In a surprise move on Tuesday, the Mistry family-led Shapoorji Pallonji ( SP) group said that it has decided to exit its decades-long partnership with the Tata group, hinting at a potential sale of its 18.4 % stake in Tata Sons that could mark and end four years of acrimonious courtroom battles fought between the two sides, which erupted after Cyrus Mistry’s unceremonious ouster as Tata group chairman in 2016.
In a statement on Tuesday evening, the SP group said that it believes that a separation of interests would best serve all stakeholder groups. “ The current situation has forced the Mistry family to sit back and reflect on the past, present and possible future for all stakeholders. The past oppressive actions, and the latest vindictive move by Tata Sons that impact the livelihoods of the wider SP Group community leads to the inexplicable conclusion that the mutual co-existence of both groups at Tata Sons would be infeasible” the SP group said.
The SP group’s announcement came after Tata group on Tuesday offered to buy Mistry family’s stake in Tata Sons Limited at the current market value- making its stance public for the first time since tussle broke between the two sides.
In private, however, the Tata group is believed to have offered to buy out the Mistry family stake on several occasions. On Tuesday senior advocate Harish Salve appearing on behalf of Tatas told a Supreme court bench comprising Justice S.A. Bobde, Justice A.S. Bopanna and Justice V. Ramasubramanian that Tata Sons, which is majority-owned by a clutch of philanthropic trusts is willing to buy Mistry’s family entire stake in the company, the group holding company to help it tide over its current liquidity crisis to avoid any potential debt default.
The Supreme court was hearing a plea by Tata Sons, wherein it has challenged Mistry’s family move to pledge its stake in Tata Sons to lenders to raise urgent funds to meet upcoming repayments in both promoter and group level entities of Shapoorji Pallonji ( SP) promoted by the family.
In an interim relief to Tatas on Tuesday the apex court ordered a status quo for four weeks on any transfer or pledge of shares or any further action on the pledge already created, listing the matter for next hearing on 28 October. The interim ruling by the effectively blocked SP group’s ability to raise funds against these shares until further court orders. “The SP-Tata relationship spanning over 70 years, was forged on mutual trust, good faith, and friendship. Today, it is with a heavy heart that the Mistry family believes that a separation of interests would best serve all stakeholder groups” the SP group said further in its statement.
The Mistry family through its two investment firms – Cyrus Investment and Sterling Investment hold a 18.4% stake in Tata Sons. Rest of the shares are held by the Tata group through the Tata Trust and group companies. Mistry firm – Cyrus Investment, had been pledging these shares to raise funds.
The Mistry family pegs the value of its shareholding at current market value at ₹1.5 trillion. On September 17 Mint had reported that Shapoorji Pallonji group had missed a deadline to repay dues to group company Sterling and Wilson Solar Ltd, raising doubts about the group’s ability to service its debt amid a faltering fundraising plan.
The interim ruling by the apex court on Tuesday, has effectively blocked SP group’s ability to raise funds against these shares. A sale of Tata Sons satek could potentially solve the group’s current financial worries and also leave money on the table.
Tata Sons shares have been held for decades by the Mistry group, which has remained a passive investor for decades until recently when it used the stake as collateral to raise funds last year. Defending its right to pledge the shares, the Mistry family has argued that even after shares are pledged that it will continue to retain the ownership of shares, and that its name will continue to be reflected as a member in the register of shareholders.
However, the Tata group contended that it has the right of first refusal on the shares since Tata Sons is a private limited company, and given its character and constitutional documents, its shares cannot be transferred unless approved by the board of Tata Sons. Pledge of these shares creates rights in favour of these foreign investors and banks, which has been vehemently opposed by the Tata group.
