, but they declined to comment for fear that they would be seen as on the side.

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The Tata-Mistry case has raised some interesting questions the rights of minority shareholders, corporate governance and independence of directors. The answers to them have been elusive, perhaps because of their subjective nature. Mistrys, meanwhile, which owns the majority of Tata Sons’ individual shares, have shown interest in selling them. The Tata group has approved this action in court. In fact, it has even asked occasional questions to see if it has no private or sovereign investors.

“The exit of the SP group will end in Tata mode,” says Amit Tandon, CEO of Iias, a firm of authorized consultants. “This has been a cooperative shareholder who has had the philanthropic approach of Tata Sons for years. Even if this shareholding is restructured, Tata Sons will have to experience much higher control and accountability for the profits and profits of the group’s companies. For decades, the Tata Group has invested in companies that they believe will continue science and prosperity in India, overcoming profits. The SP Group has been a supporting shareholder. Its stock buyer may not be.

However, closure on this issue will at least give peace to the warring parties. “This means that the bandwidth that both groups spend on litigation will be available for more productive purposes,” said Shailesh Haribhakti, a prominent auditor who runs the same firm. In a world where the two companies are separated, Haribhakti believes that the two are creating a thriving “world-class business”.

File photo of Pallonji Mistry and his family, including young Cyrus (right)

File photo of Pallonji Mistry and his family, including young Cyrus (right)

However, in the peculiar folds of Indian financial capital, these public disagreements are likely to be delayed. The disintegration of Mistry and the long-standing partnership between the two prominent business houses that dominated Mumbai cast a long shadow. Mistry was appointed chairman of Tata Sons just four years ago. He was advertised as the son of Ratan Tata never was. Until Mistry left, little was known about the internal struggle the two leaders faced shortly after Ratana Tata’s last day in office. Going forward, if Tata had selected one of the other 14 other candidates for the presidency, it would probably have caused a lot of heartache for both sides.

Cyrus Mistry saw him leave Bombay House shortly after he was shot down in 2016

Cyrus Mistry saw him leave Bombay House shortly after he was shot down in 2016

Both groups are linked not only by a business association, but also by family and community ties. Tata’s half-brother Noel Tata is married to Cyrus Mister’s sister Aloo. And both Tata and Pallonji service are the leading lanterns in the Parsi community, which, like many business leaders in Mumbai, inadvertently fall into hatred. “It’s so unfortunate in our small community that there is such a bad clash,” says a senior Parsi lawyer. “At least when it ends, we’ll stop reminding it. It seems that the community’s personal associations with the Tata Group are slipping, allowing for a professional activity that is usually more business-like,” he adds. Perhaps it’s a new way of doing business multinational company, the lawyer admits.

It was in the early 1920s that the two groups first came to each other’s attention. After the construction of a reservoir that was transformed into Hanging Gardens, just off Mumbai’s arterial Peddar Road, the Mistry family accepted government orders to build roads, army barracks, ammunition units and hospitals. FE Dinshaw, a prominent financier at the time, appointed Shapoorji Pallonji Mistry (grandfather of Cyrus Mistry) to build a luxury villa. Impressed by the work, Dinšovs then introduced the construction entrepreneur to another company he supported – the Tata Group.

Tatas had secured two plots of land in the south of Mumbai at the time and was looking for someone to build a corporate office for them. Without much hesitation, Mistry shipped the order and built the iconic Bombay House, which is still the headquarters of the Tata Group. This order started the cycle. In the following decades, as the SP Group began to redefine the Mumbai skyline with its prominent towers, it also deepened the sellers’ partnership with the Tata Group. In the late 1930s, Tatas commissioned a green rural town for his chemical business in Mitapura, and the SP group took responsibility. In addition to the factory floors, the construction included residential areas, cement and a power plant.

The construction group also acquired equity in the investment company Dinshaw. Tata Sons had pledged part of its profits to the company, which had once saved Tata’s steel and electricity business from bankruptcy. In the end, the SP group bought the company in full, making it an indirect shareholding. However, it was not until 1965 that it acquired shares in Tata Sons, when the Tata Group found itself in a strange situation.

