Shapoorji Pallonji (SP) Group has sent a legal notice to its directors for damages in the share pledge dispute over Tata Sons. The beleaguered SP Group is in talks with multiple lenders to raise about Rs. 11,000 crore by pledging a part of the 18.37% stake that it holds in Tata Sons.
SP Group, which is controlled by former Tata group chairman Cyrus Mistry's family, has sought explanation from Tata Sons directors on whether the alleged oppressive action that caused prejudice to a minority shareholder (SP Group) was with their concurrence.
Tata Sons moved an urgent application before the Supreme Court on September 5 to restrain direct or indirect pledge of shares by SP Group in their Rs. 3,750 crore deal with Brookfield.
According to Tata Sons, SP Group will violate several provisions of the Articles of Association (AoA) by pledging its shareholding in Tata Sons to a third party. These provisions include Article 57 (restricts the right to transfer the shares of Tata Sons), Article 58 (notice of transfer) and Article 59 (procedure of transfer).
Tata Sons further argued that in order to create such a high value pledge in this manner, without informing the Tata Sons and seeking leave of the court is in absolute derogation of spirit of the court's earlier order.
In their counter affidavit to Tata's application to block the pledge of shares, SP Group argued that there is no restriction in the AoA of Tata Sons against pledge of shares. It stated that Tatas had failed to disclose a crucial fact that the lending documents entered into by SP Group had a specific covenant that lenders would comply with the AoA of Tata Sons in the event that a pledge of shares were ever invoked. The SP Group slapped a notice for damages against the board members of Tata Sons, for blocking Mistry family's fund raising against the shares of Tata Sons.
The SP Group also said that the AoA prevents transfer of shares and not creation of encumbrance. It said that the move by Tata Sons was aimed at causing "irreparable damage" to SP Group during the Covid-19 pandemic.
According to experts, SP Group should be entitled to pledge their shares under the present circumstances. The lenders are presumably put to notice on Tata Sons' right of first refusal in the shares as described in the AoA. The lenders' pledge enforcement rights will be circumscribed by SP Group's obligations under the AoA.