In boardroom rebellion in Tata Sons, a modern-day Greek tragedy

Apprehensions of a future change in ownership first surfaced in 1969 after the government introduced the Monopolies and Restrictive Trade Practices Act under which companies could no longer be run by a managing agency. Tata Sons, the group’s managing agency, appeared to lose its relevance as its shareholding in the group’s companies was minimal. The actual owners of most of the listed Tata companies were family charitable trusts, most notably the Sir Dorabji Tata and the Sir Ratanji Tata trusts. The snag is that under Section 153 A of the Companies Act of 1956, the charities commissioner is expected to appoint a public trustee to act on behalf of charities in corporate matters. A special exception was made for the Tatas since their holdings preceded the framing of the rules in independent India. Despite their token shareholding, thanks to the respect commandeered by former Tata chairpersons, J R D Tata and his successor, Ratan Tata, the charities commissioner never interfered in the management of Tata companies. In 2002, under the Vajpayee government, the Tata trusts’ control over the companies got formal recognition when the Companies Act was amended with Section 153 A, allowing Tata trusts to vote directly on the Tata Sons board and not through government nominees.

Though the two main Tata trusts were in a dominant position, since together they own 66 per cent of Tata Sons, a niggling thorn in the Tata family’s side was that the late construction magnate Shapoorji Pallonji Mistry had succeeded in purchasing 18.37 per cent stake of Tata Sons. Financial journalists often claim that these share transfers date back to business dealings between Shapoorji and legendary financier F E Dinshaw in the 1930s. Actually, the shares were procured much later from Tata family members. JRD’s widowed sister, Rodabeh Sawhny, sold her stake of 5.9 per cent in January 1965 with her brother’s blessings. In July 1969, the Sir Ratan Tata Trust, of which Noel Tata’s father, Naval, was then chairperson, raised funds by selling a 4.81 per cent stake to a Pallonji investment company (It is speculated that the trusts sold the shares to square up IOUs from Tata companies which were originally in the possession of Dinshaw and had subsequently been taken over by Shapoorji). The last share purchase in 1974 of 6.68 per cent from JRD’s brother Dara was without JRD’s consent and created a scare in the group since by then the MRTP Act had been introduced. The Mistry family’s shareholding in Tata Sons becomes of crucial importance in the current imbroglio since it is the largest holding by private individuals and not charities.

Understandably, Tata Sons has consistently stonewalled any attempt for public listing of its shares, since it opens a Pandora’s box and provides an avenue for outside business interests to attempt to take over this unique business house. But while the Tata trusts are not prepared to sell their stakes, in recent years, the debt-burdened Shapoorji Pallonji Mistry group has been keen to offload some of its shares. In 2021, the Supreme Court rejected the SP group’s appeal that Tata Sons buy out the SP group’s stake at a court-determined “fair’’ value on the grounds that Tata Sons was a private company and its Articles of Association contained strict restrictions governing transfer of shares.

Unfortunately for the Tatas, in 2021, the RBI introduced the concept of Upper Layer of NBFCs. It ruled that large systemically important non-banking financial companies would have to be listed within three years of being notified. In September 2022, Tata Sons was classified as an NBFC listing, setting the clock ticking towards an eventual listing requirement. The group fought to stave off what seemed to most to be inevitable.

With the managing chairperson of the group, N Chandrasekaran, now reappointed and the other board members also openly backing public listing of the group, Noel is fighting a lonely battle, though assisted by some of the best legal minds in the country. In a dramatic reversal of roles, the Tata Trusts are now keen to do business with the SP group (According to some media reports, the SP group has offered to sell 3 per cent of its Tata Sons stake for Rs 25,000 crore). In this modern-day Greek tragedy, many of the key Parsi players have close connections. For instance, Noel’s wife Aloo is Pallonji Mistry’s daughter, though the Tata shares were left only to Mistry’s two sons. One of the sons, Cyrus Mistry, died in a road accident and was ruthlessly ousted as chairman of the Tata group by Ratan, then chairman of the Tata Trusts and Noel’s half-brother.

In the long run, it is only the Modi government which can protect the Tatas from being taken over by rapacious outside business interests. In an interview, Cyrus once expressed this very fear to me. He wanted Ratan Tata to squarely lay down a corporate governance framework to spell out the role of Tata Sons, the role of the trusts and the role of the operating companies. Else, his apprehension was that after some years, the group could be lost to the wrong people. Noel also must rise above petty matters to ensure that the legendary House of Tatas survives predatory assault from multiple quarters, some hidden, others not so.

Kapoor is the author of The Tatas, Freddie Mercury and other Bawas