JRD Tata’s sister moved and she had to liquidate her six percent stake in Tata’s sons to raise funds for her new life. At that time, JRD was the chairman of the group. It is not clear why he did not buy his sister’s shares himself. But it was at this time that the SP group was directed to buy these shares, preventing strangers from entering the company. From now on, the SP group became an insider.

Tata Sons is mostly owned by charitable trusts, but the SP group saw value in it. Over the next decade, the group made two more deals. Once from DRD Tata and the second time from one of the charity trusts. As a result, the SP Group became the company’s largest individual shareholder.

It was a surprise to the then President of JRD Tatai. He was probably excited enough to call for a change in Tata Sons’ articles of association or the company’s founding principles. Until then, the admission of a new shareholder required the consent of the board of directors, and the existing shareholders were free to trade the shares among themselves. In 1974, the rules were changed so that shareholders would also have to notify the Board of Tata’s sons of their transactions. The SP group did not dispute this. Since then, they have remained silent partners with about 17% of Tata Sons. After the rights issue in the 1990s, the rate rose to current levels.

In 1991, Ratan Tata came to the helm of the Tata Group and with him strengthened the status of the SP Group in the organization. Anecdotal recollection seems to suggest two reasons. Because they belonged to the same community, Ratan Tata and Pallonji Mistry (Cyrus’ father) shared social circles and some that grew up in landmarks. When Ratan Tata was nominated as chairman, he was inadequate, and many of the old guards resisted. As a board member and friend, Pallonji Mistry became his notable supporter. The faceless but instrumental role that Pallonji played in Tata’s ascension and other decisions earned him the title of “Phantom of the Bombay House.” After spending almost two decades Tata Sons board, Pallonji retired in 2004. Less than two years later, Ratan Tata invited his son Cyrus to fill the position.

Unfinished Mithapur

Unfinished Mithapur

So when Mistry was nominated as a successor to Ratan Tata, it was a surprise, but also with a sense of deja vu. The mistrust is still a point of discussion, but by February 2013, just two months after Ratan Tata handed over the government to the ministry, he thought it was a “clean break” from his presidency, he began to question Cyrus Mystery’s conflict of interest. This led to a rough, increasingly intense exchange between the two men about disclosure, transparency and even management effectiveness.

What Mistry saw as simplifying the company’s structure and reducing debt was seen by Tata as an attack on his legacy. For example, the sale of Tata Steel’s loss-making British business and an expensive settlement with Tata Telecom’s Japanese partner NTT Docomo – it was all done on a Mistry watch. “Today’s actions become tomorrow’s history. And the past cannot be blamed forever. What is happening around is happening around you, ”wrote Tata Mistry in her April 2016 report. Mistry replied, “I can’t look over my shoulder all the time and worry that you might misunderstand the tremendous respect you have. ”

Then came the renewable energy part of Wales. It was large, worth 9,000 million kroons. And the Tata Trusts, run by Ratan Tata himself, felt it was included too late or would provide because the information was buried in large documents. Mistry considered that adequate information was shared and approval was expected. Decorum in the courtroom broke down. During the debate on how to document this, board members approached Ratana Tata to seek his guidance. This seems to be the starting point when Tata recovers his group from service. (The mirror approached both groups for comments, but they declined, saying the matter was subject to a court ruling).

Four years later, speculation about financial fraud or other corrupt practices is exaggerated. However, this has led the group to separation. Will Mistrys really sell its capital to the Tata Group? Only time will tell. It has too few cash-rich, interested buyers. Even if Tata Sons paid money to sell shares in a group of companies such as Tata Consultancy Services (TCS), it would earn quite a penny.

Zulfiquar Memon, managing partner of MZM Legal, which has handled some of the criminal cases following the Battle of Tata Mistry, says: “The separation of the two groups is a good step forward, as the bad relationship had cast a shadow over trust on both sides. In the heat of the day, corporations tend to sue their opponents excessively. But many of these cases have to be settled out of court and without a material outcome. Case diversity is a means to gain leverage during reconciliation. “A clear direction – either from the court or from the parties themselves – can promote a smooth divorce,” says Haribhakti. But two days before the last meeting, it is difficult to predict whether there will be a quiet, bloodless exit or another storm. For the time being, both groups claim that their roads are free of this baggage, whatever the outcome.

Gupta is the author of the book Tata vs service: Fight for India’s Largest Business Empire


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