Tatas now free to pursue growth opportunities – The Economic Times

Clipped from: https://economictimes.indiatimes.com/news/company/corporate-trends/tatas-now-free-to-pursue-growth-opportunities/articleshow/81714088.cms?utm_source=ETTopNews&utm_medium=HPTN&utm_campaign=AL1&utm_content=23Synopsis

The decision will also pave way for both Tata Sons and Tata Trust to nominate new members to their respective boards. While the judgment is regarded by experts as being decidedly in favour of the Tata Group, it has offered some leeway to the SP Group, they said.

The Supreme Court verdict will allow the Tata Group to better focus on its businesses and pursue growth strategies as key uncertainties relating to minority stakeholder, the Shapoorji Pallonji Group, have been addressed. Several key projects are now expected to be approved, said people with knowledge of the matter.

The decision will also pave way for both Tata Sons and Tata Trust to nominate new members to their respective boards.

While the judgment is regarded by experts as being decidedly in favour of the Tata Group, it has offered some leeway to the SP Group, they said.

The Supreme Court has given the SP Group led by the Mistry brothers room to pledge shares or even transfer them to raise funds, some lawyers said, pointing to the dismissal of Tata’s interim application seeking to restrain them from doing so.

A lawyer close to the SP Group said the Supreme Court has protected the economic interests of the group. “We are free to pledge or transfer the shares as all restrictions imposed on us have also been dismissed,” he said.

Legal experts close to Tata Sons however told ET that the pledged shares and the valuation of SP Group’s 18.4% stake are separate legal matters that will be closely examined later.

“The valuation of shares of the SP Group depends on the value of the stake of Tata Sons in listed equities, unlisted equities, immoveable assets etc., and also perhaps the funds raised by the SP Group on the security pledge of these shares,” the court order said. “Therefore, at this stage, and in this court, we cannot adjudicate on the fair compensation. We will leave it to the parties to take the Article 75 route or any other legally available route in this regard.” Article 75 of the Tata Sons Articles of Association effectively give the holding company right of first refusal on shares.

The Supreme Court has relied on provisions in English company law to decide that powers under Article 75 cannot be curtailed simply because there is a possibility of misuse and oppression, said Ashish K Singh, managing partner of law firm Capstone Legal.

Tatas Now Free to Pursue Growth Opportunities

“The court has not expressed any opinion on the shares which have already been pledged by SP Group,” said Singh. “In its conclusion, the court has given liberty to both Tata and SP Group to approach NCLT (National Company Law Tribunal) for adjudication of disputes arising out of Article 75. In my opinion, this will lead to another round of litigation between the parties on the fair valuation of shares and the scope of the articles of association.”

The SP Group had sought separation from Tata Sons and demanded a substantial valuation for its 18.4% shares. Tata Sons had rejected the demand.

The SP Group had valued its stake at Rs 1.75 lakh crore while Tata had put it at about Rs 60,000 crore.

Tata Sons will strictly go by YS Malegam’s valuations and not what’s sought by Mistry family, said one of the persons cited above.

Tata Sons has been cautious about finalising several businesses and funding plans, including a possible Air India acquisition and new initiatives in digital, medical diagnostics and electronics.

Several group officials told ET that decisions were waiting for approval as Tata Sons had been distracted by the court case. Key growth projects are expected to get the nod now. “That was a huge distraction in terms of the kind of focus and detailing of facts required,” one of them said. “The issue of pledging of shares and valuations will be something that will be taken up separately.”

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