Tata group loses court case in India’s biggest corporate feud

Bloomberg

Tata Sons Ltd suffered a shock defeat as an Indian court ordered it to reinstate the chairman it fired in 2016, a ruling that may paralyse the $110 billion conglomerate’s plan to revive growth by selling assets, finding new partners, and cutting costs.
An appeals court on Wednesday said former chairman Cyrus Mistry was improperly ousted from the Tata Group by Ratan Tata, chairman emeritus of the conglomerate, whose actions, the court said, were “oppressive.” It restrained Ratan Tata and his representatives from taking any decision that would require a majority decision by the board of Tata Sons.
Tata Sons, the holding company of the group that also owns the luxury Jaguar and Land Rover brands, has four weeks to appeal the ruling.
The verdict will prompt Tata Sons Chairman Natarajan Chandrasekaran and other leaders to focus on stymieing Mistry’s return. That may jeopardise plans including Jaguar Land Rover’s attempts at finding partners to share the burden of investing in electric vehicles, and Tata Steel Ltd.’s plans to cut 3,000 jobs at its European operations.
“There will be a serious bout of concern and volatility for the group as a whole because many of the large companies are on the cusp of taking some very important decisions,” said Ajay Bodke, chief executive officer at Prabhudas Lilladher Portfolio Management Services. “The current management will not be able to move an inch as far as these decisions are concerned.”
Shares of Tata Motors Ltd fell the most since October 25 after the verdict.
Mistry was ousted as chairman of Tata Sons in October 2016, about four years after he had taken over the position from Ratan Tata. He turned to the National Company Law Tribunal to overturn the dismissal and, following an unfavorable ruling, appealed seeking to expunge disparaging remarks against him in the original order.
Mistry said the outcome of the appeal is a vindication of his stand taken when the board of Tata Sons, without warning or reason removed him, first as the executive chairman, and subsequently as a director of Tata Sons.
Tata Sons, in a statement, said that it “strongly believes in the strength of its case and will take appropriate legal recourse.”
“While this is bound to be contested in the highest court, the legal battle will be negative for investors in the near term,” said Dharmesh Kant, Mumbai-based head of retail research at Indianivesh Securities Ltd. “The order is extremely disturbing for the Tata Group as it raises questions on their corporate governance.”
The National Company Law Appellate Tribunal on Wednesday ruled that the appointment of Chandrasekaran as chairman was illegal. The court also ordered that Tata Sons be classified again as a publicly held company, giving minority shareholders more autonomy to sell its shares.
“It is not clear as to how the NCLAT order seeks to over-rule the decisions taken by shareholders of Tata Sons and listed Tata operating companies at validly constituted shareholder meetings,” Tata Sons said in its statement.