SC in the case of Tata v. Mistry: SP Group to break out from Tata Sons
The Shapoorji Pallonji Group (SP Group) had filed an application before the Supreme Court for expounding details matter related to separation proposal seeking division of assets and shares in the listed entities of Tata Sons.
The separation plan filed before the Supreme Court highlighted that Tata son is a company which comprises of two groups, out of which the Mistry's family stake stands at 18.4% and on Thursday filed the scheme proposing to shift its entire holding in the group holding company for equivalent shares in the listed entities of Tata Group with a pro-rata share of Tata brand value (adjusted in terms for net debt against) which would be payable by cash or by listed securities.
For unlisted companies of Tata group, the SP group sought for an independent valuation which will be payable in cash and or in listed securities. The SP group said, "A selective reduction of capital by extinguishing shares of Tata Sons held by minority shareholders by swapping them with shares of listed companies (say Tata Consultancy Services) would be a simple solution of providing liquidity to Tata companies and fair compensation for the SP group" as per sources.
SP groups back its proposal for separation in its application saying,
"By proposing this remedy the SP group seeks to propose resolution that would take care of the best interests of both shareholders and all the stakeholders of Tata Sons. A separation of interest would equitably give the SP group, as shareholders in Tata Sons, access to their proportionate share of value in Tata Sons and would not let the two warring shareholders to have to live with each other only under the fiat of a Court."
The proposed separation plan out according to SP Group is different from a buy-out under Article 75 of the Articles of Association, which provides for a compulsory transfer of shares, an intrinsically repressive measure. However, through its proposal, SP Group claimed that there are benefits for both sides. Considering there would be no evaluation dispute in a scheme for proportionate partition of assets, while the control would be retained with the Tata Group.
In each of the listed entities the Mistry family's stake would place at less than 10%, except in Tata Consultancy Services (TCS), where it is likely to be little over 13%. In addition, a "largely non-cash settlement" would also be faster to put into operation with nominal interference to the operating companies.
The appeals filed by both Tata Sons along with its various entities and Director Emeritus Ratan Tata, as well as Cyrus Mistry, against the December 2019 decision of the National Company Law Appellate Tribunal (NCLAT) through which Mistry was reinstated as the Executive Director of Tata Sons, remains pending before the Supreme Court.
The Court agreed to hear appeals by Tata and a cross-appeal by Mistry, however it had clubbed the litigation together, and will hear to its same extent.
Previously this year, the Supreme Court had also asked SP Group to maintain status quo as regards pledging of its shares in Tata Sons for raising funds. Tata Sons had opposed such a pledging on grounds of having the right of first refusal.
The Tata-Mistry dispute before the Supreme Court is likely to be taken up for hearing next on 2nd of November.