Another legal battle over stake valuation must be avoided
The Supreme Court’s verdict on Friday upholding the position of the Tatas brought the curtains down on one of the ugliest corporate wars in India. It was no doubt a comprehensive victory for the Tata group, as the court allowed all its appeals and upheld the right of a majority shareholder to make appointments to key managerial and leadership positions. The apex court’s scathing criticism of the Mistrys should be music to the ears of the Tatas. Among other things, the court accused Cyrus Mistry of “trying to set his own house on fire” as Tata Sons chairman and observed that such a person “does not deserve to continue as part of any decision-making body”. That there is enough merit in the judgment is evident from the court’s observation that the accusation of oppression of minority shareholders does not hold water in this case. That’s because Mr Mistry, a representative of the SP group with a little over 18 per cent stake, moved up to the topmost position within six years of his induction into the board. However, the best part of the judgment was that it put an end to the possibility of disruption and dysfunction in one of the country’s largest business groups.
The Tatas have every reason to feel vindicated as the Mistrys’ attacks on Ratan Tata’s integrity and the ethical conduct of the group have been relentless over the past few years. After all, the Mistrys had accused the top Tata management of various other things, including fraud. The Supreme Court judgment has removed the taint. But it is hoped that the Tata group, which has traditionally been held to represent the gold standard for Indian corporate governance, will not stop looking inwards after the legal victory. Steps must be taken to stop the resurfacing of damaging allegations that the shareholding trusts of a holding company with minority shares in operating companies take key decisions, bypassing the chief executives or the boards of the operating companies. This is a manifestation, essentially, of the managing agency system that was abolished half a century ago. The Tata group’s corporate structure is a similar opaque throwback, with two-thirds of Tata Sons’ shares held by trusts, and must be modernised.
Efforts must also be made by both the parties, specially the victor, to find an amicable solution to a formal separation of the two sides. The court has rightly refrained from entering into how to value the shares of the SP group, which wants to exit its investment in Tata Sons. But that might open a legal battle once again, with both parties hardening their stand on the issue. Estimates of the stake vary widely from Rs 80,000 crore (a figure arrived at by the Tatas) and Rs 1.7 trillion demanded by the Mistrys. The apex court has given it an upper hand, but the Tatas would do well to realise that frittering away corporate energies on this may not be an ideal solution at a time when there are several challenges ahead. On their part, the Mistrys have to come down from the high horse. Hammering out a deal of this size is undoubtedly a hugely complex exercise but a solution can be found if the exercise is done professionally, and away from public glare. A legal option should only be the last resort.