All Rights Reserved Finance News 2020.
Mistry Group: Tatas blocking share pledge vindictive, to cause irreparable damages
Mumbai: The Shapoorji Pallonji Group that owns 18.37 per cent in Tata Sons on Friday said the Tatas moving the apex court to block its plan to pledge shares for raising funds reeks of vindictiveness and oppression of minority shareholder rights. On September 5, Tata Sons had moved the Supreme Court seeking to restrain the Mistry group from raising capital against their Tata Sons shares. Through the petition, the Tatas have sought to prevent the SP Group from creating any direct or indirect pledge of shares.
The SP Group was planning to raise Rs 11,000 crore from various funds and had signed a deal with a marquee Canadian investor for Rs 3,750 crore in the first tranche against a portion of its 18.37 per cent stake in Tata Sons.
The SP Group’s shareholding in the country’s largest business house is valued at over Rs 1 lakh crore.
Tata Sons acted just one day after the SP Group signed a definitive agreement with the investor.
“This vindictive move by Tata Sons (to block pledging of shares) is solely aimed at creating delays and roadblocks in the fund raising plan, and will jeopardise the future of 60,000 employees and over 1 lakh migrant workers of various SP Group entities,” an SP Group spokesperson told .
The move is also intended to inflict irreparable damages on the group, the spokesperson said, adding it will vigorously contest these claims in the Supreme Court.
The group also said these actions are a departure from the values and ethos of the Tata Group founders.
The current fund raising was intended to mitigate the stress caused by the pandemic, deleverage the balance sheet, support the financial obligations and protect the livelihoods of the large workforce, especially in its construction and real estate sector verticals which are hit the hardest and are also the mainstay of the group, the spokesperson said.
The SP Group further said the articles of association of Tata Sons only regulate transfer of shares, and the Tata Sons board only has a right of first refusal to buy back at fair market value the shares of any minority shareholder who is seeking to exit.
“There is absolutely no provision in the articles of Tata Sons that restrict the creation of a pledge or encumbrance,” the SP Group said.
Stating that it will challenge the Tata petition in the apex court, the spokesperson said it “will ask the Supreme Court to dismiss Tata’s application at the threshold by highlighting the settled position in law that a mere creation of a pledge on shares would not amount to a transfer of title of the shares.”
Questioning the motive and timing of Tata’s application, the SP Group pointed out that had raised funds against Tata Sons shares in January 2020.
“The security documents, which are in public domain, clearly record that lenders would comply with the articles of Tata Sons in the event they seek to enforce the pledge of shares.
“The Tatas have suppressed this vital information in their application in their desperate bid to mislead the apex court,” the spokesperson added.
When contacted, a Tata Sons spokesperson declined to comment.
In their 152-page supplementary petition against Cyrus Investment submitted to the Supreme Court on September 5, Tata Sons sought to prevent the Mistry group from “creating any charge/pledge/interest/ encumbrance on the shares of Tata Sons in any manner, either directly or indirectly and also to further direct them to forthwith remove any charge/pledge/ interest/ encumbrance created by them.”
The plea came after it was found that the Mistry camp, since January 10, had pledged almost 82 per cent of their 18.37 per cent holding in Tata Sons — first for Rs 825 crore with Axis Trustees, which was then increased to Rs 3,957 crore by April.
Then again through a letter of urgency on the same day to the Supreme Court registrar, the Tatas pointed out that when the court heard the petition on January 10, 2020, no shares were subject to any pledge, charge or encumbrance.
“It is respectfully submitted that creation of a pledge in this manner, without informing Tatas and seeking the leave of this SC, is in absolute derogation of the spirit of this court’s January 10 order, wherein the Tata voluntarily gave a good faith undertaking to not exercise their rights under Article 75 against Mistrys,” it said.
In January, the Supreme Court, while staying the NCLAT verdict reinstating Cyrus Mistry as Tata Sons chairman, had said the ‘squeeze out’ provision of article 75 of the Tata Sons’ articles of association will not be used on the SP Group.
Article 75 gives Tatas the power, via a special resolution, to squeeze out the Mistry family by buying out their shareholding at fair market value, which the NCLAT had pegged at more than Rs 1 lakh crore.
Cherag Balsara, leading advocate at the Bombay High Court and an expert on commercial laws, told that prima facie the Tatas’ move is seemingly aimed at blocking the fund-raising efforts of the SP Group during the pandemic and is an attempt to harm the company.
“This is tantamount to oppression of the minority shareholders, and can expose the board of Tata Sons to a potential claim of damages from the SP Group,” Balsara said.