The Supreme Court on Friday quashed an order by the National Company Law Appellate Tribunal (NCLAT) that had reinstated former Tata Sons chairman Cyrus Mistry. Further, NCLAT’s finding regarding oppression of minority shareholders and mismanagement claims were also set aside. The order also dismissed all interim applications, including one by the SP Group seeking separation of its ownership interests in Tata Sons. Another, filed by the Tatas, seeking to restrain the SP Group from pledging or transferring Tata Sons shares was also dismissed.
“Any aggrieved party is entitled to consider its options and may take legal recourse in case it feels that by encumbering/pledging the shares, its future rights of pre-emptive purchase would be compromised or defeated, directly or indirectly,” said Abhishek Singhvi, senior counsel for Tatas.
“This matter being dismissed as part of all interim applications by the Supreme Court will require a fresh legal recourse. We are looking at all options and will finalise a plan accordingly,” said a top Tata Group official requesting anonymity.
Differences over Valuation of Mistry Stake
Officials close to the group said any dispute on pledging of shares would be decided as per company law.
Legal experts close to Tata Sons asserted that that the dispute over pledging of shares and valuations of the SP Group’s 18.4% stake are legal matters separate from the issues arising from the appeal against the NCLAT order, and these will be closely looked at later.
“We don’t see the legal strength in such plans. A lower court can’t sit in judgement over a SC order. There are no restrictions of any kind by the Supreme Court now and the SP Group can proceed as we wish,” said a person close to the matter from the SP Group.
Tata Sons and the SP Group did not comment on the development.
Last year, the Tata Group had moved the Supreme Court to block the SP Group’s plans to pledge a portion of its 18.4% stake in Tata Sons, which it has been holding for the past seven decades, in order to raise Rs 11,000 crore. Tata Sons estimates SP Group’s 18.4% stake at Rs 80,000 crore while the SP Group pegged it at Rs 1.75 lakh cr.
“The valuation of shares of the SP Group depends on the value of the stake of Tata Sons in listed equities, unlisted equities, immovable assets etc and also perhaps the funds raised by the SP Group on the security pledge of these shares. Therefore, at this stage, and in this Court, we cannot adjudicate on the fair compensation. We will leave it to the parties to take the Article 75 route or any other legally available route in this regard,” the Supreme Court said in its order.
“If the Tatas wish to seek injunctive relief to restrain the Mistrys from selling or pledging their shares in Tata Sons, a civil court would have jurisdiction. If Mistrys’ wish is to obtain a valuation this could also be ordered by a civil court. Orders passed by a civil court are subject to appeals,” said Anand Desai, managing partner of law firm DSK Legal.
He says Article 75 confers power on the company, Tata Sons, by special resolution to issue a sale notice to a shareholder to transfer his shares. “This Article doesn’t contemplate a forced sale or purchase by a shareholder. While the Supreme Court has answered several questions of law, the shareholding pattern continues. Both sides may wish to take a pragmatic approach to settle this matter.”
A lawyer close to the SP Group said the Supreme Court has protected the economic interest of the group. “We are free to pledge or transfer the shares as all restrictions imposed on us have also been dismissed,” he said.
According to Saket Shukla, co-founding partner of law firm Phoenix Legal, the Supreme Court decision has answered all questions of law in favour of the Tatas and does not seem to impose any specific restriction on the SP Group from pledging its shares. In these circumstances, the Tatas are likely to approach the appropriate court if they want to seek any relief against the Mistrys pledging their shares.
“This will be another interesting battle and if the court injuncts the Mistrys from pledging their shares then it would need to be seen how the injunction impacts Tata Sons’ powers to require a transfer of such shares under Article 75,” adds Shukla.