The Shapoorji Pallonji (SP) Group which is struggling to service its debt has slapped a notice for damages against the board members of Tata Sons, for blocking Mistry family’s fundraising against the shares of Tata Sons, said a senior company official.
In the legal notice copy of which was reviewed by Mint, the Shapoorji Pallonji group questioned the board members’ complicity in the decision. They termed the move by Tata Sons to block fundraising against Mistry group’s shareholding in Tata Sons as oppressive and sought explanation that whether such steps were taken by the company in concurrence with the board.
The board members have three days to respond to the notice, failing which the Shapoorji Pallonji Group would seek appropriate remedies including a claim for damages for the harm inflicted on the SP Group, said a spokesperson for SP group.
In the legal notice the group further said that this move by Tata Sons has created a panic amongst its lenders and financial institutions and caused damage to Shapoorji Pallonji group.
A Tata Sons spokesperson declined to offer any comments.
This comes a day after Shapoorji Pallonji Group missed a deadline to repay dues to group company Sterling and Wilson Solar Ltd. The promoters ended up repaying only ₹103 crore of the ₹1,000 crore it owed to the company, the deadline for which ends this month.
On 5 September, Tata Sons had moved an ‘urgent’ application before the Supreme Court to restrain the Shapoorji Pallonji Group promoters from raising capital by pledging their shares in Tata Sons. The company had sought to prevent the creation of any direct or indirect pledge on its shares. Tata Sons argued that any pledge will amount to transfer of shares and under the company’s articles of association (AoA); the board of Tata Sons has the first right to buy the shares at fair market value.
Shapoorji Pallonji group through its two investment firms – Cyrus Investments and Sterling Investments have a 18.4% shareholding in Tata Sons.
As per the Tata Sons application, Cyrus Investments has pledged its entire 9.19% of shareholding in Tata Sons. Out of this 7.5% of their holding in Tata Sons, has been pledged with Axis Trustee for ₹825 crore in January and February this year. In April the charge was modified to secure a loan of ₹3,958 crore. An additional, 1.83% of this holding was pledged with IDBI Trusteeship for securing a loan amount of ₹1117 crore.
Tata’s in their application in the court said that these shares have a market value of ₹75,000 crore. There were clauses incorporated in the pledge document to give comfort to the lenders that the pledged shares of the private company would be transferrable in event of a default.
Mistrys filed a counter application on 7 September stating that this move was solely intended to inflict irreparable harm on the Shapoorji Pallonji Group.
“The malafide motive of Tatas move was further evident by the fact that Tatas kept their application on hold, purportedly for curing defects, despite moving a plea for urgency before the Supreme Court,” said a Shapoorji Pallonji group spokesperson.
“The sequence of events is evidently at only on objective – to put in jeopardy our client’s (Shapoorji Pallonji Group) financial closing to handle the extreme illiquidity conditions being met in these pandemic times,” said SP group in the legal notice.
“A pledge does not necessarily mean enforcement of the pledge, thereby transfer of shares. It is a settled legal position. In most situations, only about 20% of the total pledges are invoked. Even the AoA of Tata Sons prevents transfer of shares but does not inhibit creation of pledges/ encumbrance. For Shapoorji Pallonji group this is a financial asset and they are entitled to monetise it to raise funds at these times,” said Jeevanandham Rajagopal Partner, Fox Mandal, a law firm.