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The Supreme Court’s verdict in favour of the Tatas and overruling the order of the National Company Law Appellate Tribunal (NCLAT) reinstating Cyrus Mistry as Tata Sons chairman is welcome, on two counts. It puts an end to the possibility of disruption and dysfunction in one of the country’s largest companies. Two, it upholds the right of a shareholder majority to make appointments to key managerial and leadership positions.
Since the detailed judgment is not available yet, it is not clear whether the judgment would also bring clarity as to the conditions that would justify a charge of oppression of minority shareholders, a key ground for NCLAT’s order in favour of Mistry.
Whether the Shapoorji Pallonji group would like to stay invested in the Tatas or exit on mutually agreed terms is for these parties to decide. The court has refrained from entering into how to value the shares. And that was the right thing to do. However, the sums involved — estimates range from ₹80,000 crore to more than double that amount — are large.
At this juncture, when the economy desperately needs investment to revive growth, such large amounts should go to building new infrastructure or production capacity, rather than to rejigging corporate ownership. The Pallonji group needs liquidity and seeks to pledge their Tata stake to raise money to settle their debts, a move objected to by the Tatas on the ground that the Mistrys are barred from transferring their Tata stake. It might make sense for the Tatas and the Mistrys to bury the hatchet and work out a solution that benefits both. The Tatas can afford to be generous in victory and avoid frittering away corporate energies in an avoidable conflict.
What happens to the grass when elephants fight is well-known. India Inc’s global credibility got dented when the Tatas, under Mistry, reneged, on some technicality, their obligation to make good Japanese major DoCoMo’s losses in their telecom joint venture with the Tatas. Honouring that commitment has been one notable act of the Tatas, post Mistry’s ouster.
This piece appeared as an editorial opinion in the print edition of The Economic Times.